MARKET REPORT

Transcription

1 MARKET REPORT AND FORECAST SILICON VALLEY

2 - SAN JOSE Table of Contents JANUARY 2001 Colliers International - San Jose The Year in Review Observations & Forecasts Silicon Valley Space Summary Silicon Valley Research & Development Silicon Valley Office Silicon Valley Industrial Silicon Valley Warehouse Silicon Valley Investment Market ON THE COVER The San Jose Arena. Home to the San Jose Sharks, the arena sits on the western edge of beautiful Downtown San Jose, and across the street from the new San Jose office of Colliers International. Silicon Valley Vacancy Statistics Brokerage Profile A BOUT THE N EWSLETTER This newsletter represents the fifty-first in a series published by Colliers International. The information basis for this newsletter is the Parrish Absorption Tracking System (PATS) from which the absorption related statistics are developed and derived. PATS maintains monthly statistics within Silicon Valley for 14 cities, 31 geographical areas, and 4 commercial/industrial building types. If you desire further data in order to analyze sub-markets not specified in this newsletter, please submit your request through your Colliers International sales representative at (408) or write to Colliers International at 450 West Santa Clara Street, San Jose, California We look forward to supporting your specific needs. C ONTRIBUTORS EDITOR AND CHIEF CONTRIBUTOR: Jeff Fredericks, SIOR Managing Partner & Corporate Director CONTRIBUTING WRITERS: Jennifer Dulay - Research Manager, San Jose Greg Cioth - Investment Services DESIGN AND PRODUCTION: Colliers Graphic Services Group All information furnished in this report is from sources we deemed reliable. Colliers International makes no representation or warranty as to its accuracy.

3 Introduction 2000,What a Year! The year 2000 was a great year to be in the real estate business. Just about every owner, developer and broker around had their best year ever. Colliers International was no exception. It was a spectacular year for our sales agents and for our Company. We worked harder than ever for our clients this past year and those efforts resulted in a great deal of success for everyone. Our San Jose and Palo Alto offices alone completed transactions valued at more than $3 billion. Combined with our nine other partnershipowned offices in California, Nevada and Texas, that number swells to approximately $5 billion. As most of you know, the San Jose office relocated in June of We are now neighbors with the San Jose Sharks and the San Jose Arena, located in one of the most architecturally-elegant buildings in Santa Clara County. The Colliers International Growth Total Personnel move has been a tremendous boost for productivity, morale, spirit and growth of services. We have expanded our property management business into the South Bay, we have grown our investment sales division, and we have recently added a multi-family residential group. As has been our history, these top professionals came to us looking for a place that they could call home for the rest of their career. JEFF FREDERICKS MANAGING PARTNER SILICON VALLEY COMMERCIAL REAL ESTATE TRENDS2001 SPONSORS The Market Report and Forecast is being released in conjunction with our second Real Estate Trends Conference, Trends2001. I would personally like to thank our sponsors for supporting the Conference and for helping us deliver a superior Market Report. We are proud to have DivcoWest Group, Opus West Properties, the Redevelopment Agency of San Jose, Novell, and North American Title Company as sponsors this year. Colliers International has now produced our quarterly report for more than twelve years. Each year we endeavor to expand and refine our reporting capabilities to ensure that our data is the most credible, the most complete, and the most compelling in all of Silicon Valley. We take great pride in the integrity of our data and in the integrity of our reporting. Of course, when it comes to forecasting, we re tossing a few darts just like everyone else. But with such complete and rich information to draw from, we know that we re starting out a little closer to the dartboard than our competition. Best wishes for a healthy and rewarding 2001 and thank you for your business in 2000! JEFF FREDERICKS, SIOR MANAGING PARTNER 1

4 OCTOBER 2000 The Year 2000 in Review JANUARY 2001 January Neoforma.com, an Internet services company for the health care industry, decides to move its headquarters to 3061 Zanker Road in San Jose. The firm signs a 116,000 square-foot sublease with Seagate Technology Inc. Mentor Graphics Corporation, a leading maker of systems and software, signs a long term lease renewal for 208,433 square feet at Spieker Properties Ridder Park Drive, San Jose. Power Integrations signs a long term 118,632 square foot R&D lease at 5245 & 5265 Hellyer Avenue in San Jose. Legacy Partners is the landlord. February One of Silicon Valley s largest Integrated Circuit Testing Laboratories, ISE Labs, Inc. completes a two-building 138,590 square foot R&D lease from Cirrus Logic in Fremont. PMC Sierra, a leading manufacturer of high-speed, high density broadband communications, completes a 109,144 square foot office lease at 3975 Freedom Circle in Santa Clara. The landlord is Tishman-Speyer. Catellus Development Corporation completes the speculative buildings on Nobel Drive at Pacific Commons Business Park in Fremont. The 8.3 million square foot project lands Peak International and Alaris, Inc. as tenants. Spieker Properties receives approval for its 1.1 million square foot, multiuse project known as Skyport Plaza. The project will consist of office and retail space, two hotels, and up to 315 housing units. The first phase of the project will total approximately 575,000 square feet. Skyport Plaza is located near the new entry to the San Jose International Airport. March On March 10, Selectica, Inc. goes public and its stock soars from $30 to $ on the same day the NASDAQ closes at an all-time high of 5, Sobrato Development Companies welcomes Metricom, Inc. to River Corporate Center. Metricom will occupy 290,000 square feet of office space in two, twin 5-story buildings on Julian Street, near Downtown San Jose. Digital Microwave signs a long term commitment to lease 133,612 square feet of R&D space at Menlo Equities Rose Orchard Parkway project in San Jose. Opus West Corporation breaks ground on Opus Center, a new, speculative mid-rise office building in Downtown San Jose. The sixteenstory, 350,000 square foot building snags Deloitte & Touche to occupy 120,000 square feet. Eagle Ridge partners, out of Minneapolis, completes the purchase of two ground leases for $18 million in Palo Alto s Stanford Research Park. The two long-term leases consist of 103,000 square feet in three buildings on Page Mill Road in Palo Alto. April CarrAmerica Realty Corp. welcomes new tenants TSMC North America and Pivot Interiors Inc., to Valley Technology Centre in San Jose. TSMC will occupy 111,000 square feet in September and Pivot Interiors will occupy 22,000 square feet. Valley Technology Centre is a 461,000- square-foot office and research and development park that CarrAmerica is building in north San Jose. San Francisco-based Sagamore Equities purchases a 227,870 square foot leased investment property located at 5200 Great America Parkway in Santa Clara. The project is sold in excess of $48 million by WMP Real Estate Limited Partnership. According to the Precis Metro report, San Jose remains the leading technology center in the nation. Near-term, however, the report cites concerns of affordable housing, skyrocketing cost of office space, and ongoing consolidation of dot-coms. Siemens Information and Communication Networks Inc., announces its intention to lease 370,000 square feet in two planned towers at Spieker Properties Skyport Plaza in San Jose. Siemens has signed leases to occupy two of the 185,000-square-foot, eight-story towers in the first phase of the project and has an option to lease a third tower. May Juniper Networks, a leading provider for Internet infrastructure, expands into 122,435 square feet of office space at 1184 Mathilda Avenue. According to the Commerce Department, retail e-commerce sales rose 6.0% from the first quarter 2000 to the second. Sales climbed to $5.53 billion. Additionally, e-commerce sales are growing as a share of total retail sales and during the second quarter, comprised 0.68% of total sales. Moreover, the total volume of e-commerce is suspected to be even greater since the reported figure does not include sales of travel and financialrelated goods and services nor ticket sales. June In their mid-year forecast, the Semiconductor Industry Association (SIA) forecasts that semiconductor sales will increase in 2001 by 26.1% globally. Specific to the United States, the semiconductor market is expected to grow by 24.3% in 2000 and 24.2% in Headquartered in Santa Clara, New Focus, Inc. leases an additional 130,436 square feet of R&D space on Hellyer Avenue in San Jose. Legacy Partners is the landlord. 2

5 The Year 2000 in Review July Divco West Group, LLC, an active participant in the investment arena, purchases San Tomas Business Park and McCandless Business Park, totalling 474,977 square feet of office/r&d space in Santa Clara. CMT Holding, Inc. leases 108,060 square feet at 2070 South Seventh Street in San Jose from Chaboya Ranch Partners. Joint Venture Silicon Valley reports that the Software cluster added the largest number of new jobs (30,700) to Santa Clara County, followed by the Semiconductor/Equipment and Biosciences clusters. The Aerospace cluster showed a net job loss. The study surveyed the time period of second quarter 1999 to second quarter August An Economy.com analysis reports that venture capital flows into the San Jose metro remain strong. Funding in the second quarter was a record, $19.6 billion, nearly matching all of last year s activity. On the IPO front, activity soared in the first half of 2000, nearly doubling the value of equity raised in the same time period last year. Business Objects, the world s leading provider of e-business intelligence solutions, leases 126,244 square feet of R&D space at Orchard Parkway in San Jose. Mozart Development Company is the landlord. Xilinx Inc., a big player in the market for programmable chips, is ramping up its north San Jose presence. The company purchases two buildings on North First Street from DivcoWest Group, adding nearly 200,000 square feet of R&D space to the company's portfolio. September From January to September, VCs invested more than $20 billion in Bay Area companies, more than $6.55 million more than they invested in all of Madrone Business Park in Morgan Hill begins site work on the 110-acre park which will consist of 1.5 million square feet of Industrial, Office and Retail space. Developers are Toeniskoetter & Breeding Inc., Mission West LLC, Tharaldson Development and Madrone Land Corp. Sunnyvale-based Three Way Inc., a specialized product transportation company, is expanding in Santa Clara, where it has subleased 65,000 square feet of distribution space from Nortel Networks Corporation with plans to eventually consolidate 250, ,000 square feet of warehouse space in the next year. October Divco West, the San Jose-based owner/operator of over 9 million square feet of office and retail space, announces its acquisition of the 134,866 square-foot Mountain View Technology Park for $33 million. The seller is Tishman-Heskin Partners. Personal income falls 0.2 percent representing the first time in nearly two years that Americans income has declined. Disposable personal income fell by 0.4%, registering the biggest decline in four years. PricewaterhouseCoopers LLP Money Tree reports that Bay Area VC investments dipped to $6.95 billion in 379 local companies -- down by $41 million and 33 companies from the second quarter. While only a 1% drop in funding, it represents the first decrease in seven quarters. November RREEF America LLC, purchases Kato Road, a 300,292 square foot leased investment, in Fremont. The seller is Carlye Realty. Silicon Valley venture capitalists shift their focus from the dot-com sector to technology fields such as software, biotechnology, pharmaceuticals, and communications equipment. VC companies did not entirely shun Internet companies but looked instead to those that focused on tools/applications and access/infrastructure. The up-and-coming Edenvale area of San Jose proves to be a popular tech migration spot for companies such as Cisco Systems, ONI, and Jetstream Communications. Cisco will occupy 295,000 square feet of space and ONI will move its headquarters into 346,000 square feet. ACT Manufacturing and Celestica will eventually occupy nearly 660,000 square feet. Stellex Electronics and Pluris will lease a combined 384,000 square feet. December The Conference Board reported that consumer confidence sank to its lowest level in more than a year and raises the spector that apprehension over a cooling economy may exacerbate the slowdown. Orchard Properties purchases 2290 North First Street (Project 702 & 703), San Jose, a 504,641 square foot R&D leased investment project located on 32.5 acres. This acquisition grows their current management portfolio to more than 6 million square feet in Santa Clara, Alameda, and San Francisco counties. The NASDAQ takes a dive of points (7.1%) its worst close since March of 1999, and off nearly 53% from its March 2000 peak. Brocade Communication Systems Inc. will occupy one of three eightstory office towers being built by Spieker Properties Inc. at Skyport Plaza in north San Jose. Brocade has leased 195,000 square feet, joining Siemens as the major tenants at Skyport. 3

6 OBSERVATIONS & FORECAST The first half of 2000 just blew the lid off of everyone s expectations. The record-shattering fourth quarter of 1999 faded into oblivion as the first two quarters of 2000 exceeded those lofty absorption figures. Rents went through the roof, and vacancy rates dropped to nearly 1%. C O L L I E R S I N T E R N A T I O N A L

7 Observations & Forecast Who Woulda Thunk? On one hand, we absolutely nailed it on the head last year when we forecasted the following: we expect strong absorption activity to continue at least through mid-year, with rents escalating and vacancy falling. The second half of the year will probably be slower than the first half with rents stabilizing and vacancy rates perhaps leveling off in the third quarter. But then we went on to predict that total gross absorption would be in the neighborhood of 30 million square feet with net absorption in the 8 to 9 million square foot range. Those figures ended up at 38.4 million and 14.0 million square feet, quite a bit higher than we forecasted. So, what happened such that we ended up being both right and wrong at the same time? Well, everything from rents, to vacancy rates, to absorption, pretty much followed the pattern that we called for in our 2000 Forecast. But the first half of 2000 just blew the lid off of everyone s expectations. The recordshattering fourth quarter of 1999 faded into oblivion as the first two quarters of 2000 exceeded those lofty absorption figures. Rents went through the roof, and vacancy rates dropped to nearly 1%. In short, our forecast was a perfect landing on the wrong runway. Silicon Valley s commercial real estate market began to settle down in the third quarter as interest rate and stock market fears mounted. Gross absorption eased by more than 55% from Q1 and Q2 levels. Net absorption was reduced by over 73%. But the market had so much velocity, and had been at such a peak, that rents continued to rise and overall vacancy continued to drop, albeit at a slower pace. In addition, there was still a huge amount of money in the venture capital pipeline feeding Silicon Valley companies. It wasn t until the fourth quarter that vacancy rates reversed course, climbing modestly from 1.17% at the end of Q3, to 1.38% at year-end. Venture capital funding indeed has been the spigot for the huge absorption gains in The faucet was on full blast through mid-year and there was only a modest letup during the third quarter. But by that time it was becoming increasingly evident that making money in the dot-com world was not going to be an easy task. While third quarter venture capital funding dropped only 1% from the prior quarter, there were significant changes in how that money was invested. E-commerce investment shrank by 50% in the third quarter, with only one new, first-round funding. Business services companies also took a big hit, with investment dropping by 34%. Picking up the slack were the software companies, and the networking and equipment companies, which raised 103% more in Q3 than during Q2. Venture capital funding indeed has been the spigot for the huge absorption gains in The faucet was on full blast through midyear and there was only a modest letup during the third quarter. Bay Area IPOs and Venture Capital Funding Venture Capital in Billions $8 $7 $6 $5 $4 $3 $2 $1 $0 Bay Area Venture Capital Funding Bay Area IPOs Q1-98 Q2-98 Q3-98 Q4-98 Q1-99 Q2-99 Q3-99 Q4-99 Q1-00 Q2-00 Q3-00 Q *4th quarter VC funding figure not available at press time Number of IPOs 5

8 Observations & Forecast JANUARY business investment will drive growth, the tech sector will remain the economy s hot spot, the U.S. will still be the place to invest in the global scene, and most important, interest rates will fall. All that adds up to good news for stocks. It also adds up to good news for Silicon Valley. The brakes of necessity were applied by Alan Greenspan and the Federal Reserve Board to cool an overheated economy. Rising interest rates finally put the skids on the stock market and the frenzy subsided. After an 86% gain in 1999, the NASDAQ plummeted nearly 50% from its high in March 2000, to close the year at 2, These economic drivers have slowed, but not stopped commercial real estate activity in Silicon Valley. Make no mistake about it, the current climate is still one of very little space available at an extraordinary cost. Overall vacancy stands at 1.38%, a 65% reduction from 1999 s yearending tally of 3.98%. Average starting rents in Silicon Valley increased 112% in 2000 (weighted average all product types). Most of the vacancy drop took place during the first half of the year. Rising rents continued through the balance of the year but were largely a result of a competitive environment that began to settle down in the year s final quarter. So, have these real estate and economic trends peaked or do we have more shakeout ahead? 2001 Forecast Last year we started this section with the question, How long can this last? This year, the most appropriate question might be Are the wheels going to fall off? Well, the first thing to point out is that the wobbly wheels have been most notable in a few specific areas of the economy. It would be impossible to argue at this time that the wheels are falling off for Silicon Valley owners and developers of real estate. But if the economy and the stock market continue to cool, that chill will lead to a greater supply of space and higher vacancy rates for Silicon Valley. We may see that anyway, simply as a hangover from the slowdown of the past six months. Even if the economic picture brightens, we do not expect a repeat of But it s not exactly gloom & doom either. The Economy So, which way will it be? The general consensus of economists is that we have seen just about the worst of what the softening economy has to offer. In Fortune s forecast, they site a consensus opinion from more than a dozen economists that business investment will drive growth, the tech sector will remain the economy s hot spot, the U.S. will still be the place to invest in the global scene, and most important, interest rates will fall. All that adds up to good news for stocks. It also adds up to good news for Silicon Valley. There are economists spouting a different viewpoint, however. Richard Berner, the Chief Economist at Morgan Stanley Dean Witter, claims that the United States is in a mild recession and that the economy will shrink by 1.25% over the first half of We ll stick with the consensus opinion that suggests that there is plenty of good news on the economic front to paint a relatively rosy picture for SILICON VALLEY VACANCY TRENDS 6% 5% 4% 3% 2% 1% 0% Square Feet in Millions % ALL PRODUCT TYPES 3.41% 5.82% 3.99% 1.38% SILICON VALLEY ABSORPTION TRENDS ALL PRODUCT TYPES Gross Absorption Net Absorption

9 Observations & Forecast Economic (GDP) growth should exceed 5% in 2000 with inflation running at 3.5%. In 2001, GDP growth is expected to average near 3.25%, with inflation running at about 2.5%. While not measuring up to 2000, those are impressive numbers by historical standards. Business investment spending is expected to remain strong according to economists. Most forecasts call for business spending to grow 10% in 2001, compared to the 15% pace of recent years. Corporate earnings are expected to show similar results, with economists estimating 10% growth in earnings per share for the S&P 500 in That s still very healthy earnings growth, says Bruce Steinberg, chief economist at Merrill Lynch, who concurs with the 10% forecast. The current state of the global economy also bodes well for The U.S. should continue to benefit from massive foreign-capital inflows. Foreign investors have increased their holdings of U.S. Treasuries from 17% to 34% and stocks from 25% to 33% since The best performing economy in the year ahead will still be the U.S., predicts David Resler, chief economist at Nomura Securities International, a division of Nomura, Japan s largest bank. International investors will have to maintain a high exposure to the U.S., and that will help our economy and market. Other positive signs include the lack of overbuilding in the real estate markets, corporate leverage is generally low, inventory-to-sales ratios remain near record lows, and for the most part, financial intermediaries are wellcapitalized and profitable. Interest rates seem to hold the key to the first half of While there is disagreement amongst the pundits, the consensus seem to favor that the Fed will cut rates by at least 50 basis-points by mid-year. But uncertainty abounds on this front. The Fed confirmed that other decreases were possible when it lowered rates in January. But until recently, Alan Greenspan was still voicing concerns about wage pressures and inflation. What other concerns loom ahead in 2001? Well, the most significant change, which most everyone agrees with, is that there are limits to growth and more rational expectations concerning stock valuations and investment strategies. In other words, don t expect a return to the 86% annual gains in the NASDAQ. Much of the strong earnings growth during the past year was a result of accelerated sales growth. With a reduction in consumer spending, weaker gains in demand, further wage growth, higher energy costs and interest rates, and accelerating price-pressure, some are forecasting corporate earnings growth to decline much further than the 10% consensus estimate. Consumer debt has received considerable attention lately. Twenty-five of families earning less than $50,000 annually have debt burdens of over 40%. Credit quality is likely to deteriorate in 2001, leaving consumer confidence and spending vulnerable to further negative changes in the economy. The biggest concern about 2001 may be uncertainty itself. According to Fortune, volatility will remain the order of the day. Ed Kerschner, UBS Warburg s chief global strategist, agrees saying, there will be times of high investor anxiety. Kerschner believes we re experiencing such a period because of what he calls the four E s energy, the euro, earnings, and the election. At the local level, we have the same housing, employment, and traffic issues that have plagued Silicon Valley for years they re just getting worse. Somehow, Silicon Valley manages to exist and compete in this environment and it will continue to do so in Certainly, the Bay Area will continue to be the epicenter of venture capital investment in Business development, financing, and intellectual talent all play a key role for growing and emerging technology sectors and those all require a Bay Area presence. Interest rates seem to hold the key to the first half of While there is disagreement amongst the pundits, the consensus seem to favor that the Fed will cut rates by another 50 basispoints by mid-year. 7

10 Observations & Forecast JANUARY 2001 Business failures and consolidations will lead to an increase of available inventory in But with current overall vacancy at a miniscule 1.38%, the supply side will need to increase significantly before we see any substantial lowering of rents. For that reason, we are looking for only a modest reduction in rents in 2001, perhaps on the order of 10-20%. Venture capital investment in Silicon Valley isn t going away, but it will certainly change in According to Red Herring, venture firms will have a tougher time raising money from limited partners in the coming year. Red Herring also predicts that 2001 is the year that complicated technologies return to the forefront, leaving many lightweight VCs (and companies) in the dust. Even established VC firms may see negative returns, something that was unheard of at the height of Internet mania. VCs are expected to focus their attention on existing portfolios, limiting their investments in new companies. Even existing companies will find money harder to come by. Investors now realize that an enterprise must become profitable before it runs out of funds. In a Pegasus Research report issued in September 2000, 273 publicly traded Internet companies were ranked by the rates at which they spend their cash reserves. Of those, 106 were forecast to run out of money by the end of The Commercial Real Estate Market What picture do these various economic trends paint for Silicon Valley s commercial real estate market in 2001? While we didn t coin the phrase, we at Colliers International expect a soft landing for Silicon Valley s commercial real estate market. While many businesses have scaled back on aggressive growth plans, there is still significant activity in the marketplace. Demand is strong by historical standards, and supplies are beginning to increase, but not yet at an alarming pace. Business failures and consolidations will lead to an increase of available inventory in But with current overall vacancy at a miniscule 1.38%, the supply side will need to increase significantly before we see any substantial lowering of rents. For that reason, we are looking for only a modest reduction in rents in 2001, perhaps on the order of 10-20%. That may seem like a lot, but given that we ve just experienced a 112% increase in one year, it s really not much. Submarkets that maintain a 1-2% vacancy rate will be able to maintain current rent levels. But, submarkets that rise above 4-5% vacancy will see a softening of rents in order to stay competitive. Absorption levels should remain strong in 2001, at or near the levels attained over the last six months of At that annualized rate, we would expect approximately 27 million square feet of gross absorption in That figure could swell to as high as 30 million square feet. Net absorption is more vulnerable and harder to predict. Given current new construction levels and expected gross absorption, net absorption will likely be significantly less than Colliers International is forecasting approximately 5-6 million square feet of net absorption for the year. We expect new construction starts to decline slightly in While there is presently 13.7 million square feet in the pipeline that is targeted to break ground in 2001, we suspect that some of that will be delayed or put on hold. All told, 12.6 million square feet of new construction broke ground in million square feet was completed and added to the building base in As of January 1, 2001, 12.4 million square feet was under construction, most of which was started in the second half of 2000 and will be added to the 2001 building base. Of that figure, 10.3 million square feet is pre-leased or build-to-suit (83%). Our eyes and ears to the market are our brokers on the street. In a December survey of Colliers International s Silicon Valley brokers, 79% believe that overall vacancy will be slightly higher at the end of 2001 than it is today. 85% believe that rents will be about the same or slightly lower at the end of 2001 than they are today. 76% believe that the likely story for Silicon Valley in 2001 will be a strong economy with continued but slower growth, without significant impact on Silicon Valley. And finally, to show there is no consensus, while 65% of our brokers believe that the chances of a significant downturn in Silicon Valley s commercial real estate market in 2001 are 25% or less, another 35% believe that the chances are greater than 25%. 8

11 Silicon Valley Space Summary Vacancy rates, absorption, new construction, sublease space - every brokerage company, institution and developer looks at these things a little bit differently. On this page, Colliers International summarizes the components that make up our current vacancy rate for all product types. We break down occupied vs. unoccupied sublease space, pre-leased vs. available new construction, near vs. long term planned construction and build-to-suit vs. speculative construction: this is just some of the breadth of data that our research team is able to provide for our clients. Silicon Valley at a Glance Year End 2000 Current and Future Supply OFC R&D IND WSE Total Total Current Vacant Available Space 867,279 1,563, , ,507 3,904,710 Direct Vacant 636,428 1,256, , ,507 3,198,542 Sublease Vacant 230, , , ,168 Current Vacancy Rate 1.85% 1.09% 1.66% 1.55% 1.38% Future Supply (excludes pre-leased space) Sublease Space - Occupied 802,334 1,012,567 47,605 50,580 1,913,086 Existing Space - Occupied 1,115,773 3,144,503 1,147,731 1,044,166 6,452,173 Under Construction - Spec Projects 790,248 1,148, , ,085,175 Planned Spec Projects - Next 12 Months 3,965,236 5,597, , ,009 10,317,220 Planned Spec Projects - Plus 13 Months 5,235,391 2,841, , ,600 9,097,136 Total Current and Future Supply 12,776,261 15,307,923 3,458,454 2,226,862 33,769,500 New Construction Activity Under Construction OFC R&D IND WSE Total Spec Projects 4,126,005 3,984, , ,464,215 BTS Projects 1,134,373 2,077, , ,180 3,951,187 Total SF Under Construction 5,260,378 6,061, , ,180 12,415,402 Pre-Leased Under Construction 4,470,130 4,913, , ,180 10,330,227 Percent Pre-Leased Under Construction 84.98% 81.06% 78.00% % 83.20% Pending Construction Spec Projects - Next 12 Months 4,846,710 7,877, , ,409 13,702,277 Spec Projects - Plus 13 Month 5,406,391 3,174, , ,600 9,602,064 Total SF Pending Construction 10,253,101 11,052,591 1,353, ,009 23,304,341 Pre-Leased - Next 12 Months 881,474 2,280, , ,400 3,385,057 Pre-Leased - Plus 13 Months 171, , ,928 Total SF Pre-Leased Pending Construction 1,052,474 2,613, , ,400 3,889,985 Percent Pre-Leased Pending Construction 10.26% 23.65% 8.80% 16.19% 16.69% Absorption Year-to-Date OFC R&D IND WSE Total Gross 6,880,283 22,277,254 5,237,715 3,962,422 38,357,674 Net 2,818,135 8,694,308 1,576, ,970 14,048,174 Average Starting Rental Rates OFC (FS) R&D (NNN) IND (NNN) WSE (NNN) Fourth Quarter, 2000 $5.07 $4.09 $1.57 $0.78 9

12 SILICON VALLEY R&D Gross absorption of R&D space swelled to a new all-time record of 22.3 million square feet, surpassing the previous record from one year earlier of 18.8 million square feet. R&D net absorption totaled 8.69 million square feet for the year, shattering the previous record of almost 6.78 million square feet set way back in C O L L I E R S I N T E R N A T I O N A L

13 Silicon Valley R&D Market Through the Roof Beginning with the second quarter of 1999, the R&D 6.78 million square feet set way back in This market experienced a declining rate of vacancy for net absorption figure is also well ahead of our healthy five consecutive quarters. This trend came to a halt forecast of 5.0 million square feet. Nearly 75% of the during the last quarter of 2000, when R&D vacancy year s net absorption came in the first half of the year. increased 0.33 percentage points to close out the year R&D net absorption totaled 2.18 million square feet at 1.09%. This figure is well below the 1999 year-end in the second half of the year which represents an rate of 4.40% and significantly below our forecast, annualized figure of 4.35 million square feet. Net which called for lower vacancy rates in 2000, but absorption peaked in the year s second quarter, at 3.47 probably not less than the 2.39% low-water mark million square feet. established in the first quarter of At the end of the third quarter of 2000, R&D vacancy stood at The R&D sector added nearly 4.08 million square 0.76%, a figure that is almost unfathomable and feet of new construction to the inventory base in obviously a new record for Silicon Valley. 2000, more than double the 1999 figure of 2.31 million square feet. New construction is still at a In retrospect, Colliers 2000 predictions were bold, but fever pitch as more than 6.06 million square feet is not bold enough. Consequently, both gross & net currently under construction, with much of that absorption performance in 2000 exceeded our targeted for completion by Spring of Of the expectations. Gross absorption of R&D space swelled to 6.06 million square feet under construction, 81% is a new all-time record of 22.3 million square feet, build-to-suit or preleased speculative construction. surpassing the previous record from one year earlier of Colliers currently shows another 7.88 million square 18.8 million square feet. This figure exceeded our feet of R&D product that could break ground in forecast by nearly one-third. Gross absorption in each of the first two quarters of 2000 exceeded 7.0 million Average starting rents in the R&D sector soared square feet for the first time ever, with the benchmark of 155% in This far exceeds any other product 7.6 million square feet being set in the year s first quarter. type and in some ways boggles the mind (office rents were second, climbing 70%). Average R&D starting R&D net absorption totaled 8.69 million square feet rents increased from $1.60 NNN to $4.09 NNN for the year, shattering the previous record of almost during the year. Silicon Valley R&D Rent vs.vacancy Trends Quarter-End Vacancy Rate Average Starting NNN Rental Rates 10% $5.00 New construction is still at a fever pitch as more than 6.06 million square feet is currently under construction, with much of that targeted for completion by Spring of Of the 6.06 million square feet under construction, 81% is build-to-suit or preleased speculative construction. 8% $4.00 6% 4% $.71 $.91 $3.00 $2.00 2% $1.00 0% 4Q-97 1Q-98 2Q-98 3Q-98 4Q-98 1Q-99 2Q-99 3Q-99 4Q-99 1Q-00 2Q-00 3Q-00 4Q-00 $0 11

14 Silicon Valley R&D Market JANUARY 2001 Silicon Valley benefits by being the location of choice for technology in general, and not just one or two technological niches. For this reason, when one particular industry has problems, we have other industries that pick up the slack. Hot Spots R&D gross absorption in San Jose totaled 6.69 million square feet for the year, easily outpacing the prior year s record of 5.71 million square feet. Net absorption totaled nearly 2.67 million square feet in San Jose, a 54% jump from As a result, R&D vacancy stands at 0.70% in San Jose, an 85% decline from the 1999 year-end figure of 4.63%. Fremont trailed only San Jose amongst the most active Silicon Valley cities in Gross absorption in Fremont totaled nearly 4.10 million square feet. As a result, Fremont s rate of R&D vacancy plummeted from 10.63% to 2.06%. Santa Clara and Sunnyvale followed with 3.04 and 2.67 million square feet of activity. Fremont s gross absorption figure blew away the 1999 figure, which had been the previous record, by 67%. San Jose and Santa Clara also recorded new highs for R&D gross absorption. On the net absorption side, Milpitas had a big year, with 2.12 million square feet of net occupancy gain. The feat is particularly noteworthy in light of the fact that Milpitas only has the sixth largest building base amongst Silicon Valley cities. Milpitas net absorption was exceeded only in San Jose, where net absorption also hit a new record, at 2.67 million square feet. Fremont followed, increasing its net occupancy by a record, 1.65 million square feet. Santa Clara was another city that achieved a new net absorption record, at 1.22 million square feet. Each of the five largest R&D markets in Silicon Valley established new vacancy-rate lows during the course of 8% 7% 6% 5% 4% 3% 2% 1% 0% Square Feet in Millions REGIONAL VACANCY TRENDS R&D PRODUCT % 2.83% the year, including Mountain View, which featured a 0.10% vacancy rate after the first quarter. Looking Forward 6.54% Gross Absorption 4.42% 1.09% REGIONAL ABSORPTION TRENDS R&D PRODUCT Net Absorption R&D absorption accounted for 58.1% of all Silicon Valley absorption in In 1999, R&D absorption Selected Cities Historical Vacancy Trends San Jose Sunnyvale Santa Clara Fremont Mountain View % % % % % % % % % % % % % % % % % % % % % % % % % 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 12

15 Silicon Valley R&D Market accounted for 56.7% of the total. Prior to that, the figure hovered between 48-52%. Combined with office absorption, which is predominantly technology-tenant related, 76% of Silicon Valley s absorption comes from these two sectors. The point of all this is to confirm what you already read and heard elsewhere. As a technology center, Silicon Valley is perhaps the epicenter of the world. We continue to maintain a significant infrastructure of industrial and warehouse product to service and distribute our technology. So, while more and more industrial and warehousing requirements consolide and/or relocate outside the Bay Area, the R&D market just keeps growing. Silicon Valley benefits by being the location of choice for technology in general, and not just one or two technological niches. For this reason, when one particular industry has problems, we have other industries that pick up the slack. An economic slowdown is certainly going to impact Silicon Valley, but to the extent that other specific areas are expected to grow, we will continue to have a space crunch affecting the Valley. Where should we expect the growth and absorption to come from in 2001? For one, the venture capital market will still fuel the local real estate market. While we re likely to see a reduction in VC investment in 2001, much of what is spent will be spent in Silicon Valley. There will be far fewer new companies receiving funding, so we re likely to see less space absorbed by start-ups in the true sense of that term. However, venture capitalists will continue to pour money into existing businesses and Silicon Valley has more than it s fair share of those. Close to $25 billion will have been invested in Bay Area companies in 2000 when the final figures are added up. VCs aren t simply going to walk away from that investment. In addition, 182 Silicon Valley companies have gone public in the past two years. While some of these companies are sure to go away, others are sure to prosper and grow. According to Business Week and Red Herring, technology bright spots for 2001 include information technology, laptop computers, handheld computers, servers and server appliances, storage devices, specialty chips, e-business software, security software, specialty optics manufacturing, biotech and energy. With nearly 5.0 million square feet of R&D absorption already in the pipeline (in the form of preleasing and build-to-suits), 2001 promises to be a strong year even with a mild economic slowdown. Colliers is forecasting approximately 16 million square feet of R&D gross absorption in 2001 with net absorption of 2 to 3 million square feet. If the slowdown turns into a true recession however, the net absorption figure could be greatly reduced, perhaps turning negative by the end of the year. Consistent with our overall projection, we expect R&D rents to ease off as competition for space subsides. Rents could drop quickly and dramatically in submarkets where vacancy moves toward 5%. Our forecast calls for overall R&D vacancy to increase modestly, and close the year between 3.0 and 4.0%. According to Business Week and Red Herring, technology bright spots include information technology, laptop computers, handheld computers, servers and server appliances, storage devices, specialty chips, e-business software, security software, specialty optics manufacturing, biotech and energy. Selected Colliers R&D Transactions Mektec Corporation sold a 129,808 square foot R&D building to Smart Modular. The building is located at 4211 Starboard Drive in Fremont (1Q00) Business Objects leased 126,244 square feet at Orchard Parkway, San Jose, from Mozart Development Company. (3Q00) Digital Microwave signed a long-term commitment to lease 133,612 square feet of R&D space at Menlo Equities Rose Orchard Parkway project in San Jose. (1Q/00) Extreme Networks purchased a four-building, 275,000 square foot office/r&d campus at Monroe Street in Santa Clara. MPJ Partnership was the seller. (2Q/00) WP Investments inked a long term lease with Cisco Systems, for 223,664 square feet of space at 991, 995 and 1225 Montague Expressway in Milpitas (3Q00) 13

16 SILICON VALLEY OFFICE The office vacancy rate did a little dance throughout the course of the year first falling to a mid-year low point of 1.14%, then rising to end the year at 1.85%. The year-end figure represents a reduction of more than a 50% from the 3.72% office vacancy rate at the beginning of the year. C O L L I E R S I N T E R N A T I O N A L

17 Silicon Valley Office Market Building Boom The office vacancy rate did a little dance throughout the course of the year first falling to a mid-year low point of 1.14%, then rising to end the year at 1.85%. The year-end figure represents a reduction of more than 50% from the 3.72% office vacancy rate at the beginning of the year. Proving that even a blind squirrel finds an acorn once in awhile, our projections for both gross and net absorption were pretty much on target. Gross absorption tallied 6.88 million square feet in the office sector, edging out the 1999 figure by 94,553 square feet. Net absorption also established a new record high at 2.82 million square feet, surpassing the 1995 figure of 2.11 million square feet. New construction activity was abundant in 2000, as nearly 4.08 million square feet of office product was added to the building base. Presently, there is 5.26 million square feet of office space under construction, with nearly 85% of that total already spoken for. Our research estimates that there is another 4.84 million square feet of office space that could break ground in The demand for office space was so overwhelming that many projects earmarked or suited for multitenant use were being leased to single users and consequently squeezed out many midsize users. In San Jose, Metricom, Inc. leased the first two phases of River Corporate Center totaling 290,000 square feet. Likewise, Deloitte & Touché got first dibs on downtown San Jose s first speculative office development to break ground in over a decade, taking 120,000 square feet in Opus new 15-story building on West Santa Clara Street. Average starting rates for office space swelled to above $5.00 per square foot (full service) in the last quarter of For the year, office rents increased 70.1%, from $2.98 per square foot to $5.07 per square foot. Hot Spots The Palo Alto submarket maintains its distinction as the toughest place to find affordable office space in Santa Clara County. With vacancy at 0.84%, and rents often in excess of $10.00 per square foot, it s not a place for the weak at heart. Sunnyvale s office base has grown to the point where it has edged past Mountain View and now ranks amongst the five largest office markets in Silicon Valley. Sunnyvale s office vacancy rate stands at 0.59%, the lowest amongst the major office submarkets. The cities of San Jose, Santa Clara and Cupertino each sport vacancy rates between 1.32% and 2.25%. The greatest Average starting rates for office space swelled to above $5.00 per square foot (full service) in the last quarter of For the year, office rents increased 70.1%, from $2.98 per square foot to $5.07 per square foot. Silicon Valley Office Rent vs.vacancy Trends Quarter-End Vacancy Rate Average Starting Full Service Rental Rates 8% 7% 6% 5% 4% 3% 2% 1% 0% $.71 $.91 4Q-97 1Q-98 2Q-98 3Q-98 4Q-98 1Q-99 2Q-99 3Q-99 4Q-99 1Q-00 2Q-00 3Q-00 4Q-00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0 15

18 Silicon Valley Office MarketJANUARY 2001 A 4,000-square-foot law office did not have much leverage when competing for space against a wellfunded technology company with bundles of cash and a willingness to take 20,000 square feet even though they only needed 4,000. Toss in two years of prepaid rent and it was a no-brainer. vacancy reduction took place in San Jose, where office vacancy dropped from 5.50% to 1.52% during the course of the year. Accounting for more than 40% of the Valley s leasing activity, San Jose set a new record for gross absorption with 2.87 million square feet in 2000, slightly greater than the 1999 figure of 2.77 million square feet. Santa Clara was the only other city to produce more than 1.0 million square feet of office leasing, with 1.13 million square feet, also a new high. Sunnyvale s 622,478 square feet was a new gross absorption record as well, due largely to the completion of 378,297 square feet of new office product in San Jose also led the way with 1.19 million square feet of net absorption. While not quite a record for San Jose, new net absorption benchmarks were established in the cities of Palo Alto, Santa Clara, and Sunnyvale. Each of these cities added 350,000 square feet or more to their office-building base in 2000, which accounted for the bulk of the net occupancy gains. Looking Forward Professional office tenants in Silicon Valley were swept aside in Silicon Valley s technology wave. A 4,000-square-foot law office did not have much leverage when competing for space against a wellfunded technology company with bundles of cash and a willingness to take 20,000 square feet even though they needed only 4,000. Toss in two years of prepaid rent and it was a no-brainer. Well, the pendulum has swung back in the other direction at least a little bit. 8% 7% 6% 5% 4% 3% 2% 1% 0% Square Feet in Millions REGIONAL VACANCY TRENDS % OFFICE PRODUCT 5.03% 6.81% 3.71% 1.85% REGIONAL ABSORPTION TRENDS OFFICE PRODUCT Gross Absorption Net Absorption Most owners are now looking for profitability and some form of secure credit from their office tenants. This trend will continue in 2001, but we will still see the professional office sector dominated by technology companies. Selected Cities Historical Vacancy Trends San Jose Santa Clara Palo Alto Cupertino Sunnyvale % % % % % % % % % % % % % % % % % % % % % % % % % 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 16

19 Silicon Valley Office Market Several of the technology bright spots noted in the R&D forecast are well suited for office space occupancy - information technology, handheld computers, e-business software, security software, and biotech to name a few. In addition, the service sector will continue to grow, albeit at a slower pace, to meet the demands of all the wealth creation Silicon Valley has spawned in the last two years. Efficiencies, image, and cost concerns favor growth in multi-story facilities where employees can work closely together in a positive, creative work environment. There are several buildings that meet these needs in and around downtown San Jose that are under construction or on track to be underway in A host of others are in various stages of planning. Leading the way are Opus Center, River Corporate Center, and 488 Almaden Boulevard. The third building at River Corporate Center, totaling 170,000 square feet, is planned for later this year. Opus Center is presently under construction. The latest addition, 488 Almaden Boulevard, is a 17-story, 388,000 square foot development just underway by Sobrato Development Companies. This recent, mid-rise speculative development trend is a specific result of the move toward vertical offices by technology businesses, and due to increased acceptance of the lengthy lead times that it takes to get a mid-rise built. Downtown office development was further boosted by San Jose Redevelopment Agency assistance for projects such as Opus Center, which was approved for almost $4 million of Agency assistance for parking facilities in Other downtown office projects approved for San Jose Redevelopment Agency assistance include Boston Properties' 863,000 square foot complex, Kimball Small's 330,000 square foot tower and Sobrato's aforementioned 388,000 sf tower which broke ground in the fall. Projects on the horizon include expansion of the Adobe Headquarters complex. There is presently 5,260,378 square feet of office space under construction in Silicon Valley, of which 85% is preleased. Another 4.8 million square feet is presently identified as likely spec development in We expect that some of these developers will get cold feet and market their projects exclusively on a build-to-suit basis. Our forecast calls for gross absorption in the office sector to be 5 to 6 million square feet with net absorption in the neighborhood of one million square feet. We are calling for vacancy rates to increase in the office sector by yearend, to the tune of approximately 5%. Opus Center, a 15-story, class-a office project in Downtown San Jose, is being developed by Opus West. The $84 million mid-rise includes nearly $4 million of assistance from the San Jose Redevelopment Agency. There is presently 5,260,378 square feet of office space under construction in Silicon Valley, of which 85% is preleased. Another 4.8 million square feet is presently identified as likely spec development in Selected Colliers Office Transactions Autodesk, Inc. leased 127,519 square feet of office space at 4000 Civic Center Drive in San Rafael. Legacy Partners is the landloard. (2Q00) Juniper Networks expanded into 122,435 square feet of additional office space at 1184 Mathilda Avenue in Sunnyvale. (2Q00) PMC-Sierra leased 243,144 square feet at Tishman-Speyer s project at 3945 Freedom Circle in Santa Clara. (1Q and 3Q, 00) Pixo, Inc. leased 57,580 square feet of office space at 2880 Stevens Creek Boulevard in San Jose. Stevens Creek Center, Inc. is the landlord. (3Q00) Fenwick & West leased 128,781 square feet to be built by Tishman-Speyer Properties at 400 Castro Street in Mountain View. (3Q00) marchfirst, Inc. leased 252,658 square feet of office space at 225 Park Avenue South in New York City. (2Q00) 17

20 SILICON VALLEY INDUSTRIAL Somehow, industrial users found enough space to make 2000 the largest gross absorption year since In the final tally there was 5.24 million square feet of gross absorption of industrial space in Silicon Valley in C O L L I E R S I N T E R N A T I O N A L

21 Silicon Valley Industrial Market Show Me the Space The Silicon Valley industrial market proved resilient in the face of rising rents and efforts to upgrade product classifications to R&D and flex-office. Demand continued to run hot as manufacturers scrambled to find space to accommodate the needs of their clientele. Somehow, industrial users found enough space to make 2000 the largest gross absorption year since In the final tally there was 5.24 million square feet of gross absorption of industrial space in Silicon Valley in This figure bests the 1999 results by more than 1.08 million square feet and exceeds our forecast by nearly 1.75 million square feet. Likewise, 2000 was a productive year in terms of net absorption of industrial space. The 1.58 million square feet of net absorption was also the most recorded since 1994, and it exceeds the 1999 figure by more than one million square feet. Our forecast for a strong net absorption year of approximately one million square feet was on track but still short of the final tally. As you would expect, the strong absorption year resulted in lower vacancy rates for the industrial sector. Industrial vacancy declined during the first three quarters of 2000, then increased slightly during the fourth quarter to finish up at 1.66%. This figure represents a drop of 1.84 percentage points from the beginning of New construction activity helped to fuel the strong absorption year in Nearly 631,000 square feet was added to the industrial building base in While not a huge number, this was the largest increase since The added space was almost entirely leased prior to completion. Industrial rents increased 41.4% during 2000, rising from $1.11 NNN to $1.57 NNN (average NNN starting rate). In 2000, we began to see buildings (or portions of buildings) that were classified as industrial space, being marketed as R&D/flex at rents exceeding $3.00 NNN. Those transactions were typically categorized as R&D deals and are not reflected in the industrial rent averages presented here. As was the case in the other sectors, industrial rents increased in every quarter of Hot Spots Fremont and Santa Clara experienced the most significant decline in industrial vacancy rates in Fremont s vacancy fell from 4.73% to 1.39% and Santa Clara went from 4.38% to 1.18%. Of the five largest industrial markets, Mountain View now has the highest industrial vacancy, at 3.89%. The largest New construction activity helped to fuel the strong absorption year in Nearly 631,000 square feet was added to the industrial building base in While not a huge number, this was the largest increase since Silicon Valley Industrial Rent vs.vacancy Trends Quarter-End Vacancy Rate Average Starting NNN Rental Rates 5% 4% 3% 2% 1% 0% $.71 $.91 4Q-97 1Q-98 2Q-98 3Q-98 4Q-98 1Q-99 2Q-99 3Q-99 4Q-99 1Q-00 2Q-00 3Q-00 4Q-00 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $.80 $.60 $.40 $.20 $0 19

22 Silicon Valley Industrial Market Industrial/warehouse product has become somewhat of a collector item in Silicon Valley. Almost nothing new is being developed and the product that exists is constantly being reevaluated in an effort to turn it in to R&D or office product. industrial market, San Jose, experienced a reduction in vacancy, from 2.79% to 1.90% during Three cities contributed over 1.0 million square feet of gross absorption. San Jose led the way with 1.90 million square feet, followed by Fremont and Santa Clara, at 1.14 and 1.12 million square feet respectfully. For Santa Clara, this was the most gross absorption that we have ever recorded, narrowly besting several other years that produced approximately 1.0 million square feet. For San Jose and Fremont, this was the most activity since These same three cities recorded the greatest net occupancy gains in Fremont tallied 537,179 square feet of industrial net absorption, followed by San Jose and Santa Clara with 514,898 and 329,569 square feet. For Fremont and San Jose, it was the largest net occupancy gain since For Santa Clara, it was the most since San Jose and Fremont generated much of their net absorption from new product that was delivered in those cities. For Santa Clara, the net occupancy gain came strictly from existing product that was absorbed during the course of the year. Industrial Redevelopment Project Areas in San Jose experienced tremendous growth during the year in the amount of R&D, manufacturing and office space constructed. In the north San Jose (Rincon) Project Area, approximately 2.3 million square feet was completed and 1.9 million square feet is currently under construction. In Edenvale, over 761,000 6% 5% 4% 3% 2% 1% 0% Square Feet in Millions REGIONAL VACANCY TRENDS % INDUSTRIAL PRODUCT 3.57% 4.09% 3.48% 1.66% REGIONAL ABSORPTION TRENDS INDUSTRIAL PRODUCT Gross Absorption Net Absorption square feet was completed with approximately 1.5 million square feet currently under construction. Redevelopment Agency investments total more than $115 million (between 1977 and the present) in the two industrial areas, and infrastructure projects such Selected Cities Historical Vacancy Trends San Jose Santa Clara Fremont Sunnyvale Mountain View % % % % % % % % % % % % % % % % % % % % % % % % % 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 20

23 Silicon Valley Industrial Market as Routes 87 and 85, have helped to attract and sustain over 3,000 high tech companies in Rincon and Edenvale that employ more than 129,000 people. Looking Forward One could argue that a big advantage that owners of industrial property enjoy is that their rents will not drop significantly in the event of an economic downturn because rents didn t seemingly double or triple overnight like they did in the R&D sector. There is some real truth to that observation. Industrial/warehouse product has become somewhat of a collector item in Silicon Valley. Almost nothing new is being developed and the product that exists is constantly being reevaluated in an effort to turn it in to R&D or office product. Case in point is the purchase of Monterey Business Center by a group of investors as a telco play. This is one of the few new industrial/warehouse developments in Silicon Valley and 182,000 square feet that is just shell complete is no longer classified as industrial/warehouse. Rents should remain relatively stable in the industrial sector unless the market changes dramatically. Shortage of product will keep rents from falling much and simple business economics prevent industrial sector businesses from paying significantly more than they pay today. Most of these businesses have a breaking point beyond where they cannot afford to operate their business in Silicon Valley. New construction in the industrial sector is statistically insignificant. Presently, 665,919 square feet of industrial product is under construction in Silicon Valley, of which 78% is preleased. We have identified only 688,000 square feet of additional industrial space as potential speculative construction in As a result of these limitations on new development, we expect that the industrial market will remain tight throughout Our forecast calls for million square feet of gross absorption of industrial space in Net absorption is likely to be less than 1.0 million square feet. At these levels of activity, industrial vacancy would remain in the range of %. KLN Precision Machining Corporation leased with an option to purchase Encyclopedia Circle in Fremont to relocate their precision machining operation from the Peninsula. The lessor/seller was Mekimen Trust who had purchased the building from Standard Industries. New construction in the industrial sector is statistically insignificant. Presently, 665,919 square feet of industrial product is under construction in Silicon Valley, of which 78% is preleased. We have identified only 688,000 square feet of additional industrial space as potential speculative construction in Selected Colliers Industrial Transactions IKOS systems signed unto 106,000 of industrial/r&d space at 79 Great Oaks Boulevard in San Jose. Pepper Lane - Great Oaks, LLC, is the landloard. (1Q00) South Abbot, LLC purchased a 157,000 square foot industrial building at 1800 Abbott Street in Salinas. (2Q00) Core Location purchased a 204,000 industrial building at 587 Cinnabar Street in San Jose. Cristina, Hall, & Carter was the seller. (3Q00) KLN Precision Machining leased 81,485 square feet from Meskimen Trust, at Encyclopedia Circle in Fremont. (1Q00) Trend Technologies Texas L.P., leased 270,000 square feet in Round Rock, Texas, from Opus Real Estate Texas. (3Q00) 21

24 SILICON VALLEY WAREHOUSE The warehouse market kept pace with other product sectors in Overall vacancy rates continued on a downward trend until the third quarter and then moved slightly higher at year-end. Recorded warehouse vacancy stands at 1.55%, representing a drop of 55% from the beginning of C O L L I E R S I N T E R N A T I O N A L

25 Silicon Valley Warehouse Market Telco Mania Subsides The warehouse market kept pace with other product sectors in Overall vacancy rates continued on a downward trend until the third quarter and then moved slightly higher at year-end. Recorded warehouse vacancy stands at 1.55%, representing a drop of 55% from the beginning of Vigorous demand in the warehouse sector led to a strong year of absorption. Gross absorption amounted to 3.96 million square feet, the most since 1997 and 17% greater than the 1999 figure of 3.38 million square feet. The figure also exceeds our 3.5 million square foot forecast by 13%. As was the case across the board, absorption was much greater during the first half of the year, which accounted for nearly 60% of the total. Net absorption of warehouse space totaled 958,970 square feet in This figure more than doubles the output from 1999 and it exceeds our forecast by almost as much. The net occupancy gain was the most recorded in Silicon Valley s warehouse sector since Since only 278,775 square feet of new warehouse product came on line in 2000, most of the net occupancy gain came about as a result of absorption of existing product. Some obsolete warehouse space found a new market niche in 2000 telecommunications. If there happened to be fiber nearby, yesterday s auto-body shop became today s telco bunker. The very nature of this emerging business required access to fiber and heavy power, and warehouse product often sat on top of both. In addition, warehouse buildings were more suited for the necessary retrofit than other types of buildings. So, in 2000, we observed some net absorption of warehouse space that might have otherwise sat vacant. Warehouse rents increased by the lowest percentage of all product categories, only 34% in But at $.78 NNN (up from $.58 NNN), users are paying dearly for four walls and a roof. Hot Spots By year-end 2000, there were no vacancy signs hanging in Santa Clara, Sunnyvale, and Fremont where availability has bottomed out at zero. With a warehouse-building base that exceeds 7.0 million square feet, that is an extraordinary statistic for Fremont. For Santa Clara and Sunnyvale, it s the second consecutive year that has concluded without any vacant warehouse space to be found. Milpitas warehouse vacancy shrank from 6.59% to 2.74% during the year, and Gilroy saw a similar drop, from 5.08% to 1.90%. The largest warehouse market, San Jose, sports a Some obsolete warehouse space found a new market niche in 2000 telecommunications. If there happened to be fiber nearby, yesterday s auto-body shop became today s telco bunker. Silicon Valley Warehouse Rent vs.vacancy Trends Quarter-End Vacancy Rate Average Starting NNN Rental Rates 6% 5% 4% 3% 2% 1% 0% $.71 $.91 4Q-97 1Q-98 2Q-98 3Q-98 4Q-98 1Q-99 2Q-99 3Q-99 4Q-99 1Q-00 2Q-00 3Q-00 4Q-00 $.90 $.75 $.60 $.45 $.30 $.15 $0 23

26 Silicon Valley Warehouse Market The trend of converting every warehouse building near a railroad track into a telco facility seems to be over. But that doesn t stop owners and savvy investors and speculators from looking at warehouse buildings with a keen eye toward conversion or redevelopment. 2.40% vacancy rate, a 37% drop from the 3.84% vacancy from one year prior. Gross absorption was concentrated largely in San Jose and amounted to 2.23 million square feet, with South San Jose accounting for 60% of the total. Fremont and Milpitas each generated approximately 560,000 square feet of gross absorption. These figures are healthy but nowhere near a record. Nearly one-half of the Valley s net absorption came in San Jose, where the 437,941 square foot net occupancy gain is the most since This gain also reverses two consecutive years of modest negative net absorption in San Jose. Milpitas added 268,555 square feet of net occupancy gain to its city, the most since Looking Forward The trend of converting every warehouse building near a railroad track into a telco facility seems to be over. But that doesn t stop owners and savvy investors and speculators from looking at warehouse buildings with a keen eye toward conversion or redevelopment. Certainly, warehouse building use has changed in recent years to uses that can justify the rising cost of storage space. Silicon Valley s warehouse rents rose 34% in That s the lowest percentage of all product types, but at an average starting rate of $.78 NNN, storage users are finding other places to store their empty cans. When you look at the economic forecasts for 2001, there are not many bright spots for manufacturing and 6% 5% 4% 3% 2% 1% 0% Square Feet in Millions REGIONAL VACANCY TRENDS % WAREHOUSE PRODUCT 3.38% 4.46% 3.44% 1.55% REGIONAL ABSORPTION TRENDS WAREHOUSE PRODUCT Gross Absorption Net Absorption warehousing. Most of the expected growth is expected in areas that have more to do with information technology. Manufacturing and warehousing are not part of that equation. Selected Cities Historical Vacancy Trends San Jose Fremont Milpitas Gilroy Santa Clara % % % % % % % % % % % % % % % % % % % % % % % % % 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 24

27 Silicon Valley Warehouse Market The automobile industry, for instance, is expected to have a tough year. Semiconductor manufacturing is likewise expected to slow considerably. But the fact remains that warehouse space is in very short supply with vacancy at 1.55% as we head into Demand for the type of warehouse product that we have in Silicon Valley will follow the trends in demand for R&D space. Warehouse product also has the distinction of not having much new product added to the inventory base. As of the beginning of the year there was no speculative warehouse construction underway and there is only 289,409 square feet of speculative warehouse development that we have identified as likely in the twelve months ahead. So, warehouse absorption becomes a product of how much space comes back on the market over the course of the year. In each of the past two years, approximately 3.0 million square feet of existing space were vacated. If 2001 follows the same pattern, we should see roughly 3.0 million square feet of gross absorption. If users decide to hang on to what they have, gross absorption will be less. Net absorption is likely to be near zero in the warehouse sector. In fact, a modest level of negative net absorption is possible. The 3.0 million square feet of gross absorption that we projected in the preceding paragraph is actually greater than the pace of the last two quarters. If there is any hiccup in demand as a result of the economy or a serious reluctance to pay Silicon Valley warehouse rents, negative net absorption could reach upwards of 1.0 million square feet. But even at that figure, warehouse vacancy would only increase to about 5%. We look for warehouse vacancy to rise a bit, perhaps to 3%, a figure which would produce no net absorption gain. Opus West's 430,000 square foot Monterey Business Center. Opus sold four buildings during 4Q00 including two warehouse/industrial buildings totaling 182,127 square feet to Monterey Lafayette, Inc., which intends to offer the buildings on a speculative basis to a telco or industrial user. As of the beginning of the year there was no speculative warehouse construction underway and there is only 289,409 square feet of speculative warehouse development that we have identified as likely in the twelve months ahead. Selected Colliers Warehouse Transactions FDX Supply Chain Services leased 135,208 square feet of warehouse space at 1029 Montague Expressway in Milpitas from WP Investments. (1Q00) Chaboya Ranch Partners leased 108,000 square feet of warehouse space at 2070 South Seventh Street in San Jose to CMT Holdings, Inc. (2Q00) Three Way, Inc., signed on to a long term, 100,547 square foot warehouse lease at 1630 Berryessa Road in San Jose. Aetna Life Insurance Company is the landlord. (4Q00) AMB Property, L.P., leased 75,300 square feet to All Van Transportation at Boyce Road in Fremont. (4Q00) Nevil Storage Company leased 172,800 square feet at 1895 and 1935 S. Tenth Street in San Jose. DiNapoli, DiNapoli & Mulcahy is the landlord. (1Q00) 25

28 SILICON VALLEY INVESTMENTS As we enter into 2001 we are continuing to see a strong level of interest from the buying community. One factor seems to be that the disparity between in-place rent and market rent is still so great, that even a significant decline in market rent will still provide upside in many assets. C O L L I E R S I N T E R N A T I O N A L

29 Silicon Valley Investment Market Big Projects Attract Big Money The recovery of the investment market that started in late 1999 gained more momentum in The demand for Silicon Valley real estate was further fuelled by the recovery of the leasing market from the Asian Flu in 1998 and early In many markets, leasing rates had increased nearly 100% within the first six months of the year. The rental rate increases and the declining vacancy rates made buyers bullish on the Valley. To that end, our preliminary numbers show property sales investment activity to be in excess of 2.6 billion dollars. This is a new record for the Valley and a significant increase from the 1.2 billion dollars invested in Property values increased but not as rapidly as rental rates. The buying community was slow to adopt the new rental rates in their underwriting. For the most part, many buyers continued to proforma stabilized tenant improvement allowances and conservatively blended the pre rental-spike rents with the new rents. The result was actually an increase in the capitalization rate on market rents despite the decrease in the capitalization rate on in-place rents. Capitalization rates ranged from 15% to over 25% on market rents for deals that were impeded with under-market leases. The longer the time to get to the market rents, the greater the associated risk and costs, and therefore, the greater the market capitalization rate. The lending community did their part to temper the buying community s exuberance. Lenders for the most part were very conservative from a price per square foot basis and were especially concerned with single-tenant assets with non-credit tenants. In fact, during the fourth quarter there were quite a few smaller assets that fell out of escrow due to the borrower s inability to achieve favorable financing. With the recent adjustment in the high tech sector, we anticipate both buyers and lenders will be more cautious underwriting tenants. However, the decline in interest rates will be of significant help to many long-term holders of real estate. We anticipate the category we label Domestic High Net Worth Individuals, Private Advisor and syndicators as part of our Other category will benefit the most. The Domestic Realty Advisors who use bridge financing will be less affected by debt and will be mostly impacted by how quickly they can increase the operating income and resell the asset to maximize the internal rate of return. As we enter into 2001 we are continuing to see a strong level of interest from the buying community. One factor seems to be that the disparity between in-place rent and market rent is still so great, that even a significant decline in market rent will still provide upside in many assets. Furthermore, many like us at Investment Services Group, believe that the technology revolution is still in its early stages and that the Valley is the best place to prosper from the boom. Selected transactions on page 28 Silicon Valley Investment Sales by Type Industrial - 6% Warehouse - 3% Office 34% Office 36% 2000 R&D 57% Industrial - 10% Warehouse - 4% R&D 49% Silicon Valley Capital Investment Trends Investment Activity by Buyer Type 1999 $3,000 $2,500 2,620 Domestic High Net Worth Industrial - 4% Warehouse - 1% Investment in Millions $2,000 $1,500 $1,000 $500 $ ,635 1,804 1,551 1, Domestic Realty Advisor REIT Other Private Advisor ,697 $0 $200 $400 $600 $800 $1000 $1200 $1400 $1600 $1800 Investment in Millions Office 31% 1998 R&D 65% 27

30 Silicon Valley Investment Market Selected Colliers Investment Transactions Divco West/Westbrook Partners purchased a 504,641 square foot R&D facility at 2290 North First Street in San Jose. The leased investment project is situated on 32.5 acres and the seller is Orchard Properties. (4Q00) Divco West Properties purchased San Tomas Business Park and McCandless Business Park, a 474,977 square foot office/r&d leased investment in Santa Clara from San Tomas L.P. and McCandless L.P. (2Q00) Landmark Assett Management Group acquired Corporate Technology Center II, a 310,333 square foot leased investment project located at Rose Orchard Parkway, San Jose, from Menlo Equities, LLC. (3Q00) RREEF America, LLC, purchased a 300,292 square foot R&D leased investment project at Kato Road in Fremont, from Carlyle Realty. (4Q00) South Bay Development Company purchased 155,260 square feet of office/r&d property from Dell Enterprises at Knowles Drive in Los Gatos. (4Q00) Silicon Valley Vacancy Statistics SILICON VALLEY Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 867, % 1,563, % 882, % 591, % 3,904, % Improved 769,928 1,425, , ,309 3,305,537 Unimproved 97, , , , ,173 New Construction 401,405 1,245,517 78, ,000 2,025,097 Net Absorption 433,509 1,264, ,150 11,849 2,016,240 Gross Absorption 1,677,922 4,270,057 1,335, ,015 7,949,682 3QTR00 692, % 1,077, % 1,007, % 498, % 3,276, % Improved 667,217 1,012, , ,158 2,969,299 Unimproved 25,288 64,621 69, , ,509 New Construction 1,856,133 1,930,878 85, ,180 3,999,603 Net Absorption -19, , , ,975 1,392,381 Gross Absorption 749,272 2,924, , ,717 5,510,846 2QTR00 525, % 1,383, % 1,036, % 856, % 3,802, % Improved 499,983 1,274, , ,531 3,428,621 Unimproved 25, , , , ,636 New Construction 2,406,525 2,443, , ,027,973 Net Absorption 1,063,274 3,473, , ,355 5,285,535 Gross Absorption 2,004,216 7,437,503 1,656,680 1,339,247 12,437,646 1QTR , % 3,841, % 1,532, % 931, % 7,298, % Improved 781,314 3,031,060 1,243, ,886 5,924,305 Unimproved 211, , ,122 62,400 1,373,916 New Construction 96, , , ,000 1,386,076 Net Absorption 1,341,189 3,043, , ,791 5,354,018 Gross Absorption 2,448,873 7,645,157 1,336,027 1,029,443 12,459,500 TOTALS New Construction 4,760,063 6,541, , ,180 12,438,749 Net Absorption 2,818,135 8,694,308 1,576, ,970 14,048,174 Gross Absorption 6,880,283 22,277,254 5,237,715 3,962,422 38,357,674 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 28

31 Silicon Valley Vacancy Statistics CAMPBELL Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 12, % 3, % % % 15, % Improved 12,910 3, ,934 New Construction Net Absorption 3, ,076 4, ,859 Gross Absorption 20, ,708 4, ,148 3QTR00 16, % 8, % 4, % % 28, % Improved 16,657 8,100 4, ,793 New Construction Net Absorption -4,188 10, ,487 Gross Absorption 16,281 25,809 3, ,202 2QTR 00 12, % 18, % 4, % % 35, % Improved 12,469 5,600 4, ,105 Unimproved 0 13, ,175 New Construction 0 200, ,000 Net Absorption ,225 2, ,799 Gross Absorption 34, ,808 10, ,835 1QTR 00 13, % % 6, % % 20, % Improved 13, , ,079 New Construction Net Absorption 10,956 17,856 13, ,924 Gross Absorption 35,647 26,260 13, ,019 CUPERTINO Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 41, % 2, % % % 43, % Improved 41,032 2, ,132 New Construction Net Absorption -37,612-2,100 8, ,112 Gross Absorption 12,240 60,000 8, ,840 3QTR00 3, % % 8, % % 12, % Improved 3, , ,020 New Construction Net Absorption Gross Absorption 2,219 25, ,060 2QTR 00 3, % % 8, % % 12, % Improved 3, , ,319 New Construction Net Absorption -2, , ,328 Gross Absorption 136, , ,741 1QTR 00 1, % % 12, % % 13, % Improved 1, , ,647 New Construction Net Absorption 72,876 43, ,438 Gross Absorption 97,229 70,380 13, ,327 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 29

32 OCTOBER 2000 Silicon Valley Vacancy Statistics FREMONT Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 103, % 323, % 113, % % 540, % Improved 74, , , ,233 Unimproved 28, , ,110 New Construction 0 180, ,000 Net Absorption -51, , ,109 54, ,588 Gross Absorption 56, , , ,924 1,025,606 3QTR00 51, % 350, % 235, % 54, % 692, % Improved 34, , ,799 54, ,620 Unimproved 17,038 17,962 7, ,856 New Construction 0 518, ,652 Net Absorption 40,484-12,735 13, , ,873 Gross Absorption 71, , , , ,648 2QTR 00 92, % 337, % 249, % 245, % 924, % Improved 75, , , , ,675 Unimproved 17,000 38,818 19, ,674 New Construction 0 451, ,861 Net Absorption 178,587 1,051, ,981-41,872 1,551,436 Gross Absorption 218,265 1,659, ,829 86,027 2,426,245 1QTR , % 1,298, % 518, % 203, % 2,180, % Improved 160,008 1,021, , ,373 1,742,474 Unimproved 0 276, , ,896 New Construction , ,385 Net Absorption 2, ,129 38,586-55, ,482 Gross Absorption 23,034 1,449, , ,533 1,782,311 GILROY Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 5, % 70, % % 62, % 138, % Improved 5,319 70, ,035 Unimproved ,400 62,400 New Construction Net Absorption 13,881-70,716 6, ,935 Gross Absorption 13, , ,781 3QTR00 19, % % 6, % 62, % 88, % Improved 19, , ,100 Unimproved ,400 62,400 New Construction Net Absorption -9, , ,853 Gross Absorption QTR 00 9, % % % 62, % 71, % Improved 9, ,247 Unimproved ,400 62,400 New Construction Net Absorption ,520 59,520 Gross Absorption ,520 59,520 1QTR 00 9, % % % 121, % 131, % Improved 9, ,520 68,767 Unimproved ,400 62,400 New Construction Net Absorption -3,647 75,860 2,425 44, ,219 Gross Absorption 5,600 75,860 18,347 74, ,513 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 30

33 Silicon Valley Vacancy Statistics LOS ALTOS Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 19, % % % % 19, % Improved 19, ,816 New Construction Net Absorption -5, ,566 Gross Absorption 40, ,364 3QTR00 14, % % % % 14, % Improved 14, ,250 New Construction Net Absorption -1, ,250 Gross Absorption QTR 00 13, % % % % 13, % Improved 13, ,000 New Construction Net Absorption -8, ,107 Gross Absorption 8, ,860 1QTR 00 4, % % % % 4, % Improved 4, ,893 New Construction 96, ,000 Net Absorption -1, ,772 Gross Absorption LOS GATOS Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR % 14, % % % 14, % Improved 0 14, ,700 New Construction 4, ,839 Net Absorption 10,657-14, ,043 Gross Absorption 11,657 50, ,511 3QTR00 3, % % % % 3, % Improved 3, ,157 New Construction Net Absorption 32,005 6, ,469 Gross Absorption 35,162 29, ,098 2QTR 00 10, % 6, % % % 16, % Improved 10,162 6, ,626 New Construction 7, ,500 Net Absorption 4, ,321 Gross Absorption 13, ,321 1QTR 00 14, % 6, % % % 20, % Improved 7,844 6, ,308 Unimproved 6, ,639 New Construction Net Absorption 19,753-6, ,289 Gross Absorption 46,951 66, ,351 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 31

34 OCTOBER 2000 Silicon Valley Vacancy Statistics MILPITAS Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 8, % 60, % 20, % 134, % 223, % Improved 8,097 60,538 20,134 49, ,167 Unimproved ,398 85,398 New Construction Net Absorption -2, ,159 1,420-7, ,102 Gross Absorption 10, ,660 44,182 66, ,722 3QTR00 5, % 9, % 21, % 127, % 164, % Improved 5,818 9,697 21,554 42,200 79,269 Unimproved ,398 85,398 New Construction 0 100, ,000 Net Absorption 7, ,187 19,016-54, ,935 Gross Absorption 16, ,041 40, ,274 2QTR 00 12, % 328, % 40, % 73, % 455, % Improved 12, ,084 40,570 19, ,802 Unimproved 0 10, ,000 64,800 New Construction 24, , ,690 Net Absorption 108, ,176 25, , ,501 Gross Absorption 121, ,441 40, ,157 1,280,536 1QTR 00 41, % 883, % 65, % 176, % 1,166, % Improved 17, ,781 65, , ,461 Unimproved 23, , ,196 New Construction 0 228, ,000 Net Absorption 17, ,871 16, , ,818 Gross Absorption 29, ,021 52, , ,842 MORGAN HILL Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 13, % % 10, % % 23, % Improved 10, , ,794 Unimproved 3, ,200 New Construction 62,367 49,900 49, ,867 Net Absorption , ,136 Gross Absorption 15,500 15,336 32, ,172 3QTR00 13, % % 32, % % 46, % Improved 10, , ,634 Unimproved 3, , ,496 New Construction 61, , , ,452 Net Absorption 5,886 66,095 56, ,320 Gross Absorption 5, ,374 70, ,599 2QTR 00 19, % 13, % 88, % % 122, % Improved 16,480 13,820 34, ,297 Unimproved 3, , ,878 New Construction Net Absorption , ,860 Gross Absorption 0 33,000 10, ,325 1QTR 00 19, % 13, % 65, % % 99, % Improved 16,480 13,820 12, ,437 Unimproved 3, , ,878 New Construction 0 52, ,272 Net Absorption -2,886 90,655 67, ,310 Gross Absorption 16,114 90,655 67, ,310 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 32

35 Silicon Valley Vacancy Statistics MOUNTAIN VIEW Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 126, % 170, % 107, % % 405, % Improved 126, , , ,439 Unimproved 0 15, ,000 New Construction 143,581 35, ,698 Net Absorption -18,890 47,285-15, ,444 Gross Absorption 62, ,930 58, ,601 3QTR00 108, % 119, % 82, % % 309, % Improved 108, ,394 82, ,485 New Construction 50,000 19, ,152 Net Absorption -106,537-65,839-30, ,246 Gross Absorption 37, ,070 25, ,293 2QTR 00 1, % 53, % 51, % % 106, % Improved 1,545 53,555 51, ,239 New Construction 0 457,000 9, ,981 Net Absorption 98,823 43,232-10, ,416 Gross Absorption 116, , , ,292 1QTR , % 13, % 40, % % 154, % Improved 85,368 13,370 40, ,238 Unimproved 15, ,000 New Construction 0 15, ,000 Net Absorption -17, ,087 22, ,449 Gross Absorption 96, ,889 38, ,674 PALO ALTO Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 42, % 150, % 16, % % 209, % Improved 42, ,119 16, ,315 New Construction 168, , ,182 Net Absorption -2,565-97,277-13, ,922 Gross Absorption 105,835 45,875 24, ,543 3QTR00 40, % 52, % 3, % % 96, % Improved 40,051 52,842 3, ,393 New Construction Net Absorption -19,998-52,842-3, ,340 Gross Absorption 43,750 8, ,042 2QTR 00 20, % % % % 20, % Improved 20, ,053 New Construction 330, ,509 Net Absorption 202,997 57,300 31, ,239 Gross Absorption 259,267 87,232 41, ,057 1QTR 00 3, % 57, % 31, % % 92, % Improved 3,050 57,300 31, ,292 New Construction Net Absorption 166,398 25,700 18, ,458 Gross Absorption 392,914 98,282 49, ,870 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 33

36 OCTOBER 2000 Silicon Valley Vacancy Statistics SAN JOSE Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 298, % 297, % 411, % 394, % 1,401, % Improved 288, , , ,911 1,175,795 Unimproved 9, , , ,325 New Construction 9, , ,531 Net Absorption 232, , ,429-83, ,496 Gross Absorption 811, , , ,535 2,553,222 3QTR00 310, % 273, % 422, % 206, % 1,212, % Improved 305, , , ,681 1,126,145 Unimproved 5,050 46,659 34, ,359 New Construction 949, ,595 85, ,623,620 Net Absorption -38, ,323 99, , ,760 Gross Absorption 292, , , ,374 2,113,700 2QTR , % 249, % 408, % 395, % 1,325, % Improved 267, , , ,457 1,225,033 Unimproved 5,050 46,659 49, ,709 New Construction 356, , , ,447 Net Absorption 311, ,840-62,159-4,151 1,071,441 Gross Absorption 649,462 2,214, , ,177 4,156,252 1QTR , % 1,075, % 346, % 391, % 2,357, % Improved 424, , , ,306 1,975,698 Unimproved 120, ,663 65, ,507 New Construction 0 423, , , ,269 Net Absorption 688,491 1,290, , ,546 2,611,606 Gross Absorption 1,120,169 2,653, , ,655 4,873,708 SANTA CLARA Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 162, % 226, % 123, % % 511, % Improved 106, , , ,213 Unimproved 55,540 17, ,740 New Construction 12, , , ,980 Net Absorption 258,990 4,816 3,077 38, ,139 Gross Absorption 453, , ,928 62,259 1,291,206 3QTR00 77, % 17, % 126, % 38, % 260, % Improved 77,747 17, ,224 38, ,112 New Construction 616, , ,880 Net Absorption -39,342 69,132 10,644 20,200 60,634 Gross Absorption 68, , , , ,308 2QTR 00 38, % 87, % 136, % 58, % 320, % Improved 38,405 87, ,868 58, ,746 New Construction 124, , ,550 Net Absorption 37, , ,740-44,456 1,022,887 Gross Absorption 184,481 1,620, ,972 13,600 2,163,433 1QTR 00 75, % 144, % 359, % 14, % 593, % Improved 32, , ,608 14, ,633 Unimproved 43, , ,000 New Construction 0 30, ,000 Net Absorption 299, ,184 93,108-14, ,491 Gross Absorption 425, , ,205 91,370 1,567,661 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. 34

37 Silicon Valley Vacancy Statistics SUNNYVALE Office Vac% R&D Vac% Industrial Vac% Warehouse Vac% Total Vac% 4QTR00 15, % 245, % 79, % % 339, % Improved 15, ,375 79, ,707 New Construction 0 58, ,000 Net Absorption 37, ,755-14,526 9, ,412 Gross Absorption 61, , ,453 9, ,467 3QTR00 16, % 245, % 64, % 9, % 336, % Improved 16, ,980 64,545 9, ,422 New Construction 178, , ,847 Net Absorption 122,935 90,662-15,800 12, ,573 Gross Absorption 157, ,379 30,621 12, ,022 2QTR 00 17, % 287, % 48, % 22, % 375, % Improved 17, ,942 48,745 22, ,860 New Construction 1,562, ,562,435 Net Absorption 131,269 62,057 35,804 1, ,014 Gross Absorption 252, , ,702 89,766 1,064,989 1QTR 00 3, % 349, % 84, % 24, % 462, % Improved 3, ,599 84,549 24, ,159 Unimproved 0 52, ,400 New Construction 0 173, ,150 Net Absorption 83, ,482-27,773-24, ,353 Gross Absorption 151, ,636 21, ,059,941 DISCLAIMER: Colliers International is pleased to be able to provide the above information and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use. GENERAL TERMS AVAILABLE DIRECT: Total vacant space available for occupancy. AVAILABLE SUBLEASE: Vacant space available through a sublessee to a third party that is available for occupancy. BUILD-TO-SUIT: A developable parcel that an owner will improve to suit the needs of a particular tenant. Construction does not begin until a tenant has committed to the property. BUILDING BASE: Total square footage developed. Colliers tracks office buildings from 3,000 square feet, R&D from 5,000 square feet, industrial buildings from 7,500 square feet, and warehouse buildings from 10,000 square feet. CBD: Central Business District, generally the downtown area of a major city. GROSS ABSORPTION: The total square footage sold or leased during a given time period. NET ABSORPTION: The net change in occupied space during a given period of time. NEW CONSTRUCTION: Construction which commenced during the period. OVERALL VACANCY: Percentage of vacant inventory available including both available direct, and available sublease space. PSF: Per square foot. PSF/MO: Per square foot per month. SF: Square foot or square feet. SILICON VALLEY: Colliers International defines Silicon Valley as all of Santa Clara County plus Fremont, for the purposes of its market reports. SPECULATIVE CONSTRUCTION: Construction that will commence without any prior commitment from a tenant. T.I.S: Tenant Improvements are a dollar amount offered by the lessor generally for the construction or modification of the premises. TOTAL AVAILABLE: The sum of vacant available direct and available sublease space. PRODUCT CLASSIFICATION CLASS A OFFICE: Modern, steel-framed low, mid or high-rise structures used exclusively for office tenants. CLASS B OFFICE: Wood and steel mix framed low to mid-rise structures and older brick or concrete structures used predominately for office. INDUSTRIAL/LIGHT INDUSTRIAL: Buildings with drive-in and/or dock-high truck capabilities, clear heights of less than 20 feet and parking ratios of 2.0/1000 or less. RESEARCH AND DEVELOPMENT (R&D): One to three story structures with extensive glass, heavy office buildout and 3.5/1,000 parking ratio. Buildings may include highend production facilities, laboratory space and grade level truck doors. WAREHOUSE/DISTRIBUTION: Buildings with a minimum 20-foot clear height, dockhigh truck loading and parking ratios of 2.0/1000 or less. RENTAL TERMS CAM: Common area maintenance charge. Generally used in Industrial Gross and NNN leases where the tenant pays a share of the costs associated with the maintenance of the common areas. FULL SERVICE: Rental type generally used in office product where the landlord s rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, maintenance, janitorial, and utilities. INDUSTRIAL GROSS: Rental type generally used in industrial product where the landlord s rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, and maintenance. RENTAL RATES: All rental rates for office space are calculated on a Full Service basis unless otherwise noted. All rental rates for industrial space are calculated on a NNN basis unless otherwise noted. All rental rates for R&D and warehouse space are calculated on a NNN basis unless otherwise noted. TRIPLE NET (NNN): Rental type where the tenant pays rent to the landlord and additionally assumes all costs regarding the operation, taxes and maintenance of the premises and building. 35

38 OCTOBER 2000 Brokerage Profile JANUARY 2001 Associates - Silicon Valley James R. Abarta (925) jabarta@colliersparrish.com Susan Gregory (408) sgregory@colliersparrish.com Marne Michaels (408) mmichaels@colliersparrish.com Hitoshi Takahashi (408) htakahashi@colliersparrish.com Martin Baccaglio (408) martyb@colliersparrish.com David Gray (650) dgray@colliersparrish.com Catherine Minard (408) cminard@colliersparrish.com Kenneth D. Tsukahara (408) ktsukahara@colliersparrish.com Jeffrey A. Barnes (408) jbarnes@colliersparrish.com Robert Grubb (650) rgrubb@colliersparrish.com Martin A. Morici, SIOR (408) mmorici@colliersparrish.com Chris Twardus (408) ctwardus@colliersparrish.com Terry Bell (408) tbell@colliersparrish.com Zack Haller (408) zhaller@colliersparrish.com Jeffry S. Nochimson, SIOR (408) jnochimson@colliersparrish.com Gregg von Thaden (408) gvonthaden@colliersparrish.com Michael J. Burke (408) mburke@colliersparrish.com Joan S. Haynes (408) jhaynes@colliersparrish.com James H. Parrish (408) jparrish@colliersparrish.com André R. Walewski (408) awalewski@colliersparrish.com Samuel E. Burnett (408) sburnett@colliersparrish.com Terry Healy (408) thealy@colliersparrish.com Joe Passanisi (408) jpassanisi@colliersparrish.com Mary Wimmer (408) mwimmer@colliersparrish.com Donn H. Byrne, Sr. (408) dbyrne@colliersparrish.com Edward M. Hofer, SIOR (408) ehofer@colliersparrish.com M. Steven Prehm, SIOR (408) sprehm@colliersparrish.com Mark P. Zamudio, CCIM (408) mzamudio@colliersparrish.com Gregory A. Cioth (408) gcioth@colliersparrish.com Jon Condrey (408) jcondrey@colliersparrish.com Stephen C. Condrey (408) scondrey@colliersparrish.com Duffy D Angelo, SIOR (408) ddangelo@colliersparrish.com Scott F. Daugherty, CPA (408) sdaugherty@colliersparrish.com Steve Hunt (408) shunt@colliersparrish.com Michael R. Johnson, SIOR (408) mjohnson@colliersparrish.com W. Parker Jones (408) pjones@colliersparrish.com James Kaye (408) jkaye@colliersparrish.com Mark R. Kuiper (408) mkuiper@colliersparrish.com George Quinn (408) gquinn@colliersparrish.com Donald H. Reimann, SIOR (408) dreimann@colliersparrish.com Michael L. Rosendin, SIOR, CCIM (408) mrosendin@colliersparrish.com Cynthia Rotwein (408) crotwein@colliersparrish.com Robert Rowland (408) rrowland@colliersparrish.com Steve Zamudio (408) szamudio@colliersparrish.com Colliers Advisory Group Philip Arnautou, Jr., CPA, Partner (650) parnautou@colliersparrish.com Jeffrey L. Rogers (408) jrogers@colliersparrish.com Ian R. Stuart, F.R.I.C.S., Partner (925) istuart@colliersparrish.com Joe Elliott (408) jelliott@colliersparrish.com David N. Evans (408) devans@colliersparrish.com Carla Lindorff (408) clindorf@colliersparrish.com Thomas M. Loeswick (408) tloeswick@colliersparrish.com David R. Sandlin, SIOR (408) dsandlin@colliersparrish.com David V. Schmidt, SIOR (408) dschmidt@colliersparrish.com Property Management Tod Rudee (408) trudee@colliersparrish.com Craig L. Fordyce, SIOR, CCIM (408) cfordyce@colliersparrish.com Greg Galasso, SIOR (408) ggalasso@colliersparrish.com John Machado, JDI, MBA (408) jmachado@colliersparrish.com F. Douglas Marks, MBA (650) dmarks@colliersparrish.com Robert Schwartz (650) rschwartz@colliersparrish.com Robert B. Shannon, SIOR, CCIM (408) rshannon@colliersparrish.com Appraisal & Property Tax Division Donn H. Byrne, Jr., MAI, ASA (408) dbyrnejr@colliersparrish.com Denni Ghilarducci (408) dghilarducci@colliersparrish.com Stephen J. Gibson, SIOR (408) sgibson@colliersparrish.com John McMahon (408) jmcmahon@colliersparrish.com David C. Mein (408) dmein@colliersparrish.com Bob Shepherd (408) bshepherd@colliersparrish.com Dennis Stokes (408) dstokes@colliersparrrish.com Managing Partner Jeff S. Fredericks, SIOR (408) jfredericks@colliersparrish.com Mark Giovanzana (408) mgiovanzana@colliersparrish.com Ed Mendence, SIOR (408) emendence@colliersparrish.com Cole Sweatt (408) csweatt@colliersparrish.com 36

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