Central Los Angeles Leasing Activity Surges Despite Negative Absorption

(1)

market report CENTRAL LOS ANGELES

1Colliers International continuously refines its database. As a result, data reflected in this report may not be consistent with data reported in previous quarters.

MARkET OvERviEw

the Central Los angeles office market saw decreased demand through the third quarter 2015 with net absorption recording at -112,300 square feet (SF) from 20,000 SF the previous quarter. the total vacancy rate subsequently increased 90 basis points to 19.8% from 18.9% one quarter ago. Despite the drop in demand, the Central Los angeles market remains bullish. Direct weighted average asking rents increased to $2.17 per square foot (pSF), per month Full Service Gross (FSG) on the strength of increasing lease rates in the mid- Wilshire submarket. New leasing activity rose from last quarter’s 111,048 SF to 476,600 SF. Hollywood registered the majority of the leasing activity for the quarter recording 355,200 SF, with NetFlix accounting for 200,500 SF at Hudson pacific’s Icon campus. most leasing activity in the past three quarters has consisted of pre-leases for pipeline properties, such as Columbia Square and the aforementioned Icon.

Sale activity for third quarter consisted of one major sale as 1800 N. Highland ave. in Hollywood traded from CIm Group to a joint venture of the the Souferian Group and the Carlyle Group for $44.4m, or $511 pSF. the building, which was 86% leased at time of sale to tenants such as Forbidden Images production and Live Nation, will be repositioned by the new owner as creative office space.

Central Los Angeles Leasing Activity

Surges Despite Negative Absorption

MARkET iNdiCATORS - Q3 2015

VaCaNCY 19.8%

Net aBSorptIoN -112,300 SF CoNStrUCtIoN 1,242,600 SF reNtaL rate $2.17 pSF UNempLoYmeNt 7.0%

10%

12%

14%

16%

18%

20%

22%

$1.00

$1.50

$2.00

$2.50

3Q11 3Q12 3Q13 3Q14 3Q15

% VACANT (TOTAL)

$ PSF FSG PER ANNUM (WEIGHTED)

RENTS VACANCY

HiSTORiCAL vACANCY vS RENTS

Central Los Angeles Office Market Q3 2011 - Q3 2015

(200,000) (150,000) (100,000) (50,000) 0 50,000 100,000 150,000

3Q11 3Q12 3Q13 3Q14 3Q15

SF

NET ABSORPTION CONSTRUCTION COMPLETIONS

HiSTORiCAL NET AbSORpTiON &

CONSTRuCTiON COMpLETiONS

>> total vacancy rate increases to

19.8% from 18.9%

>> Weighted average asking rental rate

increases to $2.17 pSF

>> Leasing activity rises to n

n476,600 SF

>> absorption of -112,300 SF

>> Construction activity at 1,242,600

nnSF

MARkET TRENdS - Q3 2015

(2)

vACANCY

the total vacancy rate, including sublet space, increased to 19.8% from 18.9% reported last quarter. twelve months ago the vacancy rate stood at the same rate of 19.2%. total vacancy rates continued to be highest in the mid-Wilshire submarket (22.6%) and lowest in the Hollywood submarket (10.8%). Vacancy rates were highest for Class B space (26.5%) and lowest for Class a space (11.5%) with Class C space in-between at 18.6%.

NET AbSORpTiON

the market saw negative demand as net absorption was -112,300 SF in third quarter.

Both Hollywood and mid-Wilshire submarkets registered negative absorption with -25,300 SF and -87,000 SF respectively. Net absorption from the perspective of building classes recorded Class a office space at -54,100 SF, Class B at -53,300 SF and Class C at -4,900 SF.

uNEMpLOYMENT

august 2015 figures for nonfarm employment in Los angeles County showed continued recovery for the job market. over the past 12 months, Los angeles County has gained 76,300 jobs for an increase of 1.8%. this gain in employment led to unemployment lowering to 6.9% compared to 8.1% one year ago. Nine out of the eleven industries tracked by the eDD posted year-over- year gains. educational and Health Services (+22,500), trade, transportation, and Utilities (+17,100) and Leisure and Hospitality (+16,800) posted the largest gains. Government (+ 7,500), and professional and Business Services (+6,500) also increased year-over-year.

LOS ANGELES COuNTY

dEMOGRApHiCS

>>

popULatIoN:

10,136,509 (2015 estimate)

10,510,281 (2020 projection)

3.69% (Growth 2015-2020)

>>

HoUSeHoLD INCome:

$78,309 (average)

$54,514 (median)

>>

JoB GroWtH:

1.8% (past 12 months)

>>

UNempLoYmeNt rate:

6.9% (as of august 2015)

vACANCY bY SubMARkET

Central Los Angeles Office Market Q3 2015

NET AbSORpTiON bY SubMARkET

10.5%

22.6%

0.3%

0.0%

0%

5%

10%

15%

20%

25%

HOLLYWOOD MID WILSHIRE

% VACANT

SUBLEASE VACANCY DIRECT VACANCY

(87,000)

(25,300)

(100,000) (90,000) (80,000) (70,000) (60,000) (50,000) (40,000) (30,000) (20,000) (10,000) 0

MID WILSHIRE HOLLYWOOD

SF

(3)

EXISTING PRoPERTIES VACANCY ACTIVITY ABSoRPTIoN CoNSTRUCTIoN RENTS

Submarket/

Class Bldgs total Inventory

SF

Direct

Vacancy Sublease Vacancy total

Vacancy

total Vacancy prior Qtr

Leasing activity Current Qtr

SF

Leasing activity YtD

SF

absorption Net Current Qtr

SF

absorption Net YtD

SF

Completions Current Qtr

SF

Under Construction

SF

Weighted avg asking Lease rate MID WILSHIRE

a 16 3,691,900 12.5% 0.0% 12.5% 11.7% 49,600 106,900 (27,200) (6,800) 0 0 $2.07

B 39 5,811,800 27.9% 0.0% 27.9% 27.0% 71,800 87,700 (54,900) (56,500) 0 0 $1.98

C 9 693,400 31.4% 0.0% 31.4% 30.7% 0 700 (4,900) (600) 0 0 $1.63

SUBToTAL 64 10,197,100 22.6% 0.0% 22.6% 21.7% 121,400 195,300 (87,000) (63,900) 0 0 $1.96

HoLLYWooD

a 12 1,658,100 9.0% 0.3% 9.3% 7.6% 280,600 441,000 (26,900) (12,100) 0 1,242,600 $3.59

B 17 1,004,500 17.6% 0.5% 18.1% 18.2% 74,600 122,800 1,600 9,100 0 0 $3.60

C 13 524,600 1.5% 0.0% 1.5% 1.5% 0 0 0 (1,200) 0 0 $2.62

SUBToTAL 42 3,187,200 10.5% 0.3% 10.8% 10.0% 355,200 563,800 (25,300) (4,200) 0 1,242,600 $3.57

MARKET ToTAL

a 28 5,350,000 11.4% 0.1% 11.5% 10.5% 330,200 547,900 (54,100) (18,900) 0 1,242,600 $2.44

B 56 6,816,300 26.4% 0.1% 26.5% 25.7% 146,400 210,500 (53,300) (47,400) 0 0 $2.14

C 22 1,218,000 18.6% 0.0% 18.6% 18.2% 0 700 (4,900) (1,800) 0 0 $1.67

ToTAL 106 13,384,300 19.7% 0.1% 19.8% 18.9% 476,600 759,100 (112,300) (68,100) 0 1,242,600 $2.17

OFFiCE OvERviEw

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CONSTRuCTiON

Hollywood’s development pipeline currently has 1,242,600 SF of office space under construction, which is approximately 33% of all new construction in Los angeles County. While construction deliveries remained flat for the quarter, completions are imminent for kilroy’s Columbia Square, a $300 million mixed use project, and J.H. Snyder’s Hollywood 959 project totaling 250,000 SF. Both properties are expected to start delivering office space in fourth quarter of this year. Hudson pacific properties, Inc. continued construction on 405,000 SF at Icon, located on the Sunset Bronson Studios lot.

the Class a space, is expected to deliver in fourth quarter 2016.

ACTiviTY

New leasing activity in third quarter 2015 rose to 476,600 SF compared to 171,500 SF the previous quarter.

Class a office space generated the majority of new leasing activity in Q3 with 330,200 SF. NetFlix headlined the lease deals signed, agreeing to occupy 200,100 SF at the yet-to- be-delivered Icon. In addition, SIm Group signed for 65,000 SF at Lincoln property’s Hollywood media Campus, bringing that property to 100%

leased. In the mid-Wilshire submarket, Sp plus Corp. agreed to occupy 22,800 SF at 3470 Wilshire Blvd.

Despite lessened demand, leasing activity continues to surge in the Hollywood submarket due to the combination of high quality Class a pipeline projects and strong preleasing efforts.

Demand will rise concurrently as these projects deliver.

RENTAL RATES

the weighted average asking rent for direct space increased to $2.17 pSF. average asking rents remained highest in the Hollywood submarket ($3.57 pSF), and lowest in the mid- Wilshire submarket ($1.96 pSF).

asking rents for Class B office space in mid- Wilshire rose by $0.17 from last quarter as Jamison increased rents for their office inventory in the submarket. the trend for asking rents in Central Los angeles will see increases through 2015 and beyond as new, high quality space becomes available for lease.

wEiGHTEd AvERAGE ASkiNG LEASE RATES bY SubMARkET

LEASiNG ACTiviTY bY SubMARkET

>> overall leasing activity recorded 476,600 SF in third quarter

>> No new projects were delivered to the market in third quarter;

however, there is currently 1.24 million SF under construction

>> Demand dropped in third quarter, but will rebound as pre-leased projects are delivered to the market

$1.96

$3.57

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$ PSF PER ANNUM (FSG)

121,400

355,200

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

SF

(5)

OuTLOOk

the Hollywood submarket will continue to see strong demand for space from entertainment, media and technology firms as pre-leased properties are delivered to the market. With the surrounding submarkets mostly built- out and creative tenants passing on the burgeoning, but not fully-realized Downtown Los angeles creative market, Hollywood has the opportunity to attract tenants desiring quality space at a lower price-point than the Silicon Beach cluster. the preponderance of large blocks of space is also attractive for companies looking to consolidate their operations or relocate headquarter offices.

MARkET dESCRipTiON

Central Los angeles is an office market comprised of 13.6 million SF, representing 6% of the total office space 25,000 SF and greater in the Los angeles Basin. mid-Wilshire is attractive to small, entrepreneurial, and often pacific rim-owned businesses while Hollywood has a mix of firms from the professional services, high-tech and entertainment/media sectors.

RECENT TRANSACTiONS & MAJOR dEvELOpMENTS

SALES ACTIVITY

PRoPERTY ADDRESS SIZE SF SALE PRICE PRICE PSF BUYER SELLER

1800 N. Highland ave., Hollywood 86,800 SF $44.4m $511 pSF the Souferian Group/Carlyle Group CIm Group Lp

LEASING ACTIVITY

PRoPERTY ADDRESS LEASED SF LEASE TYPE BLDG TYPE LESSEE LESSoR

5808 W. Sunset Blvd., Hollywood 200,500 SF Direct-New a NetFlix Hudson pacific properties

1017 N. Las palmas ave., Hollywood 65,000 SF Direct-New a SIm Group Lincoln property Company

3470 Wilshire Blvd., Los angeles 22,800 SF Direct-New a Sp plus Corp Jamison Services

6430 Sunset Blvd., Hollywood 15,000 SF renewal a oxford road Broadreach Capital partners

MAJoR DEVELoPMENTS

PRoJECT DEVELoPER SIZE SF SUBMARKET STATUS ESTIMATED CoMPLETIoN

Columbia Square (5 bldgs) kilroy realty 461,140 SF Hollywood Under Construction Q4 2015

Icon at Sunset Bronson Studios (2 bldgs) Hudson pacific properties, Inc 405,000 SF Hollywood Under Construction Q4 2016

959 Seward St - West/east Bldgs J.H. Snyder Company 247,836 SF Hollywood Under Construction Q4 2015

uNEMpLOYMENT RATE

united States, California & Los Angeles County August 2015

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000

4Q08 4Q09 4Q10 4Q11 4Q12

SF

0 100,000 200,000 300,000 400,000 500,000 600,000

3Q11 3Q12 3Q13 3Q14 3Q15

SF

HiSTORiCAL LEASiNG ACTiviTY

5.2%

6.1%

6.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

United States California Los Angeles County

(6)

Total Rentable Square Feet:

office space in buildings with 25,000 SF or more of speculative office space. Includes competitive space in Class a, B and C single- tenant and multi-tenant buildings. excludes non-competitive owner-occupied buildings, buildings that include 30% or greater of medical or retail space, and space that is under- construction, under-renovation or off-market.

Class A Space:

Space that an image-conscious company would lease for its headquarters. typically, this space has a very high level of finish and an excellent location, and commands the highest rents in the market.

Class b Space:

Highly functional, attractive space, but less prestigious than Class a Space, and commanding lower rental rates.

Class C Space:

Functional, competitive space, but with a lower level of finish and/or a less desirable location than with Class B Space, and commanding lower rental rates.

Low-Rise:

Buildings with a total of 4 floors or less.

Mid-Rise:

Buildings with a total of 5 to 13 floors.

High-Rise:

Buildings with 14 or more floors.

direct vacancy:

Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment).

Total vacancy:

Space in existing buildings that is vacant and immediately available during the quarter for direct lease or for sublease, plus space that is vacant but not available for direct lease or sublease.

Net Absorption:

Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease).

Leasing Activity:

Square feet leased from all known transactions completed during the quarter. excludes lease renewals.

weighted Average Asking Rental Rates:

Weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities.

reported on a monthly, per SF basis.

Space Added (Net):

total square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions.

under Construction:

Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of occupancy.

Technical Note

Colliers International is continuously refining its database.

The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database.

This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct.

Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from.

This report and other research materials may be found on our website at www.colliers.com/greaterlosangeles.

dEFiNiTiONS OF kEY TERMS uSEd iN THiS REpORT

502 offices in

67 countries on

6 continents

United States: 140 Canada: 31 Latin america: 24 asia pacific: 199 emea: 108

>> $2.3 billion in annual revenue

>> 1.7 billion square feet under

management

>> Over 16,200 professionals

accelerating success.

matteSoN, CaItLIN Research Director Research Services mUmper, HaNS Executive Managing Director WoNG, CHrIStopHer Regional Analyst Research Services

uNiTEd STATES:

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865 S. Figueroa Street, Suite 3500 Los angeles, Ca 90017

TEL +1 213 627 1214 FAX +1 213 327 3200