West Los Angeles Market Sees Negative Demand for First Time in Twelve Quarters

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1 OFFICE MARKET REPORT West Los Angeles Market Sees Negative Demand for First Time in Twelve Quarters MARKET OVERVIEW MARKET INDICATORS - VACANCY 12.9% NET ABSORPTION -349,900 CONSTRUCTION 972,700 RENTAL RATE $4.00 P FSG UNEMPLOYMENT 6.9% The West Los Angeles office market recorded negative absorption of -349,900 square feet () in the third quarter of 2015 as the Santa Monica submarket experienced a high volume of move-outs with companies moving south to Playa Vista and the Olympic Corridor. As a result, total vacancy increased 60 basis points to 12.9% from 12.3% in the previous quarter. Direct weighted average monthly asking rents continued upward as rents rose to $4.00 per square foot (P), per month full service gross (FSG). Leasing activity remained robust with 1,124,100 leased relative to 1,351,896 registered in second quarter of Investment sales activity maintained the momentum from the volume of second quarter. The market registered the highest P price for an office building in the Greater Los Angeles region as Cain Hoy Enterprises acquired 100 N. Crescent Dr. in Beverly Hills from Clarion Partners for $130M, or $1,098 P. The 118,400 building was 97% leased at time of sale. Two other notable sales in the market were W. Sunset Blvd. trading from a joint venture of Lincoln Property Company and Linwood Investments to Brickman Associates for $53M ($511 P), and Butter Ventures, LLC acquiring Santa Monica Blvd. from Basic Media Group for $11.5M ($428 P). Additionally 9350 Wilshire Blvd. sold in a late trade from Lexington Commercial to Hakim Holdings, LLC for an undisclosed price. MARKET TRENDS - >> Total vacancy increases to 12.9% HISTORICAL VACANCY VS RENTS Q HISTORICAL NET ABSORPTION & CONSTRUCTION COMPLETIONS - Q >> Weighted average asking rental rate jumped from $3.88 P FSG to $4.00 P FSG >> New leasing activity at 1,124,100 >> There was negative demand with -349,900 net absorption >> Construction activity at 972,700 $ P FSG PER MONTH (WEIGHTED) $4.10 $4.00 $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30 $3.20 $3.10 $3.00 RENTS VACANCY 3Q11 3Q12 3Q13 3Q14 3Q15 18% 16% 14% 12% 10% 8% 6% 4% % VACANT (TOTAL) 800, , , ,000 0 (200,000) (400,000) (600,000) (800,000) (1,000,000) (1,200,000) NET ABSORPTION CONSTRUCTION COMPLETIONS 3Q11 3Q12 3Q13 3Q14 3Q15 1 Colliers International continuously refines its database. As a result, data reflected in this report may not be consistent with data reported in previous quarters.

2 MARKET REPORT OFFICE LOS ANGELES DEMOGRAPHICS >> POPULATION: 10,136,509 (2015 Estimate) 10,510,281 (2020 Projection) 3.69% (Growth ) >> HOUSEHOLD INCOME: $78,309 (Average) $54,514 (Median >> JOB GROWTH: 1.8% (past 12 months) >> UNEMPLOYMENT RATE: 6.9% (as of August 2015) VACANCY Total vacancy rate increased to 12.9%, a 60 basis point increase relative to last quarter. Total vacancy rates were the highest in the West Hollywood submarket (18.3%) and lowest in the Olympic Corridor submarket (3.8%). rates were highest for Class A space (14.0%) and lowest for Class C space (3.5%) with Class B space in-between at 9.2%. NET ABSORPTION Net absorption recorded at -349,900 in the third quarter, a turnaround from last quarter s 637,400 and the first time demand has been negative since fourth quarter Santa Monica bore the brunt of negative demand with -447,800, as tenants such as Riot Games and Yahoo completed their moves to the Olympic Corridor and Playa Vista. Five other submarkets recorded negative absorption: Century City (-146,600 ), Beverly Hills (-46,000 ), Miracle Mile (-28,600 ), West Los Angeles (-27,800 ) and Culver City (-13,500). The best performing submarkets were: Marina Del Rey/Venice (185,800 ), West Hollywood (79,300 ), Westwood (66,500), Brentwood (14,800 ) and Olympic Corridor (14,000 ). The tenants that occupied space in the third quarter are as follows: Yahoo moved into 130,000 at The Collective in Playa Vista, Omnicon moved into 60,000 at W. Jefferson Blvd. in Playa Vista and eharmony occupied 50,100 at Wilshire Blvd. in Westwood. 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-overyear 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. VACANCY BY SUBMARKET West Los Angeles Market NET ABSORPTION BY SUBMARKET West Los Angeles Market % VACANT 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% SUBLEASE VACANCY 1.8% 0.4% 0.4% 13.0% 9.2% 1.0% 7.8% 2.8% DIRECT VACANCY 0.5% 0.0% 2.8% 1.6% 0.2% 0.2% 0.8% 17.8% 17.8% 14.3% 12.9% 12.8% 15.2% 11.9% 300, , ,000 0 (100,000) (200,000) (300,000) (400,000) (500,000) 14,000 14,800 (46,000) 79, ,800 66,500 (28,600) (13,500) (27,800) (146,600) (447,800) P. 2 COLLIERS INTERNATIONAL

3 MARKET REPORT OFFICE OFFICE OVERVIEW EXISTING PROPERTIES VACANCY ACTIVITY ABSORPTION CONSTRUCTION RENTS Submarket/ Class Bldgs Total Inventory Direct Sublease Total Total Prior Qtr Leasing Activity Current Qtr Leasing Activity YTD Net Absorption Current Qtr Net Absorption YTD Completions Current Qtr Under Construction Weighted Avg Asking Lease Rate A ,407, % 1.1% 14.0% 13.1% 834,800 2,943,500 (384,900) 180,000 36, ,700 $4.05 B ,849, % 0.3% 9.2% 9.5% 276, ,200 33, , ,000 $3.75 C , % 1.1% 3.5% 3.7% 12,900 51,900 1,300 5, $2.46 SUBTOTAL 20 10,594, % 0.2% 13.0% 11.6% 176, ,400 (146,600) (93,400) 0 0 $4.33 SUBTOTAL 102 9,210, % 1.8% 14.8% 9.9% 134, ,200 (447,800) (640,400) 0 247,000 $4.54 SUBTOTAL 71 6,750, % 0.4% 8.1% 7.4% 92, ,800 (46,000) 112, ,900 $4.97 SUBTOTAL 25 5,279, % 0.2% 13.1% 12.5% 68, ,100 (28,600) 28, $3.60 SUBTOTAL 27 4,743, % 0.8% 12.7% 14.1% 119, ,800 66,500 61, $4.01 SUBTOTAL 46 3,633, % 1.6% 15.9% 15.5% 70, ,600 (13,500) (26,400) 0 66,000 $2.80 SUBTOTAL 51 5,477, % 2.8% 18.0% 20.9% 205, , , ,600 36, ,800 $3.39 SUBTOTAL 20 3,370, % 0.4% 9.6% 10.0% 72, ,100 14, , $3.90 SUBTOTAL 27 3,301, % 1.0% 3.8% 4.2% 79, ,800 14, , $3.61 SUBTOTAL 30 2,782, % 0.5% 18.3% 21.2% 105, ,100 79, , ,000 $4.17 SUBTOTAL , % 0.0% 17.8% 14.5% 1,300 24,100 (27,800) (40,200) 0 0 $2.75 MARKET TOTAL TOTAL ,992, % 0.9% 12.9% 12.3% 1,124,100 3,701,600 (349,900) 372,300 36, ,700 $4.00 COLLIERS INTERNATIONAL P. 3

4 MARKET REPORT OFFICE >> Average rental rates have been increasing since Q4 2011, a trend expected to continue through the near future >> Tenant migration south to Olympic Corridor and Playa Vista affects Santa Monica demand >> Ground-up construction in Playa Vista and creative conversions in Santa Monica have boosted construction CONSTRUCTION The fourth building of Tishman Speyer s fivebuilding Collective, W. Bluff Creek Dr., delivered with the Annenberg Institute preleasing the entire space of 36, W. Bluff Creek Dr. (36,400 ) is due to deliver next quarter. Tishman Speyer also broke ground on the Brickyard in Playa Vista, a 494,400 creative campus encompassing two buildings. In Santa Monica, Clarion Partners started renovations of the former Papermate Factory into a 222,000 creative building. Kennedy-Wilson Properties is renovating 150 S. El Camino Dr. totaling 64,937, in Beverly Hills with an expected completion date of fourth quarter CIM Group s 925 N. La Brea Ave. (64,000 ) in West Hollywood will deliver in fourth quarter, while 8476 Stellar Dr. (40,000 ) and 3640 Holdrege Ave. (26,000 ), both in Culver City, will deliver in fourth quarter 2015 and first quarter 2016, respectively. ACTIVITY New leasing activity during third quarter was 1,124,100, a 16.8% decrease compared to last quarter. Despite the negative demand this quarter, the West Los Angeles market is still the premier destination for companies in a variety of industries. The tenants that signed leases in third quarter were: Honest Company signed for 82,200 at Millenium Dr. in Playa Vista, Phelps Advertising agreed to relocate from Santa Monica to Bluff Creek Dr. in Playa Vista for 30,000, Verifi leased 29,000 at 5670 Wilshire Blvd. in Miracle Mile, Thrive Market leased 26,000 at 4503 Glencoe Ave. in Marina Del Rey and Morgan Stanley Smith Barney renewed 23,000 at Wilshire Blvd. in Westwood. RENTAL RATES The overall weighted average monthly asking rent for direct space increased 3.0% to $4.00 P FSG, a level not seen since early Average rental rates have been increasing since Q4 2011, and as landlords remain optimistic about the market, that trend is expected to continue through the near future. Average monthly FSG asking rents remained highest in Beverly Hills ($4.97 P) and lowest in West Los Angeles ($2.75 P). Class A asking rents were $4.05 P compared to Class B at $3.75 P and Class C at $2.46 P. WEIGHTED AVERAGE ASKING LEASE RATES BY SUBMARKET LEASING ACTIVITY BY SUBMARKET $ P PER MONTH (FSG) $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $4.97 $4.54 $4.33 $4.17 $3.90 $4.01 $3.60 $3.39 $3.61 $2.80 $ , , , , , , ,000 80,000 60,000 40,000 20, ,300 79,000 70, , , ,300 92,200 72,600 68, , ,700 P. 4 COLLIERS INTERNATIONAL

5 MARKET REPORT OFFICE OUTLOOK The West Los Angeles market registered negative absorption numbers for the first time in twelve quarters, largely due to tenant migration south to less expensive submarkets such as Olympic Corridor, Playa Vista and El Segundo. Negative demand notwithstanding, rental rates will continue to increase as landlords remain bullish on the market s attractiveness to tenants in the market. The West Los Angeles market still boasts the lowest vacancy in the market and is poised to add just under 1 million in the near future as construction and creative conversions deliver, satisfying demand for the strongest market in the Greater Los Angeles area. MARKET DESCRIPTION West Los Angeles is a moderately large office market comprised of 56.2 million, representing 19% of the total office space in buildings 25,000 and greater in the Los Angeles Basin. It is also a moderately young and dense market, with 40% of its space built in 1985 or later, and 70% of its space contained within mid-rise and high-rise buildings. It has a large concentration of high-margin firms (including those in the entertainment, digital media, software, and finance sectors), and is situated in the midst of some of the most affluent neighborhoods nationally. HISTORICAL LEASING ACTIVITY Q UNEMPLOYMENT RATE United States, California & West Los Angeles August ,900,000 1,700,000 1,500,000 1,300, % 7.0% 6.0% 5.0% 5.2% 6.1% 6.9% 1,100, , , , , % 3.0% 2.0% 1.0% 100,000 3Q11 3Q12 3Q13 3Q14 3Q15 0.0% United States California Los Angeles County RECENT TRANSACTIONS & MAJOR DEVELOPMENTS SALES ACTIVITY PROPERTY ADDRESS SIZE SALE PRICE PRICE P BUYER SELLER 100 N Crescent Dr., Beverly Hills 118,400 $130,000,000 $1,098 P Cain Hoy Enterprises Clarion Partners W. Sunset Blvd., Pacific Palisades 103,800 $53,000,000 $511 P Brickman Associates Lincoln Property Company Santa Monica Blvd., Los Angeles 26,900 $11,500,000 $428 P Butter Ventures, LLC Basic Media Group 9350 Wilshire Blvd., Los Angeles 53,800 TBD TBD Hakim Holdings, LLC Lexington Commercial LEASING ACTIVITY PROPERTY ADDRESS LEASED LEASE TYPE BLDG TYPE LESSEE LESSOR Millenium Dr., Playa Vista 82,200 Direct A Honest Company Clarion Partners Bluff Creek Dr., Playa Vista 30,000 Direct A Phelps Advertising JP Morgan Chase 5670 Wilshire Blvd., Los Angeles 29,000 Direct A Verifi The Blackstone Group 4503 Glencoe Ave, Marina Del Rey 26,000 Direct B Thrive Market Abraxis Bioscience Wilshire Blvd., Westwood 23,000 Renewal A Morgan Stanley Smith Barney The Blackstone Group MAJOR DEVELOPMENTS PROJECT DEVELOPER SIZE SUBMARKET STATUS ESTIMATED COMPLETION Brickyard (2 bldgs), Playa Vista Tishman Speyer 494,400 Marina Del Rey/Venice Under Construction Q Pen Factory, Santa Monica Clarion Partners 222,000 Santa Monica Under Renovation Q S. El Camino Dr., Beverly Hills Kennedy-Wilson Properites 64,900 Beverly Hills Under Renovation Q N La Brea Ave., Los Angeles CIM Group 64,000 West Hollywood Under Construction Q COLLIERS INTERNATIONAL P. 5

6 MARKET REPORT OFFICE DEFINITIONS OF KEY TERMS USED IN THIS REPORT Total Rentable Square Feet: Office space in buildings with 25,000 or more of speculative office space. Includes competitive space in Class A, B and C singletenant 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 underconstruction, under-renovation or off-market. 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. 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 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. 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 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. UNITED STATES: Downtown Los Angeles Office License No S. Figueroa Street, Suite 3500 Los Angeles, CA TEL FAX MATTESON, CAITLIN Research Director Research Services MUMPER, HANS Executive Managing Director WONG, CHRISTOPHER Regional Analyst Research Services Mid-Rise: Buildings with a total of 5 to 13 floors. High-Rise: Buildings with 14 or more floors. 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. Direct : 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 : 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. 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 Accelerating success. P. 6 COLLIERS INTERNATIONAL