Savills Studley Report Los Angeles office sector Q2 2016

Savills Studley Research Los Angeles

SUMMARYMarket Highlights

AVAILABILITY RATES DROP SLIGHTLY

Overall and Class A availability rates both inched lower, each falling by roughly 30 basis points during the second quarter, to 17.5% and 18.8%, respectively. Class A availability rates posted the biggest declines in the South Bay and San Gabriel Valley, falling by 1.5 pp and 1.7 pp, respectively.

ASKING RENTS PUSH HIGHER

Asking rent in the Los Angeles region posted its biggest quarter-on-quarter gain in several years, rising by 2.8% to $33.42. Class A asking rent increased by 3.0% to $35.46. Class B rent has also increased in select submarkets, including Downtown L.A. which

grew by 4.6% quarter on quarter to $36.96.

LEASING REMAINS STEADY

Tenants leased 5.3 msf during the second quarter, exceeding the first-quarter volume of 4.6 msf. Tenants have leased 18.2 msf in the last four quarters, exceeding the long-term average of 15.5 msf by nearly 20.0%.

"Steady demand from the media and

entertainment sector, coupled with

renewed activity among law firms and

banks has kept deal volume steady.

Consequently, availability continues to

slowly decline across the Los Angeles

market."

Savills Studley Research

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Savills Studley Report | Los Angeles

Sustained Leasing Momentum, Tightening In Spots

Los Angeles’ economy and real estate market are enjoying their strongest growth in years. Los Angeles continued its string of strong leasing volume with 5.3 msf leased this quarter – the third time in the last five quarters that activity exceeded 5.0 msf. Landlords feel bullish about market conditions across much of the region and they have boosted rental rates, particularly in the Wilshire District and Downtown. On the contrary, many firms are taking advantage of early renewals, especially those in the FIRE (Finance Insurance and Real Estate) sectors. First Republic Bank renewed 75,341 sf at 1888 Century Park East in Century City. Premier Business Bank and Boston Private Bank and Trust both recently renewed their leases in Downtown.

Co-working space providers continue to do their part to boost leasing. New York-based workspace provider Industrious leased 18,853 sf at 600 Wilshire in Downtown for its first Los Angeles location. They plan to add locations in Santa Monica, Hollywood, Century City and potentially Culver City by mid to late 2017. IgnitedSpace, who offers work and studio space and an array of support services, leased the entire 12th floor at the California Market Center (110 E. 9th Street) in the Fashion District. The owner of the building, Jamison, is undertaking a multi-million renovation – one of their first steps was to triple the amount of creative office space in the property. Regus, the world's largest provider of flexible workspace also leased 18,000 sf at Del Amo Crossing (21515 Hawthorne Boulevard) in Torrance.

Media and Entertainment Set the Pace

The surging media and entertainment sector is playing a big part in this rebound. Film production jumped by 11% in the first quarter of 2016. Film production companies have begun to return to the region in part to capture tax credits and incentives offered by the State of California. Media and entertainment tenants accounted for many of the top leases, signing leases primarily in locations such as Tri-Cities (Glendale, Burbank, and Pasadena), the Wilshire District and the Westside. Disney Enterprises headlined the entertainment activity in the quarter, taking 128,267 sf at 3355 W Empire Blvd in Burbank. In nearby Glendale, Bunim/Murray Productions leased 58,261 sf at 1015 Grandview Avenue. More mid-sized and small tenants have been considering options in the Park Mile

Source: Bureau of Labor Statistics

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

-11.0%

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

0.85

0.90

0.95

1.00

1.05

1.10Millions

L.A. Office Emp. L.A.(% Ann. Change) U.S.(% Ann. Change)

Office-Using Employment Trends

$35.46

$29.42

$28.21$24.31

$0

$5

$10

$15

$20

$25

$30

$35

$40

2Q162Q152Q142Q132Q122Q11

($/sf) Rental Rate Trends

Class A Class B & C

Asking Rent Trends

18.8%20.9%

14.5%

18.5%

0%

5%

10%

15%

20%

25%

2Q16 2Q15 2Q14 2Q13 2Q12 2Q11

(%) Availability Rate Trends

Class A Class B & C

Availability Rate Trends

savills-studley.com/research 03

Q2 2016

Tenant Sq Feet Address Market AreaFAA 155,000 777 S Aviation South BayQuinn Emanuel Urquhart & Sullivan 135,000 865 S Figueroa St Downtown LADisney Enterprises, Inc 128,267 3355 W Empire Blvd BurbankUnivision Television Group, Inc. 104,448 5999 Center Dr Fox Hills/MarinaKaiser Permanente 100,000 3780 W Martin Luther King Blvd Fox Hills/MarinaAres 97,046 800 Corporate Pointe Fox Hills/MarinaAwesomenessTv 89,000 2701 Olympic Blvd Santa MonicaFandango 85,000 407 N Maple Dr Beverly Hills/West HollywoodHasbro 79,695 3333 W Empire Ave BurbankFirst Republic Bank 75,341 1888 Century Park East Century CitySum of Top 10 Leases 1,048,797 Sum of 2nd Quarter Leasing Activity 5.3 MSF

submarket within the Wilshire District as vacancy in Hollywood and the Westside plummet. Rents are on average about 40% higher on the Westside than in the Wilshire District. EntertainmentOne (eOne) a specialist in the acquisition, production and distribution of film and television, has inked a 26,000-square-foot, five-year lease at the historic Harbor Building at 4201 Wilshire Boulevard. The location will be home to eOne’s reality T.V. and music operations, which are relocating to the 250,000-SF building from Beverly Hills

In the Westside, Dreamworks’ video content company, AwesomenessTv finally signed a lease for nearly 90,000 sf at Clarion’s Pen Factory in Santa Monica. The conversion of the former Papermate factory into creative office space is scheduled to be completed in January 2017. Creative marketing agency mOcean renewed its 28,312-sf lease at 2440 S. Sepulveda Boulevard. The building was one of the first conversions of a manufacturing building into creative office in the 1990s. Tech firm Snapchat leased nearly 80,000 sf in two office buildings. Two entertainment companies inked deals in Beverly Hills. Fandango, signed a lease for 85,000 sf at 407 N Maple Dr and Imagine Entertainment signed 28,330 sf on El Camino. While in West Hollywood, Big Picture Group renewed their 15,886 sf space in West Hollywood on Fairfax.

Other Activity – Renewals Prevail in Downtown Los Angeles

Availability in Los Angeles has decreased slightly across the entire region. The Class A rate in Downtown Los Angeles, for example, decreased by 1.3 pp year-on-year to 21.1% as of mid-year 2016, but is still 750 basis points above its low point of 13.5% in mid-year 2008. Banks and law firms have accounted for many of the largest leases in Downtown Los Angeles in the last two years, but most have maintained very cautious leasing patterns. Several of Downtown’s law firms have opted to renew, such as: Quinn Emanuel Urquhart & Sullivan (135,000-sf) at 865 S Figueroa Street; Orrick Herrington & Sutcliffe (65,633 sf) at 777 S Figueroa, Hill Farrer & Burrill llp (37,338 sf) at 300 S Grand and Lindahl Beck LLP (7,591 sf) at 660 S Figueroa.

Additionally, in Downtown, new leases were signed by Snell & Wilmer LLP and Grube, Brown, & Geidt, and Baker, Keener & Nahra signed a sublease for over 20,000 sf at 633 W 5th St. In other submarkets, legal services activity also occurred, such as DTI Services renewal of almost 40,000 sf in the South Bay and subleasing activity by two law firms,

Kendall Brill Kelly LLP in the Westside and the Law Offices of William Newkirk in Tri-Cities.

Steady Investment Sales

Strong investment sales and cap rate compression will give new owners added cause to boost asking rents. Investor interest in Westside assets remains elevated, and some investors who bought in the last few years are cashing out. Blackstone Group is selling its 50% interest in Santa Monica’s Colorado Center, a 1.1 msf, six-building office complex, to Boston Properties for about $500 million ($900/sf). Blackstone has also entered into a definitive agreement with Hines to purchase the Howard Hughes Center as part of a West Coast seven-office property portfolio. CBRE Global Investors purchased the Univision Building within the Howard Hughes Center at 5999 Center Drive in Playa Vista, for $102 million, nearly double the $52.5 million that Univision paid in 2004. Univision signed a leaseback,

occupying 104,448 sf for the next 10 years. The new owners plan to invest about $2 million to update the lobby, common areas and landscaping.

Foreign investors are also taking a chance on Downtown Los Angeles buildings. Vancouver, Canada-based Onni Group is under contract to pay more than $100 million for the L.A. Times building at 202 W. 1st Street. If the deal is completed, Onni reportedly plans to redevelop the property into modern offices and retail. PNC Financial Services teamed up with German real estate fund manager GLL Real Estate and purchased 400 S. Hope St, from CBRE Investors, for approximately $330 million ($470/sf). CBREI reportedly paid $236 million for the asset, which serves as their headquarter building in 2012, and boosted occupancy from 83% at time of purchase, to about 92%, currently.

Availability Rate Comparison Overall Rental Rate Comparison

Major Transactions

$59.94$53.18$52.69$51.78

$47.06$46.01$45.67

$40.29$37.32

$35.88$33.42$33.06$32.61

$30.83$30.32$30.30$30.01$29.15

$27.68$27.58$27.27$26.96$26.89$26.54$26.45$26.26$25.94$25.57

$0.00$33.43

$31.11$0 $10 $20 $30 $40 $50 $60 $70

Beverly Hills/W.HollywoodSanta Monica

Century CityWestside

Miracle MileWestwood/West LA

HollywoodFox Hills/Marina

Downtown LABurbank

Los Angeles RegionUS IndexTri-CitiesGlendale

Wilshire DistrictPasadenaPark Mile

N.Hwd/St.City/Univ. CityCentral San Fernando Valley

Santa Clarita ValleySan Fernando Valley

West San Fernando ValleySouth Bay

South Bay AreaAirport

San Gabriel ValleyLong BeachMid-Wilshire

NewExisting Direct

Sublet

($/sf)

Type

8.3%10.5%

11.7%11.8%12.2%12.4%

14.9%15.1%15.4%15.4%15.4%15.8%16.1%16.1%

17.0%17.4%17.5%18.0%18.7%19.1%19.3%19.6%20.3%

22.8%23.5%

25.2%25.5%

27.6%

0% 5% 10% 15% 20% 25% 30%

HollywoodN.Hwd/St.City/Univ. City

Westwood/West LACentury City

Santa Clarita ValleyLong Beach

San Gabriel ValleyGlendaleWestside

Central San Fernando ValleySan Fernando Valley

PasadenaTri-Cities

West San Fernando ValleyUS IndexBurbank

Los Angeles RegionBeverly Hills/W.Hollywood

South BaySouth Bay Area

Miracle MileDowntown LASanta Monica

Fox Hills/MarinaWilshire District

AirportMid-Wilshire

Park Mile

(%)

Savills Studley Report | Los Angeles

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Map Submarket Total

SF(1000's)

Last12 Months

ThisQuarter

%Change

fromLast Qtr.

YearAgo

ThisQuarter

ppChange

fromLast Qtr. (1)

YearAgo

ThisQuarter

%Change

fromLast Qtr.

YearAgo

Downtown LA 34,399 3,420 6,758 -0.1% 7,085 19.6% 0.0% 20.6% $37.32 2.2% $35.04Downtown LA - Class A 22,830 2,647 4,824 -0.5% 5,122 21.1% -0.1% 22.4% $37.48 1.7% $35.53Wilshire District 14,962 958 3,516 3.5% 3,307 23.5% 0.8% 20.5% $30.32 4.2% $26.00Wilshire District - Class A 11,136 819 2,876 5.0% 2,875 25.8% 1.2% 21.8% $33.35 3.4% $26.71Hollywood 4,433 804 369 0.6% 337 8.3% 0.0% 7.6% $45.67 1.0% $43.32Hollywood - Class A 2,249 556 269 -4.1% 222 12.0% -0.5% 9.9% $48.81 2.7% $45.17Westside 55,725 5,895 8,561 3.4% 8,283 15.4% 0.5% 16.1% $51.78 1.5% $48.16Westside - Class A 48,319 4,760 7,995 1.7% 7,799 16.5% 0.3% 16.8% $51.83 1.7% $48.07South Bay Area 34,938 2,363 6,669 -6.5% 7,812 19.1% -1.3% 22.4% $26.54 0.7% $25.93South Bay Area - Class A 23,102 1,543 4,663 -6.7% 5,465 20.2% -1.5% 22.7% $27.27 1.7% $25.38San Fernando Valley 32,480 2,043 4,997 -2.5% 5,197 15.4% -0.4% 16.0% $27.27 1.4% $26.21San Fernando Valley - Class A 20,504 1,602 3,416 -4.0% 3,992 16.7% -0.7% 18.2% $28.77 1.5% $27.13Tri-Cities 24,965 2,415 4,022 -2.1% 3,940 16.1% -0.3% 15.6% $32.61 1.3% $30.03Tri-Cities - Class A 17,802 1,676 3,365 -2.2% 3,036 18.9% -0.4% 16.3% $34.75 -0.1% $32.65Santa Clarita Valley 2,760 114 337 -6.0% 358 12.2% -0.8% 13.0% $27.58 1.4% $26.02Santa Clarita Valley - Class A 1,972 108 271 -6.7% 316 13.7% -1.0% 15.2% $28.97 1.3% $26.69San Gabriel Valley 11,402 1,023 1,703 -9.6% 1,474 14.9% -1.6% 12.9% $26.26 0.3% $25.46San Gabriel Valley - Class A 3,442 382 289 -16.9% 489 8.4% -1.7% 12.5% $29.45 4.4% $26.34Greater Los Angeles Total 210,950 18,231 36,932 -1.3% 37,792 17.5% -0.2% 17.7% $33.42 2.8% $31.49Greater Los Angeles Total - Class A 149,106 13,537 27,969 -1.4% 29,317 18.8% -0.3% 18.9% $35.46 3.0% $32.47

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LeasingActivity

AvailableSF

AvailabilityRate

Asking RentsPer SF

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(1) Percentage point change for availability rates. Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf. Statistics are calculated using both direct and sublease information. Short-term sublet spaces (terms under two years) were excluded.

The information in this report is obtained from sources deemed reliable, but no representation is made as to the accuracy thereof. Statistics compiled with the support of The CoStar Group. Copyright © 2016 Savills Studley

Savills StudleyDowntown Los Angeles777 S. Figueroa Street30th FloorLos Angeles, CA 90017(213) 553-3800

Director & Regional ManagerMark T. Sullivan - EVPmsullivan@savills-studley.comLicense 00975518

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Savills StudleyWest Los Angeles10960 Wilshire BoulevardSuite 1700Los Angeles, CA 90024(310) 444-1000Branch ManagerMike Catalano - EVPmcatalano@savills-studley.comLicense 01759030 Branch Manager

Joshua D. Gorin - SVPjgorin@savills-studley.comLicense 01789664