Industrial Market Review

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Alexander Gilbert
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1 Q Industrial Oakland California research & forecast Report Industrial Market Review market indicators VACANCY NET ABSORPTION construction rental rate Q-0 Selected Market Statistics Projected Q- > > Year to date gross absorption is,, square feet compared to,, square feet in. > > Overall vacancy is flat at. percent quarter over quarter. > > Alameda County s unemployment rate is. percent as of November.* * Source: California Employment Development Department I-0/I-0 Corridor Overview In the fourth quarter, the I-0/I-0 Corridor industrial market continued to see vacancy rates increase. Compared to fourth quarter, overall vacancy has increased by. percentage points, to. percent. Average asking rental rates have declined approximately 0 percent, down to Triple Net (NNN) per square foot per month (psf/mo) from $0. NNN psf/mo, during the last year. Larger transactions completed in the fourth quarter were Fidelity Title in Hayward (0,000 square feet), Seko Air Freight in Hayward (,000 square feet) and LKQ Corporation in Union City (, square feet). Gross absorption in was nearly one million square feet greater than in. Quality properties are starting to lease and hold their rates while functionally challenged spaces continue to sit vacant. This flight to quality will continue for the next few quarters. Negative absorption is still prevalent; however, a recent flow of activity indicates that 0 could be flat or positive. On the investment side, a significant increase in investment opportunities have come to market compared to fourth quarter. In the past quarter, KTR Capital Partners, Stockbridge and Terreno Realty all completed acquisitions. Several portfolio/packages are currently available for sale or in escrow, and we expect several others to come on the market in the next couple of quarters. This increase in activity is due to an abundance of well funded buyers trying to acquire quality assets in one of the more stable markets in Northern California and cap rates in the percent range. We will see more investment opportunities in the I-0/I-0 Corridor in 0. User sales remain a strong component of market activity. With SBA rates at an all-time low, typical SBA closing fees being waived and the ability for buyers to purchase with ten percent down payment, users are taking the opportunity to purchase their own facilities at low interest rates and prices. Some of the larger user sales during the past quarter were Superior Tile Company in San Leandro (, square feet), US Trading in Hayward (0,00 square feet) and Grand Foods in Hayward (, square feet). We expect the user sale market will continue to increase over the next couple of quarters. I-0/I-0 Corridor Overall Industrial Market $0. Rates Flat Vacancy and asking rental rates have remained flat since last quarter. We expect this to continue through the next quarter with visible improvements in both vacancy and rates beginning in the second quarter of 0.

research & forecast report Q Industrial 0 Hercules Pinole San Pablo Richmond El Cerrito Berkeley Richmond Though the Richmond industrial submarket saw twice the deal velocity in than in the previous

2 research & forecast report Q Industrial 0 Hercules Pinole San Pablo Richmond El Cerrito Berkeley Richmond Though the Richmond industrial submarket saw twice the deal velocity in than in the previous year, at slightly over 00,000 square feet, velocity remains low. The largest lease in Richmond this quarter occurred when Pacific Dry Goods took 0,00 square feet of space at 0 Essex Avenue. Unlike many of the surrounding submarkets, there was no significant sales activity in this submarket this quarter. However, in one of the largest transactions of the year, IIT Acquistions, LLC, as part of a portfolio sale, purchased Pinole Point Business Park in the second quarter. Richmond is typically very attractive to surrounding markets such as Berkeley, Emeryville and Marin for its comparatively low rates and its central location for North Bay companies. Typical tenants are drawn from these areas, but due to the softness in the market over the last two years, this has Emeryville slowed considerably. Though Richmond is the only submarket in the I-0/I-0 Corridor with 0 Alameda San Leandro developable tracts of land, development has San Lorenzo been put on hold until demand returns. Hayward Union City Pinole Point Business Park Richmond, CA Vacancy has increased from 0. percent to. percent over the year, all of it due to the industrial sector. Industrial vacancy rose from. percent to. percent over the course of. Warehouse/distribution vacancy remained flat at. percent, while R&D/flex vacancy decreased from. percent to. percent. Overall asking rental rates have decreased from $0. to $0. NNN psf/mo year over year. Industrial rates decreased $0.0 to ; warehouse/ distribution rates remained flat at $0. NNN psf/mo; and R&D/flex rates dropped $0.0 to $0. NNN psf/mo. We attribute this moderate decrease to declining rates on older, less functional space, and stable rates on quality class A product. We have seen more users looking for space during the fourth quarter of. We expect deal activity to increase in 0, due to this pent up demand, resulting in the absorption of currently vacant space. 0 Essex Avenue, Richmond October 0,00 Pacific Dry Goods Light Industrial Richmond Warehouse/Distribution Richmond Light Industrial Richmond R&D/Flex % % % % $0. $0.0 $0. $.0 $.00 $0. $0.0 $0. $0.0 $0. $0.0 $0. $0.0 $0.0 p. Colliers International - Oakland

3 research & forecast report Q Industrial Oakland Vacancy has been nearly flat in the Oakland industrial market, rising just 0. percentage points to. percent year over year compared to an increase in the overall I-0/I-0 corridor market average of. percentage points. Industrial vacancy went from.0 percent at the end of to. percent at the end of, and warehouse/distribution product vacancy remained flat at.0 percent. Net absorption was slightly negative at, square feet for the year, and only negative, square feet for the quarter. Though a handful of tenants are looking to the neighboring Hayward submarket for a larger range of options and more state-ofthe-art product, the existing tenant base in this submarket has remained steady. We attribute this relative stability to Oakland s desirability as a port city and freeway artery. Despite relatively low vacancy levels compared to the overall market, activity was slow in Oakland this year at just over 0,000 square feet in compared to,0 square feet in, whereas activity in the majority of markets in the area was greater than in. The largest transaction in Oakland during the fourth quarter was Darcoid Rubber s renewal of their,00 square foot space at Market Street. We expect activity to be much the same during the first half of 0. Asking rental rates have remained relatively flat in Oakland during compared to surrounding submarkets. Rates dropped just $0.0 year over year. Industrial asking rental rates went from $0. to $0. NNN psf/mo, and warehouse/ distribution rates went from $0. to $0. NNN psf/mo year over year. We believe asking rental rates will remain flat over the next six months and increase slowly towards the middle and end of 0. 0 Hercules Pinole San Pablo Richmond El Cerrito Berkeley Emeryville 0 Alameda San Leandro San Lorenzo Hayward Union City Market Street, Oakland November,00 Darcoid Rubber Warehouse/Distribution 0-0 Dennison Street, Oakland October,000 Lee s Florist & Nursery Warehouse/Distribution Sales activity Property Address Sale Date Size Buyer Type 0 San Leandro Street, Oakland December, Piedmont Party Rentals Light Industrial Oakland Warehouse/Distribution Oakland Light Industrial % $0. $0. $0. $0. $0. $0. $0. $0. % % % Colliers International - Oakland p.

4 research & forecast report Q Industrial 0 Hercules Pinole San Pablo Richmond El Cerrito Berkeley Emeryville 0 Alameda San Leandro San Lorenzo Hayward Union City San Leandro The overall vacancy in the San Leandro industrial market has improved since the beginning of. San Leandro ended the year with a. percent vacancy, compared to. percent at the close of last year. Industrial vacancy remained flat at. percent. R&D/Flex vacancy decreased from. percent to. percent. Warehouse/ Distribution vacancy decreased dramatically from. percent to. percent. This was almost entirely due to one transaction: The Annex leased, square feet of space at Doolittle Drive during the third quarter. However, we expect vacancy rates to increase temporarily over the next two quarters as two large tenants have recently relocated. Pet Food Express relocated from their,000 square foot space on Williams Street to Oakland; Kaneca has relocated as well, vacating 00,000 square feet. However, we feel that this increase in vacancy will be short lived. San Leandro is an infill market with unique warehouse/distribution infrastructure due to its proximity to the Oakland Airport, Port of Oakland, and interstate routes. Commodity driven companies (i.e., food-related companies) will continue to expand. E-Poly Star and Odwalla are recent prime examples. Asking rental rates have declined moderately over the year and are now favorable compared to competing markets. While we saw a minor exodus from San Leandro earlier this year, lowered rental rates due to a soft market is drawing tenants back. Industrial product ended the year with an average asking rental rate of $0. compared to $0. NNN psf/mo a year ago; Warehouse/distribution rates dropped to $0. from $0. NNN psf/mo; and R&D/Flex rates remained flat around $0.0 NNN psf/mo. Activity should remain generally the same over the next six months. However, increased demand from tenants due to an increase in available options and low asking rents should increase deal velocity. 0 Fairway Drive, San Leandro October,0 Rexel Pacific Warehouse/Distribution & Alvarado Street, San Leandro November, Odwalla Light Industrial Doolittle Drive, San Leandro October, Sloat Brothers, Ltd. Warehouse/Distribution Alvarado Street, San Leandro November,00 E-Poly Star Light Industrial Sales activity Property Address Sale Date Size Buyer Type 00 Williams Street, San Leandro October, 00 San Leandro Partners, LLC Light Industrial 0- Alvarado Street, San Leandro October,000 Molinaro Family Light Industrial San Leandro Warehouse/Distribution San Leandro Light Industrial San Leandro R&D/Flex $.0 % % % % $0. $0. $0. $0. $.00 $0. $0.0 $0. $0.0 $0. $0.0 $0. $0. p. Colliers International - Oakland

5 research & forecast report Q Industrial Hayward The Hayward industrial market ended much like the rest of the I-0 Corridor. Vacancy increased across all sectors year over year. Industrial vacancy rose from. percent to. percent; warehouse/distribution vacancy rose from. percent to.0 percent; and R&D/flex vacancy increased slightly from.0 percent to. percent. Notably, there has been an increase in user buildings available for sale. Asking rental rates have decreased over the year, though not nearly as severely as in many surrounding markets. Industrial rates dropped from to $0. NNN psf/mo. Warehouse/ distribution rates dropped just one cent to $0. NNN psf/mo. R&D/flex product experienced the greatest decrease from $0. to $0. NNN psf/ mo. However, tenants continue to request aggressive lease rates to make longer term commitments, and landlords continue to comply. Despite this bad news, availability and lower rates are attracting tenants and consumer confidence is improving. Activity is up from last year, ending the year at over. million square feet compared to. million square feet last year. We expect to see activity levels remain much the same over the next six months, stabilizing rents as more space is absorbed. Union City and Hayward are where many large suppliers are located. Now that NUMMI is continuing to operate with Tesla and Toyota, a lot of the suppliers in these submarkets are keeping spaces they thought they had to vacate. 0 Hercules Pinole San Pablo Richmond El Cerrito Berkeley Emeryville 0 Alameda San Leandro San Lorenzo Hayward Union City 0 C Street, Hayward October,000 Owens Corning Fiberglass Corp. Warehouse/Distribution 0- Corsair Boulevard, Hayward October 0,000 Fidelity Tile Warehouse/Distribution - Eichler Street, Hayward November,000 Seko Air Freight Warehouse/Distribution 0- Munster Avenue, Hayward October,00 Hawaiian Express Warehouse/Distribution Sales activity Property Address Sale Date Size Buyer Type Cabot Boulevard, Hayward October 0,00 US Trading Warehouse/Distribution Arden Road, Hayward December, Golden Apple Warehouse/Distribution Hayward Warehouse/Distribution Hayward Light Industrial Hayward R&D/Flex $0.0 $.0 $0. $0. $.00 $0. $0.0 $0.0 $0.0 $0.0 $0. Colliers International - Oakland p.

6 research & forecast report Q Industrial 0 Hercules Pinole San Pablo Richmond El Cerrito Berkeley Emeryville 0 Alameda San Leandro San Lorenzo Hayward Union City Union City The Union City industrial market ended with negative 00,0 square feet of net absorption. This was primarily due to a large increase in space in the warehouse/distribution sector where vacancy rose from. percent to 0. percent year over year. Notably, the, square foot Chronicle Building, located at 0 Pacific Street, has come onto the market for sale or lease. R&D/flex vacancy increased significantly as well, from. percent to. percent. Most of this increase occurred during the fourth quarter when approximately 00,000 square feet came onto the market at Crossroads Technology Park. Light industrial vacancy declined slightly over the same time period, from. percent to. percent. Though there was a significant increase in vacancy this year, gross absorption was more than twice what it was in at over,000,000 square feet. Leases during the fourth quarter include LKQ leasing,000 square feet and L. Kee & Co. leasing 0,000 square feet of warehouse/distribution space at Alvarado Business Park. Union City also saw some investment activity during this past quarter. KTR Capital Partners acquired,00 square feet at 00-0 Lewis Ave, and Terreno Realty Corporation acquired,0 square feet at Ahern Avenue. Overall asking rental rates have declined from $0. to $0. NNN psf/mo over the year; however, they have remained flat for the last two quarters. We predict that vacancy rates will begin to decline moderately over the next six months to the single digit range, and in turn, asking rental rates will increase accordingly as the market normalizes. This is due to continued lack of new construction, increased leasing activity and the pace of sublease space coming to market having slowed dramatically. 0 Whipple Road, Union City December,000 LKQ Warehouse/Distribution 000 Whipple Road, Union City November 0,000 L. Kee & Company Warehouse/Distribution Central Avenue, Union City November,000 Savory Creations International Warehouse/Distribution Sales activity Property Address Sale Date Size Buyer Type 00-0 Lewis Avenue, Union City December,00 KTR Capital Partners Warehouse/Distribution 00- Ahern Avenue, Union City December,0 Terreno Realty Corporation Light Industrial Union City Warehouse/Distribution Union City Light Industrial Union City R&D/Flex $0.0 $.0 $0. $0. $0. $0. $0. $.00 $0. $0.0 $0. $0.0 $0. p. Colliers International - Oakland

research & forecast report Q Industrial Market Comparisons Industrial market Sub-type Bldgs Total Inventory Direct Vacant Direct Vacancy Rate Sublease Vacant Sublease Vacancy Rate Total Vacant

7 research & forecast report Q Industrial Market Comparisons Industrial market Sub-type Bldgs Total Inventory Direct Vacant Direct Vacancy Rate Sublease Vacant Sublease Vacancy Rate Total Vacant Vacancy Rate Current Quarter Vacancy Rate Prior Quarter Net Absorption Current Qtr Net Absorption YTD Completed Current Qtr Under Construction Avg Asking NNN richmond Industrial,0,0,0,.%,0 0.,,0.%. (,0) (,) - - Warehouse,,,. - 0.,.. - (,) - - $0. R&D/Flex 0,,,.% - 0.,.%.,, - - $0. Total,,0,,.%,0 0.%,,.%.% (,) (,) - - $0. Oakland Industrial,,,,.%, 0.,,.%. (,) (,) - - $0. Warehouse 0,,0,,0.,0 0.%,,..%,00, - - $0. R&D/Flex Total 0,0,,0,.%, 0.%,,.. (,) (,) - - $0. San Leandro Industrial 0,,0,., 0.,..%, $0. Warehouse,,0, ,0.. (,), -,0 $0. R&D/Flex,0,00.% 0,000.%,00.%.% (0,0) (,) - - $0.0 Total,0,,,.%, 0.,,.%.% () 0,0 -,0 $0. Hayward Industrial,0,0,,0.%, 0.%,,0..% (,) (,) - - $0. Warehouse,0,,0,.,.%,,.%.,0 (,0) - - $0. R&D/Flex 0,,,0.%,. 0,.. (,) (,0) - - $0. Total,0,,,,0.% 0,.,,.%.% (,0) (,0) - - $0. Union City Industrial,,,.,0 0.%,.%.% (,0), - - $0. Warehouse 0,,,.%,.%,0,..%, (,) - - $0. R&D/Flex 0,,.% 0,000.%,..% (,) (,) - - $0. Total,,,0,00.%,.,, 0.% 0.% (,0) (00,0) - - $0. Market Total Industrial,,0,0,,. 0, 0.,0,..% (0,) (,0) - - Warehouse,,,,0.,0 0.%,,00 0.., (,0) -,0 $0. R&D/Flex,,,0,0 0.,.%,,.% 0. (,) (,) - - $0. Total,,,0,,.,0 0.%,,.%.% (,) (,,) -,0 $0. QUARTERLY COMPARISON AND TOTALS Q-0,,,0,,.,0 0.%,,.%.% (,) (,,) -,0 $0. Q-0,,,0,,.%,, 0.%,0,0.%. (0,) (,,) -,0 $0. Q-0,,,0,,.%,, 0.%,,..% (,0) (,,) -,0 $0. Q-0,,,0 0,,.%,,.%,,0.%. (,,) (,,) -,0 Q-0,,,0,,.%,,.%,0,..%,0,0 (,00) -,0 $0. Q-0,,,0 0,0,.%,,.,,.%.% (,) (,,0) -,0 $0. Q-0,,,0,,.%,,.,,.%.,00 (,) -,0 Q-0,,,0 0,,.%,,.%,0,..% (,,) (,,) - 0,0 $0. Arden Road Hayward, CA Colliers International - Oakland p.

8 research & forecast report Q Industrial OFFICE Michael Corbett Associate + 0 michael.corbett@colliers.com Aileen Dolby Senior + 0 aileen.dolby@colliers.com Scott Greenwood + 0 scott.greenwood@colliers.com INDUSTRIAL Chet Barney + 0 chet.barney@colliers.com Brennan Carpenter Senior Associate + 0 brennan.carpenter@colliers.com Kevin Hatcher + 0 kevin.hatcher@colliers.com RETAIL Solomon Ets-Hokin Senior solomon.etshokin@colliers.com Reesa Tansey Associate reesa.tansey@colliers.com Sandra Weck Senior + 0 sandra.weck@colliers.com 0 offices in countries on continents United States: Canada: Latin America: Asia Pacific: EMEA: $. billion in annual revenue Benjamin F. Harrison + 0 benjamin.harrison@colliers.com Trent Holsman + 0 trent.holsman@colliers.com Kenneth W. Meyersieck Managing Partner/SVP ken.meyersieck@colliers.com Danea Adams Assistant to Ken Meyersieck danea.adams@colliers.com Al Musante + 0 al.musante@colliers.com INVESTMENT/ PRIVATE CAPITAL GROUP Kenneth W. Meyersieck Managing Partner/SVP ken.meyersieck@colliers.com Kevin Ebrahimi, CCIM Senior Associate kevin.ebrahimi@colliers.com Joe Bruzzone Associate joe.bruzzone@colliers.com David Henderson + 0 david.henderson@colliers.com Richard P. Keely richard.keely@colliers.com Greig F. Lagomarsino, SIOR Senior greig.lago@colliers.com Catherine Wong Assistant to Greig Lagomarsino + 0 catherine.wong@colliers.com Mark Maguire Senior + 0 mark.maguire@colliers.com Casey Ricksen Senior casey.ricksen@colliers.com Sean Sabarese Associate sean.sabarese@colliers.com Todd O. Severson, SIOR Senior todd.severson@colliers.com Joe Yamin + 0 joe.yamin@colliers.com ADMINISTRATIVE Catherine Arlin Operations Manager + 0 catherine.arlin@colliers.com Donna Thibeaux Administrative Assistant + 0 donna.thibeaux@colliers.com Sally Buomono Administrative Assistant sally.buomono@colliers.com RESEARCH Molly Herrick Research Analyst I + 0 molly.herrick@colliers.com MARKETING Jason Radburn Graphic Designer I + 0 jason.radburn@colliers.com. million square feet under management Over 0,000 professionals Colliers International Oakland Ken Meyersieck Managing Partner San Francisco East Bay Harrison Street, Suite 0 Oakland, CA tel FAX + 0 CA License No. 00 Researcher: Molly Herrick Research Analyst I Harrison Street, Suite 0 Oakland, CA tel + 0 FAX + 0 This report and other research materials may be found on our website at This report is a research document of Colliers International - Oakland, California. Questions related to information herein should be directed to the Research Department at + 0. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. As new, corrected or updated information is obtained, it is incorporated into both current and historical data, which may invalidate comparison to previously issued reports. 0 Colliers International. Accelerating success. Colliers International - Oakland p.

>> Industrial Rents Continue Upward

Research & Forecast Report South Bay INDUSTRIAL Q1 2017 Accelerating success. >> Industrial Rents Continue Upward Key Takeaways > Industrial rents increased $0.03 P NNN over the quarter to $0.78 P NNN.