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$4.72 FSClass A

Average Asking Rate

$4.08 FSClass B

Average Asking Rate

The San Mateo County office market picked up right where it left off at the end of 2016, recording 285,000 SF of positive absorption during the first quarter of 2017, ending the first 3 months of the year with a vacancy rate of 7.6%. This marked the 8th consecutive quarter of positive absorption, totaling nearly 2.3 million SF over that time period. San Mateo County continues to boast the lowest unemployment rate in California at 2.7%, while neighboring San Francisco and Santa Clara Counties have the 3rd and 4th lowest unemployment rates in the state.

Average asking rates increased for the 24th consecutive quarter, with the first quarter of the year ending at $4.53 psf full service. Over the past 6 years, average asking rates have increased by 67%. The downtown submarkets within the county are continuing to outperform the suburban markets. In the counties downtown submarkets, the average asking rate is $5.38 psf full service while suburban average asking rates are just $4.43 psf full service. Vacancy in downtown markets is 3.3% while suburban markets recorded a vacancy rate of 8.2% at the end of the first quarter.

Most of the demand for space in the downtown submarkets within San Mateo County is from technology companies. However, recently we have

seen law firms taking big blocks of space in these submarkets. At the end of 2016, international law firm Goodwin Procter signed a 99,000 SF lease at 601 Marshall St in downtown Redwood City. In Q1 2017, also in Downtown Redwood city, law firm Gunderson Dettmer leased 47,000 SF at 550 Allerton Street. Downtown Redwood City is an attractive location for law firms in large part because the San Mateo County courthouse is located in this submarket.

Office development continues to change the landscape of San Mateo County. San Mateo and Redwood City have been the most active office development cities over the past few years. Most of the recent developments that have taken place in these cities are walking distance to CalTrain. Developers are jockeying for position to get their sites entitled. Many cities in San Mateo County have set caps to limit the amount of office development allowed.

San Mateo County will continue to be a landlord’s market as demand from tenants remains strong. With tenant demand totaling nearly 2.5 million SF looking for space within the county during the next 24 months, expect to see this market continue to thrive throughout the rest of the year.

Market Overview

Q1 2017 / Quarterly Office Market Report

San Mateo County

Market Facts

7.8%Class A Vacancy

7.8%Class B Vacancy

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San Mateo County Q1 2017 / Quarterly Office Market Report

Market Snapshot

San Mateo County continues to attract companies from all industry types. Technology companies are driving the office market but professional service companies are also very active in this market.

Historical Asking Rental Rate (FSG) Historical Vacancy

Downtown vs. Suburban Office Markets

Market Inventory

37,576,401 SF

OverallVacancy Rate

7.6% (7.6%*)

Net Absorption

284,704 SF

Average Asking Rate

$4.53 PSF ($4.50*)

Under Construction

1,669,307 SF

550 Allerton StreetRedwood City, CA

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Class A Class B Class A Class B

$3.82

$4.11 $4.24

$4.72

$4.08

7.8%7.8%

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Class A Class B Class A Class B

$3.82

$4.11 $4.24

$4.72

$4.08

7.8%7.8%

0%

2%

4%

6%

8%

10%

12%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Downtown Suburban

Avg Asking Rate (FS) Vacancy Rate

*Compared to previous quarter

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Market By The Numbers

SUBMARKET Total RBA (SF)

Direct Vacant Space (SF)

Sublet Vacant Space (SF)

Vacancy RateClass A Class B

Direct Avail Space (SF)

Sublet Avail Space (SF)

Avail RateClass A Class B

Net Absorp. (SF)

Under Construction

Average Asking Rent

Total Class A Class B

Daly City 1,091,715 132,390 6,392 15.6% 12.0% 163,277 0 17.3% 17.4% 23,685 0 $3.60 $3.89 $2.92

Brisbane 763,593 186,767 0 19.9% 30.7% 247,930 3,760 33.2% 32.7% 41,047 0 $3.66 $3.70 $3.58

South San Francisco 2,313,789 314,798 16,211 19.3% 1.6% 437,342 17,866 25.6% 3.4% 75,413 0 $3.40 $3.49 $3.04

San Bruno/Millbrae 1,779,246 4,837 0 0.0% 0.4% 82,506 23,157 8.3% 0.4% 62,570 0 $3.50 $3.93 $3.33

Burlingame 2,375,575 170,483 10,606 13.6% 6.8% 217,873 43,700 22.7% 8.2% -3,227 767,000 $3.15 $3.23 $3.21

North County 8,323,918 809,275 33,209 13.1% 8.4% 1,148,928 88,483 20.2% 10.2% 199,488 767,000 $3.44 $3.57 $3.34

San Mateo 7,904,562 728,152 252,191 15.0% 9.6% 779,447 351,369 17.9% 10.3% 70,112 411,994 $4.58 $4.99 $3.95

Foster City 3,305,973 222,687 52,038 8.5% 6.3% 537,461 98,668 20.6% 7.6% -14,982 0 $5.13 $5.19 $4.11

Redwood Shores 5,531,176 244,231 23,290 4.3% 5.5% 498,451 139,176 9.7% 18.3% 95,841 0 $4.70 $4.64 $4.59

Central County 16,741,711 1,195,070 327,519 8.9% 9.1% 1,815,359 589,213 15.1% 10.5% 150,971 411,994 $4.70 $4.96 $3.98

Belmont/San Carlos 1,452,590 37,625 31,578 3.5% 6.7% 36,584 60,740 10.4% 5.0% -32,619 0 $3.49 $3.66 $3.38

Redwood City* 4,414,369 147,604 2,868 0.1% 7.8% 232,475 68,337 4.7% 10.8% -37,843 285,313 $4.96 $4.76 $5.37

Menlo Park 6,643,813 238,012 44,160 3.7% 3.2% 298,176 104,935 4.6% 6.4% 4,707 205,000 $6.94 $7.17 $6.21

South County 12,510,772 423,241 78,606 2.6% 5.9% 567,235 234,012 5.1% 7.9% -65,755 490,313 $5.87 $6.75 $5.03

San Mateo Co. Total 37,576,401 2,427,586 439,334 7.8% 7.8% 3,531,522 911,708 13.0% 9.6% 284,704 1,669,307 $4.53 $4.72 $4.08

Historical Net Absorption & Leasing Activity*Excluding Redwood Shores

San Mateo County Q1 2017 / Quarterly Office Market Report

0

400,000

800,000

1,200,000

1,600,000

2,000,000

-500,000

-250,000

0

250,000

500,000

750,000

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Leas

ing

Act

ivity

Net

Abs

orpt

ion

Net Absorption Leasing Activity

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© 2017 Avison Young [Avison Young - Northern California, Ltd.]. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.

AY San Mateo Team

New Construction Delivery (Historical)

Tenant Building Submarket Square Feet Type

Facebook 164 Jefferson Dr Menlo Park 135,307 New

Auris 150 Shoreline Dr Redwood Shores 54,602 New

Nevro 1800 Bridge Pkwy Redwood Shores 50,470 Renewal

Nevro 1600 Bridge Pkwy Redwood Shores 49,981 Expansion

Gunderson Dettmer 550 Allerton St Redwood City 46,877 New

Top Leases

Building Buyer Submarket Square Feet Sale Price

Rakuten Concar Office Park San Mateo 213,346 $179,500,000

Black Mountain Properties 2400 Broadway Redwood City 15,000 $10,217,000

Top Sales

Building Developer Submarket Square Feet % Leased Status

Kylli Burlingame Point Burlingame 767,000 0% Q2/18

Bohannon Menlo Gateway Building 3 Menlo Park 205,226 0% Q4/17

Wilson Meany Bay Meadows Station 3 San Mateo 173,866 70% Q3/17

DoStart 601 Marshall St Redwood City 133,100 75% Q4/17

Premia Capital 550 Allerton St Redwood City 76,647 61% Q3/17

Under Construction

Office Group

Randy Keller, Managing Director / Principal 650.425.6425

Lloyd Bakan, Principal 650.425.6418

Phil Fletcher, Associate 650.425.6421

Tim Grant, Senior Vice President 650.425.6424

Jon Geary, Associate 650.425.6415

Wendy Leung, Vice President 650.425.6416

Todd Campbell, Vice President, Research 650.425.6412

Cheryl Simpson, Operations Manager 650.425.6420

Raquel Ledesma, Graphic Designer 415.322.5057

Property Management / Lease Administration

Tom Greenfield, CPM® LEED®, Property Manager 510.534.4700

Bryce McEfee, LEED® AP, Property Manager 916.426.3584

Tom McEfee, CPM®, SVP, Management Services 916.426.3570

Project / Construction Management

David Gonzales, Managing Director / Principal 415.322.5065

Shannon Dupler, Manager, Financial Reporting 415.349.3399

Clare Friel, Project Manager 415.349.3406

Nicole de la Rosa, Assistant Project Manager 510.254.4268

Delivered Future Delivery

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

San Mateo County Q1 2017 / Quarterly Office Market Report

Avison Young - Northern California, Ltd.950 Tower Lane, Suite 120Foster City, CA 94404T 650.425.6413 F 650.425.6413