SAN FRANCISCO

1Q11

Overview
San Francisco’s office market is off to a good start so far in 2011 as
demand is increasing across the board. Employment levels started to
increase in the second half of 2010 and posted a 0.7% increase
between February 2010 and February 2011. More specifically,
technology companies are expanding within San Francisco and have
been actively hiring and taking up space, specifically in the South of
Market submarkets and even further south into Potrero Hill/Inner
Mission. In an attempt to keep Twitter in the City and revitalize a
neighborhood, the recent approval by the San Francisco Board of
Supervisors to suspend the payroll tax for six years for new jobs
created in the mid-Market/Tenderloin area will provide a further
boost to the market.
Investment
Bolstered by the rebounding strength of market conditions and
investment activity in 2010, the investment market continued to
flourish in first quarter 2011. Strong demand, backed by an
abundance of capital, is chasing a number of deals in the market.
Shorenstein grew its share in San Francisco with the purchase of
Market Center (the new Twitter building) but may sell 409 and 499
Illinois Street in Mission Bay. Investor activity is focused on tech-
oriented space as well as high quality, well-leased, core assets.
Conversely, Vornado Realty Trust gave back to its lender the former
California State Automobile Association’s complex at 100 Van Ness
which is vacant and has generated little leasing interest for years.

Leasing
New leasing activity is up through the first quarter and has surpassed
fourth quarter 2010 levels. With tenants, such as legal, financial and
consulting firms, back in the market taking up new space, rather than
giving back space as they did during the recession, the availability of
sublease space is shrinking. Combined with the demand from
technology firms, absorption levels rose in the first quarter. This
resulted in the overall vacancy rate Citywide ticking down to 14.5%
in the first quarter of 2011 from 15.2% at year-end 2010.
Quality, creative spaces south of Market Street are the most sought
after in San Francisco right now. Competition for these spaces
between 5,000 square feet (sf) and 10,000 sf is increasing, causing the
market to tighten, pushing rental rates up. As a result, tenants
looking for cost effective space are exploring even less-traditional
neighborhoods such as the Mid-Market area and also looking at the
North of Market Financial District and Jackson Square.
Outlook
With the economic recovery well underway in San Francisco, we
forecast market conditions will improve in the foreseeable future.
Moody’s Analytics is currently forecasting annual employment
growth to turn positive in 2011, after decline during the past two
years and then accelerate to the low-2% range in 2012 and 2013,
adding as much as 67,300 new jobs by 2013. Strong employment
growth will likely be driven by the tech and tech-related service
sector industries, as well as the traditional office-using sectors. The
lack of new supply, coupled with the growing demand from tenants,
will cause vacancy rates to fall and could result in a surge in rental
rates. Our forecast Citywide calls for the vacancy rate to steadily
decline during the next two years exerting pressure on rental rates
which could surge by as much as 25% to 45% from 2010 levels.
Given the improving market conditions and return of capital into the
real estate market, we expect to see investor activity continue to
thrive in San Francisco.

Stats on the Go Leasing Activity vs. Overall Rental vs.

San Francisco Citywide Overall Absorption Vacancy Rates

L easi ng Activity Abso rption

1Q10 1Q11 Y-o-Y 12 month R ent Vaca ncy
Change Forecast 7.0 $45 16 %
6.0
5.0 $40 15 %
Citywide Overall 14.5% 14.5% 0.0 pp
Vacancy 4.0
3.0 14 %
$35
msf

psf/yr

2.0 13 %
Citywide Direct $33.38 $34.87 +4.5%
1.0 $30
Asking Rents
0.0 12 %
(1.0) $25
Sublease 1,202,300 945,816 -21.3% 11 %
(2.0)
Availability (sf) (3.0) $20 10 %
200 7 200 8 200 9 201 0 1Q11 2 008 20 09 20 10 20 11F 201 2F
 SAN FRANCISCO
OFFICE REPORT
1Q11

Market/Submarket Statistics
O ve rall Wtd. Dire ct Wtd.
O ve rall Dire ct YTD YTD YTD YTD
Unde r Avg. All Classe s Avg. Class A
Marke t / Submarke t Inve ntory Vacancy Vacancy Le asing Construction Direct O ve rall
C onstruction Gross Rental Gross Re ntal
Rate Rate Activity C omple tions Absorption Absorption
Rate * Rate *
NOMA Financial 25,995,252 14.5% 12.6% 392,137 0 0 (61,659) 104,944 $36.52 $40.64
SOMA Financial 23,176,584 8.9% 8.1% 384,759 0 0 125,416 249,387 $35.74 $38.44
C BD 49,171,836 11.9% 10.5% 776,896 0 0 63,757 354,331 $36.24 $39.83
Jackson Square 1,369,168 11.0% 10.8% 8,500 0 0 11,054 11,054 $27.18 $32.30

North Waterfront 2,695,401 15.2% 12.6% 70,264 0 0 62,026 55,156 $24.74 $28.72
South Beach/Rincon Hill 2,413,175 14.0% 11.8% 44,013 0 0 (54,489) (30,907) $26.56 $32.10
San Francisco South of Market 6,160,125 28.6% 27.4% 55,316 0 0 57,738 35,224 $27.71 $32.41
West of Kearny 703,735 6.7% 5.4% 0 0 0 0 0 $28.06 $26.09
T he Presidio 995,955 19.3% 18.0% 5,646 0 0 5,646 5,646 $31.00 N/A
Union Square 4,218,256 9.8% 9.3% 16,489 0 0 (15,155) (15,294) $26.57 $27.36
Van Ness Corridor 4,889,169 20.7% 20.7% 0 0 0 (104,795) (104,795) $26.72 $28.24

Potrero Hill/Inner Mission 1,893,398 15.5% 14.4% 48330 0 0 39,989 55,036 $24.96 $24.58

Mission Bay 1,006,272 48.1% 48.1% 0 0 0 0 0 N/A N/A

NO N-CBD 26,344,654 19.4% 18.4% 248,558 0 0 2,014 11,120 $26.64 $29.48
SAN FRANCISCO TO TAL 75,516,490 14.5% 13.2% 1,025,454 0 0 65,771 365,451 $33.68 $38.35
* Rental rates reflect asking $psf/year.

Market Highlights
SIGNIFICANT 1Q11 LEASE TRANSACTIONS
BUILDING SUBMARKET TENANT SQUARE FEET BUILDING CLASS
525 M arket Street SOM A Financial District Sephora* 110,588 A
333 Bush Street NOM A Financial District Sedgwick 89,076 A
100 North Point Street North Waterfront William Sonoma 58,521 B
45 Fremont Street SOM A Financial District Wells Fargo Bank 57,081 A
123 M ission Street SOM A Financial District Salesforce 55,917 A
600 Harrison Street South Beach/Rincon Hill ABM Industries, Inc. 31,179 A
405 Howard Street SOM A Financial District Kabam, Inc. 25,897 A
101 Spear Street SOM A Financial District Intrax Cultural Exchange 23,683 A
* Renewal – not included in Leasing Activity Statistics
SIGNIFICANT 1Q11 SALE TRANSACTIONS
BUILDING MARKET BUYER SQUARE FEET PURCHASE PRICE
M arket Square M id-M arket/Civic Center Shorenstein 1,105,000 $110,000,000
Waterfront Plaza North Waterfront LaSalle Investment M anagement 264,710 $44,000,000
530 Bush Street West of Kearny Street HCV Pacific Partners 102,636 N/A
250 Brannan Street South Beach/Rincon Hill Kilroy Realty Corporation 92,606 $33,000,000
SIGNIFICANT 1Q11 CONSTRUCTION COMPLETIONS
BUILDING MARKET MAJOR TENANT SQUARE FEET COMPLETION DATE
N/A
SIGNIFICANT PROJECTS UNDER CONSTRUCTION/RENOVATION
BUILDING MARKET MAJOR TENANT SQUARE FEET COMPLETION DATE
N/A

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One Maritime Plaza, 9th Floor, San Francisco, CA 94111 (415) 397-1700 www.cushmanwakefield.com
* The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the
information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing
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