Sale Transactions of the Quarter:Sharp Rees-Stealy exercised their option to purchase the 100,000-SF outpatient building at 16899 W. Bernardo Drive, their new Rancho Bernardo location to which they relocated in February. The sales price for the building was $42,662,500 ($426.63 PSF) and included a long-term ground lease.

In South County, Scripps Health purchased 333 H Street at Gateway Chula Vista. The 131,760-SF building sold for $27,825,000 ($211 PSF).

Lease Transaction of the Quarter: Cosmetic Laser Dermatology finalized a blend & extend at Genesee Plaza to increase its o� ices from 13,154 SF to 21,367 SF.

News, Facts & Updates

sdmedicalrealestate.com

San Diego medical o� ice occupancy increased in the first quarter of the year, posting an increase of 28,144 square feet of positive net absorption. The current overall San Diego County direct vacancy rate of 6.6 percent is 51 percent lower than in 2009, when it peaked at 13.6 percent.

Most all of the San Diego medical o� ice submarkets recorded minor movement in their total occupancy in the first quarter, with only two submarkets recording positive or negative movement greater than 10,000 square feet: the Oceanside/Vista submarket increased its occupancy by 32,728 square feet, dropping into single-digit vacancy (9.8%) for the first time since 2008. La Jolla/UTC/Sorrento posted 20,146 square feet of positive net absorption.

The weighted average asking rental rate for medical o� ice space continues

to climb, with a current year-over-year increase of 4.9 percent for the county overall. The submarket posting the largest year-over-year increase was La Jolla/UTC/Sorrento which increased 14.6 percent and had the highest average asking rental rate in the county at $3.93 per square foot, per month, fully serviced.

Tip of the Quarter: With construction costs having gone up significantly over the past 12-18 months, reducing tenants’ out-of-pocket costs by o� ering increased TI allowances can be a good way to help deals come togehter. In most cases the increased allowances come with higher rental rates and/or less rent abatement; that being said, allowances in general have risen over the past several years - one trend that is working in tenants’ favor in an environment of rising rents and tightening concessions.

Market conditions and trends

San Diego medical offi ce occupancy increased in the fi rst quarter of the year.

San Diego County

Medical O� iceSnapshot

6.6%Countywide direct vacancy

28,144Q1 net absorption (s.f.)

4.9%12-month rent growth

$2.81 FS Average Asking

Q12017

196,432Total under construction (s.f.)

(3 projects in total)

Kelly MoriartyAssociate 858.410.6359 kelly.moriarty@am.jll.comLic. No. 01963162

Paul BraunManaging Director858.410.6388 paul.braun@am.jll.comLic. No. 00891709

Chris RossSenior Vice President858.410.6377 chris.ross@am.jll.comLic. No. 01469025

JLL Healthcare Practice Group

San Diego County

Medical O� iceSnapshotQ12017

Supply 12,330,685 SF

Total availability 1,053,871 SF / 8.5%

Direct vacancy rate 6.6%

Under construction 148,312 SF

Quarterly leasing 50,685 SF

2017 net absorption 28,144 SF

12-mo. rent % change 4.9%

Average asking rent $2.81 FS

Key market indicators

Dem

and

Pric

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Supp

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Last Qtr 12-MonthChange Forecast

Net absorption vs. direct vacancy

San Diego Medical O�ice Overview | Q1 2017

$3.33

$3.14

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50

$3.75

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017

Class A Direct Asking Rent Class B Direct Asking Rent

Class A and B direct asking rents*

*Asking rents weighted by available sf and grossed to FSG

0%

2%

4%

6%

8%

10%

12%

14%

16%

-200,000

-100,000

0

100,000

200,000

300,000

400,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017

Net absorption Direct Vacancy

Class A and B direct vacancy rates

(#)*

+#)*

-5%

5%

15%

25%

35%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017

Class A Direct Vacancy Class B Direct Vacancy

Vacancy rates- By submarket

9.8%

12.4%

6.1% 5.9% 6.7%

4.5%6.3% 6.1% 6.0%

3.2%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%

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Direct asking rental rates- By submarket

$2.31 $2.37

$3.49

$2.61

$3.93

$2.78 $2.63 $2.22

$2.57 $2.36

$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50

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Supply 12,330,685 SF

Total availability 1,053,871 SF / 8.5%

Direct vacancy rate 6.6%

Under construction 148,312 SF

Quarterly leasing 50,685 SF

2017 net absorption 28,144 SF

12-mo. rent % change 4.9%

Average asking rent $2.81 FS

Key market indicators

Dem

and

Pric

ing

Supp

ly

Last Qtr 12-MonthChange Forecast

Net absorption vs. direct vacancy

San Diego Medical O�ice Overview | Q1 2017

$3.33

$3.14

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50

$3.75

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017

Class A Direct Asking Rent Class B Direct Asking Rent

Class A and B direct asking rents*

*Asking rents weighted by available sf and grossed to FSG

0%

2%

4%

6%

8%

10%

12%

14%

16%

-200,000

-100,000

0

100,000

200,000

300,000

400,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017

Net absorption Direct Vacancy

Class A and B direct vacancy rates

(#)*

+#)*

-5%

5%

15%

25%

35%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017

Class A Direct Vacancy Class B Direct Vacancy

Vacancy rates- By submarket

9.8%

12.4%

6.1% 5.9% 6.7%

4.5%6.3% 6.1% 6.0%

3.2%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%

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Direct asking rental rates- By submarket

$2.31 $2.37

$3.49

$2.61

$3.93

$2.78 $2.63 $2.22

$2.57 $2.36

$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50

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Class A and B Direct Asking Rents* Net Absorption vs. Direct Vacancy

* All rental rates on a full service basis

Totalinventory (sf)

Q1 2017 total net absorption

(sf)

12-month total net absorption

(sf)

12-month total net absorption(% of inventory)

Q1 2017 direct vacancy

(%)

Q1 2016 direct vacancy

(%)

Q1 2017 average asking

rent ($ psf)*

Q1 2016 average asking

rent ($psf)*

Oceanside/Vista 972,226 32,728 13,411 1.4% 9.8% 11.2% $2.31 $2.20

Escondido/San Marcos

901,969 -1,753 33,912 3.8% 12.4% 17.1% $2.37 $2.40

North County Coastal 1,373,196 -8,282 -3,546 -0.3% 6.1% 5.8% $3.49 $3.62

I-15 Corridor 883,466 -9,393 179 0.0% 5.9% 5.8% $2.61 $2.81

La Jolla/UTC/Sorrento

1,991,640 20,146 -25,670 -1.3% 6.7% 4.9% $3.93 $3.43

Kearny Mesa/ Mission Valley

1,462,243 1,857 11,438 0.8% 4.5% 5.3% $2.78 $2.98

Uptown/Hillcrest 968,556 -7,406 19,247 2.0% 6.3% 8.3% $2.63 $2.55

East County 1,806,037 8,186 32,746 1.8% 6.1% 8.0% $2.22 $2.16

South County 1,445,994 -2,498 6,690 0.5% 6.0% 6.5% $2.57 $2.50

Other 525,358 -5,441 -5,558 -1.1% 3.2% 2.1% $2.36 $2.09

Market Totals 12,330,685 28,144 82,849 0.7% 6.6% 7.3% $2.81 $2.68