trust honesty integrity respect family generosity ... · trust honesty integrity respect family...

San Jose/Silicon Valley Market Report and Forecast

SILICO

N VA

LLEY2005-2006

TRUST HONESTY INTEGRITY RESPECT FAMILY GENEROSITY PROFESSIONALISM

Table of ContentsJanuary 2006

Colliers International - Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Year in Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Observations & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Silicon Valley Space Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Silicon Valley Research & Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Silicon Valley Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Silicon Valley Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Silicon Valley Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Silicon Valley Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Silicon Valley Office Market Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Silicon Valley Market Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Brokerage Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

About the Newslet terThis newsletter represents the sixty-eighth in a series published by Colliers International . The information basis for this newsletter is the Parrish Absorption Tracking System (PATS) from which the absorption-related statistics are developed and derived . PATS maintains monthly statistics within Silicon Valley for 14 cities, 31 geographical areas, and 4 commercial/industrial building types .

If you desire further data in order to analyze sub-markets not specified in this newsletter, please submit your request through your Colliers International sales representative at (408) 282-3800 or write to Colliers International at 450 West Santa Clara Street, San Jose, California 95113 or you may send your email inquiry to ltorres@colliersparrish .com . We look forward to supporting your specific needs .

Contr ibutors

Editor and Chief Contributor: Jeff Fredericks, SIORManaging Partner

Contributing Writers: Bing Heckman - Investment Services

Research: Colliers Research Services Group

Design and Production: Colliers Graphic Services Group

All information furnished in this report is from sources we deemed reliable . Colliers International makes no representation or warranty as to its accuracy .

C O L L I E r S I n T E r n a T I O n a L

Colliers international - san Jose 2005 - 2006 siliCon Valley market report & ForeCast

IntroductionJanuary 2006

“Others”v Colliers Real Estate Trends2005 v Holiday WishBook v Second Harvest Food Bank food drive v American Express World Golf Championship v Twelve Broker of the Month charities v Staff Team Player of the Year Andrea Rodriguez v 47 qualifiers for Fairmont Orchid Hawaii sales trip v ASVB Industrial Broker of the Year v Ops Weekend to Disneyland v San Jose Grand Prix hospitality tent v Octoberfest v Colliers International Real Estate Seminar v Broker Team Player of the Year Marty Morici v ASVB Investment Broker of the Year v 127 Trace Elementary School kids at Patchen Tree Farm v Five SIOR Premier Broker Awards v 100% participation in ASVB charitable giving v Eight of the Business Journal’s Top 25 Brokers v Robert E . Babcock Award recipient Andre’ Walewski v

Thank you for helping to make 2005 the most successful year in Colliers’ history!

Jeff fredericks, sior

Managing Partner


Colliers international 2005 - 2006 siliCon Valley market report & ForeCast

silicon Valley coMMercial real estate

trends2006 sPonsors

�

- MaJor sPonsor -

- Other SpOnSOrS -


OCTOBEr 2000The year 2005 in reviewJanuary 2006

C O L L I E r S I n T E r n a T I O n a L2


January 2005The average price for Gasoline in California drops below $2 .00 a gallon for the first time in 11 months . The average price is $1 .97, which is still higher than the $1 .67 figure in January 2004 .

Democratic elections are successful in Iraq, where voting in an open election happens for the first time in over 50 years . High voter turnout shows that many Iraqis voted despite terrorists threats .

According to the Silicon Valley Network Joint Venture, Silicon Valley’s net job loss in 2004 was 1 .3% . The technology sector lost the most jobs while the business, construction, and health sectors reported an increase in job hiring .

Telecommunication company Qualcomm leases 90,240 square feet of R&D space at 2581 Junction Avenue in San Jose from TA Associates .

February 2005Hewlett-Packard’s board of directors forces Carly Fiorina to resign as chairman and CEO of Hewlett Packard . CFO Robert Wayman is named interim CEO .

The City of San Jose purchases 52 acres adjacent to the Norman Mineta San Jose International Airport from FMC Corporation . The city plans to use the land for airport expansion .

Advantec, Inc ., the maker of storage systems, purchases 106,560 square feet of R&D space from WMP II Real Estate, LP at 380 Fairview Way in Milpitas . The company plans to move their corporate headquarters to their new location .

MCI accepts a $6 .7 billion offer to be purchased from Verizon Communications after having rejected a $8 .45 billion offer from Quest Communications .

March 2005Former WorldCom CEO Bernard Ebbers is convicted on charges of conspiracy, securities fraud, and false regulatory filings in the largest bankruptcy in United States history .

A magnitude 8 .7 earthquake strikes Northern Sumatra, Indonesia . The earthquake is felt as far north as Bangkok and Thailand, and results in extensive deaths, injuries, and property damage . The area was hit with a tsunami in December 2004 .

Adventurer Steve Fossett breaks the record for the longest nonstop and unrefueled flight by a jet around the world . The total flight time is 67 hours after Fossett’s plane takes off from Kansas .

Mercury Interactive signs a sublease expansion with America Online at 464-468 Ellis Street in Mountain View . The three R&D buildings total 197,341 square feet .

april 2005Oil and natural gas company ChevronTexaco purchases Unocal Corporation in a stock and cash deal worth $18 billion . The combined companies help ChevronTexaco increase their oil reserves and expand their natural gas production .

ALOM Technologies, a component manufacturer and distributor, leases 144,000 square feet of industrial space from The RREEF Funds at 48105 Warm Springs Boulevard in Fremont . Flextronics is the former occupant of the building .

The Semiconductor Industry Association (SIA) reports strong global sales for the first quarter of 2005 . The association revises its forecast, predicting that semiconductor sales for 2005 will be higher than the record 2004 sales figure .

The Federal Reserve raises key interest rates a quarter point for the eighth time since June 2004 . The federal funds rate is now at 3% . Analysts report that while the Fed is increasing rates to combat inflation, that they are also keeping a cautious eye on concerns surrounding slow economic growth .

May 2005Parent company Sears Holdings Corporation is selling Orchard Supply Hardware, a chain of hardware and garden stores in California, citing its desire to focus on the Kmart merger .

Trimble Navigation leases 159,874 square feet of R&D space at 510 De Guigne Drive and 935-995 Stewart Drive from CarrAmerica .

LBA Realty purchases 320,047 square feet of R&D space from DRA Advisors at the Metropolitan Corporate Center at 3105-3195 Kifer Road in Santa Clara .

Green Valley Corporation leases 122,313 square feet of warehouse space at 830 Auzerais Avenue in San Jose from Del Monte Corporation . The building was formerly a Del Monte distribution center .

June 2005The Semiconductor Industry Association predicts 2005 semiconductor sales will grow 6% to a record $226 billion . Higher demand for personal computers, wireless handsets, cell phones, digital televisions, and digital cameras are the main factors for the record prediction .

ProLogis purchases Catellus Development Corporation for $4 .9 billion . The transaction is expected to be approved by both shareholders and regulators by the end of the year .

Crude oil closes above $60 .00 per barrel for the first time . High demand for gasoline during the summer season and the Iraqi elections are the main factors cited for the rise .

Westcore Thompson, LLC purchases 128,496 square feet of Industrial space from Advanced Micro Devices at 901-925 Thompson Place in Sunnyvale .

July 2005Lance Armstrong wins the 2005 Tour De France for the 7th consecutive time . The race is Armstrong’s last for his cycling career .

�

The year 2005 in reviewJanuary 2006



The City of San Jose hosts its first Grand Prix in downtown San Jose . Over 150,000 attend the packed grandstands for the weekend events and Sunday’s main race, won by Sebastein Bourdais .

Eagle Ridge Partners purchases ten industrial and R&D buildings at the Middlefield Industrial Park along Middlefield Road, Bernardo Avenue, and Ravendale Drive in Mountain View, from Equity Office Properties . The ten buildings total 350,986 square feet .

Slough Estates purchases the entire eleven building Shoreline Technology Park at 2011-2091 Stierlin Court in Mountain View, totaling 774,977 square feet . The seller is Equity Office Properties .

august 2005CarrAmerica purchases two R&D/office buildings totaling 131,561 square feet at the Fairchild Research Center in Mountain View . The seller is Fairchild Holdings, LLC .

Boyd and Company, Inc . and MB Hollis Joint Venture, purchase four buildings at 2515-2545 North First Street from Lincoln Property Company in North San Jose . The R&D buildings total 261,840 square feet and are leased to Sun Microsystems .

Westcore Industrial Properties purchases four R&D/office buildings from Equity Office Properties at 888 & 1001 Ridder Park Drive and 1701-1730 and 1733 Fox Drive in San Jose . 83% of the project is leased at close of escrow .

Hurricane Katrina strikes the states of Louisiana and Mississippi resulting in tens of thousands of people homeless and without food and water for days . The entire city of New Orleans is evacuated as citizens seek refuge in neighboring states .

September 2005Supreme Court Chief Justice William Rehnquist dies of thyroid cancer at the age of 80 . Rehnquist was the nation’s 16th chief justice . Judge John Roberts, an appeals judge, is confirmed to be the successor to Rehnquist .

The Consumer Confidence Index drops to 86 .6, the lowest level since October 2003 . Hurricane Katrina, soaring gas prices, less optimistic job outlook, and uncertainty are the main factors cited for the drop .

First Industrial purchases eleven R&D and industrial buildings totaling 735,941 square feet in Milpitas and North San Jose . Realty Associates Fund III, LP is the seller .

Cornerstone Properties sells Horizon Center at 2-4 North Second Street to Legacy Partners . The two office buildings total 420,000 square feet and are located in downtown San Jose .

Delta and Northwest Airlines file for Chapter 11 bankruptcy protection . Both airlines have struggled with massive debt .

October 2005Microsoft Corporation settles its antitrust lawsuit with RealNetworks, Inc . for $460 million in cash and licenses . RealNetworks had accused Microsoft of including Microsoft’s Windows Media Player in the Windows operating system for free, which led to slower sales at RealNetworks .

Morley Brothers, LLC purchases 128,551 square feet of R&D space at 19310-19320 Pruneridge Avenue in Cupertino from Sobrato Development Company . The buyer is a residential developer spin-off of Summerhill Homes .

Greg Jamison, a principal with the San Jose Sharks, purchases 239,000 square feet of R&D space from Mission West Properties at 800 Embedded Way in San Jose . Jamison and partners plan to convert the building for sports use .

Inland Western Real Estate Trust purchases the Bayshore Duane Communication Park at 1350 Duane Avenue and 3080 Raymond Street totaling 194,520 square feet . Stream Realty is the seller .

november 2005 General Motors Corporation announces 30,000 job cuts within the next three years . The world’s biggest automaker plans to close auto plants, including four in Michigan .

The Labor Department reports that the Consumer Price Index fell 0 .6%, the biggest decline since a 0 .9% drop in July 1949 . A record decline in gas prices significantly contributed to the drop .

Yahoo! leases two office buildings at 4301 and 4401 Great America Parkway totaling 299,784 square feet . Sobrato Development Company is the landlord .

InterWorld Network International, Inc . leases 61,340 square feet of Warehouse space from Milpitas Industrial Properties, Inc . at 48541 Warm Springs Boulevard in Milpitas . The tenant provides clean room equipment and supplies .

December 2005The United States trade deficit increases to a record $68 .9 billion according to government data . Deficits with China, Canada, and other countries, and record petroleum imports are cited as principal factors .

Harvest Properties purchases the ten-building San Tomas Business Park project on San Tomas Expressway and Walsh Avenue in Santa Clara . Lennar is the seller of the 479,206 square foot R&D project .

The Federal Reserve raises interest rates a quarter point for the 13th straight time, to a 4½ year high of 4 .25 percent . The Fed describes the economy as “solid” .

At year end, the Dow Jones Industrial Average closes at 10,717 .50; NASDAQ closes at 2,205 .32; and the S&P 500 closes at 1,248 .29 .

Colliers International 2004-2005 San Jose/Silicon Valley Market Report and Forecast

In 2004, commercial real estate deal flow

returned in earnest to Silicon Valley. But

it wasn’t until 2005 that the deal flow

was sufficient to overcome the troubles

of earlier years and take a significant bite

out of vacancy rates. Owners and brokers

got what they hoped for in 2005: more

activity, significant net absorption, and

finally, an uptick in rents.

OBSERVATIONS & FORECASTTRUST HONESTY INTEGRITY RESPECT FAMILY GENEROSITY PROFESSIONALISM

Observations & ForecastJanuary 2006

The California Job

Journal reports that,

“those who enter

the 2006 job market

with science and

other technology

skills, can write their

own ticket. But

at the same time,

those who graduated

ten years ago with

degrees in computer

engineering should

not be surprised by

the lack of job offers

if they have not kept

up with the rapid

changes taking place

in their field”.

In 2004, commercial real estate deal flow returned in earnest to Silicon Valley . But it wasn’t until 2005 that the deal flow was sufficient to overcome the troubles of earlier years and take a significant bite out of vacancy rates . Owners got what they hoped for in 2005: more activity, significant net absorption, and finally, an uptick in rents .

These are trends that are still gaining momentum, and the outlook for 2006 is generally very good . But there is also caution in the wind, and growing sentiment that some of the drivers of the 2005 economy are running out of steam . Some believe that other drivers will pick up the slack, while others are calling for a slowdown in the second half of the year that could spell trouble for 2007 .

2005 review/2006 ForecastTotal gross absorption of office, R&D, industrial and warehouse space measured 28 .95 million square feet in 2005, an 8 .7% improvement over the 26 .6 million square feet of activity in 2004 . Not surprisingly, it was the greatest amount of gross absorption in Silicon Valley dating back to 2000, when we had 38 .4 million square feet of deals, many of which ended up on the sublease market over the course of the next two years .

The Big Bite was the 7 .5 million square foot chunk that was taken out of available supply over the course of the year . Total available inventory now measures “a mere” 53 .36 million square feet, down from 60 .85 million square feet one year ago, and down by nearly 15 .60 million square feet from its high point in 2003 . This translates to a 17 .1% availability rate today, versus 19 .5% a year ago and 22 .1% at the start of Q4, 2003 .

Positive net absorption returned to Silicon Valley in 2005 in a big way . Capped by a fourth quarter that generated 2 .84 million square feet of net absorption, Silicon Valley cranked out 6 .53 million square feet of occupancy growth over the course of the year . It was the first annual net absorption gain recorded by Colliers since 2000, and it was a very healthy figure that nearly matches the yearly average of the 1990’s . The off-the-chart results of Q4 certainly give cause for optimism in 2006, and so does a trend line that clearly demonstrates increasing levels of net absorption in each quarter of 2005 .

The EconomyAs the dot .com boom fades from memory, today’s economy continues to look better and better . We tiptoed into 2005 fearful that any slight miscalculation might throw all of our forecasts out the window, but in the end, the economy took whatever was tossed its way and emerged in pretty good shape . Coming into 2006, most economists see another strong year ahead, with less fear of the bottom falling out on the downside, but less optimism on the upside . Perhaps the title of the UCLA Anderson Forecast sums it up best: “Normal, Again” .

The national economy performed above expectations in 2005, with real GDP growth measuring over 3 .5% for the year . Most economists are calling for 3%-3 .5% GDP growth in 2006 . The Wall Street Journal’s survey of 56 economists yielded a consensus forecast of 3 .5% growth in the first half of 2006, slipping to 3 .1% for the second half . Moodys .com projects real GDP growth of 3 .5%-4 .0% and employment growth of over 2 .0 million jobs . On the pessimistic side, GDP growth rates of 2%-2 .5% are still anticipated by some, such as David Rosenberg, Merrill Lynch’s chief North American Economist . Rosenberg pegs 2006 GDP growth at 2 .5%, with a chance of a recession that he pegs at less than 20% in 2006, but higher in 2007 .

Profitable businesses and sturdy global conditions are amongst the conditions that have most forecasters confident that a recession is not likely in 2006 . Corporate profits are as high as they have ever been, after falling to an all-time low during the 2001 recession . High productivity and slow employment growth have each contributed to flush cash flows and balance sheets .

Since 2002, payroll employment is up only 2 .6% . And employment growth in the current cycle is so weak that it is even lagging the so-called “jobless recovery” of the previous expansion . Productivity is the primary culprit, having increased 13 .4% in the current upswing . Competition from other countries has also played a significant role .According to the California Job Journal, the outlook for job growth in 2006 is better . As many as 1 .3 million jobs will be created in the US in 2006, with the biggest job gains coming from



Big Bite appetite returns

5

financial services, technology, health care, energy and international business sectors . December 2005 figures showed that service sector jobs were increasing and that the number of workers filing new claims for jobless benefits fell to the lowest level in five years .

The dual mandates of the Fed are to hold down inflation and to promote full employment . At the December meeting of the Federal Reserve, interest rates were raised for the 13th time since June 2004 . Many are anticipating one further increase at the January 31 meeting, Alan Greenspan’s last meeting after 18-plus years as the Chairman of the Federal Reserve .

Outsourcing of jobs overseas will continue in 2006, but it is off the front page of most economists’ forecasts . Many are beginning to suggest that the engineering job shift to China and India will yield long-term benefits to the U .S . economy as these populations continue to increase their buying power . According to the National Academy of Sciences, American universities graduated just 70,000 engineers in 2004, compared to 500,000 in China and 200,000 in India .

The dollar’s performance was better than most expected in 2005 . The dollar’s appreciation against the euro and the yen suggests that the market has shifted its focus away from concerns about financing a deficit that requires borrowing $2 billion per day from the rest of the world, to a more optimistic growth outlook for the U .S . relative to that of other major advanced economies . But that deficit looms as an uncomfortable variable . As Martin Barnes of Bank Credit puts it, “Of course there is a limit to how high the U .S . current account deficit can get . Unfortunately, we will only know that limit has been reached when markets start to riot .”

Much of the fear surrounding the housing market still exists today and we are closer to finding out for certain what impacts higher interest rates, flattening prices, fewer refinances, and lower levels of construction are going to have on our economy . In California, the number of homes for sale reached a record high in December, and the median home price dropped for the second straight month, giving buyers more options than they have had in years . Rising home prices have been one of the primary drivers of California’s

economic recovery, with increased prices driving mortgage refinancing that results in greater consumer spending, along with new construction employment .

Employment growth in the construction sector was higher than in any other Bay Area industry in 2005 . If there is less demand for homes, then we are going to see one of the few catalysts for Bay Area employment growth come to a halt . On the other hand, robust technology companies are poised to pick up the slack, and that is precisely what many are counting on to fuel another strong year for commercial real estate in Silicon Valley . UCLA Anderson economist Edward Leamer says that “manufacturing jobs have been just pummeled in recent years . When you’re down on your knees, it’s hard to fall further” .

Policy makers have cited that energy prices are the greatest risk to inflation . So far, the U .S . has managed to digest higher prices, but another spike


0

12

24

36

60

72

48

0 5

-5

30

40

20

10

-10 -15 -20

15

35

25

2002 2003 2004 2005

2001 2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns

year-End available

net absorption

Silicon Valley all Vacancy

19.97%21.22%

19.51%17.12%

0

12

24

36

60

72

48

0 5

-5

30

40

20

10

-10 -15 -20

15

35

25

2002 2003 2004 2005

2001 2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns

year-End available

net absorption

Silicon Valley all Vacancy

19.97%21.22%

19.51%17.12%

The dual mandates

of the US Fed are to

hold down inflation

and to promote full

employment. At the

December meeting

of the Federal

Reserve, interest

rates were raised for

the 13th time since

June 2004. Many

are anticipating one

further increase at

the January 31

meeting, Alan

Greenspan’s last

meeting after

18-plus years as

the Chairman of the

Federal Reserve.



�

Silicon Valley aVailabilityall Product tyPeS

Silicon Valley abSorPtion all Product tyPeS

�


According to

the National

Venture Capital

Association (NVCA),

investments will

increase modestly

in 2006, rising by

no more than 10%.

Investments in later-

stage companies

have risen more

than anticipated,

while early-stage

investment levels

have not progressed

to expectations.

Nonetheless, 215

companies received

funding for the first

time in the third

quarter of 2005,

representing 30% of

all deals.

could be too much to bear . Some experts believe that rising oil prices are a greater threat in the near term than a tightening labor market, fearing that higher interest rates and oil prices could overwhelm the expansion . Increased energy costs impact discretionary consumer spending and are a burden to oil-importing countries .

Strong international demand for semiconductors is benefiting the west . According to Semiconductor Industry Association (SIA), global semiconductor sales increased by 6 .8% to $227 .6 billion in 2005, significantly outpacing its forecast for no growth . SIA is now forecasting growth of 7 .9% in 2006, and 10 .5% and 13 .9% in 2007 and 2008 . The SIA notes that the fastest-growing major end markets in 2006 will be personal computers with a forecasted unit growth of 10%; cellular telephones at 13%; digital cameras at 9%; digital televisions at 52%; and MP3 players at 52% .

Venture capital investments in the Bay Area were down 5 .1% in 2005 to $7 .69 billion, from $8 .11 billion in 2004 . Investment levels have now been steady for 2½ years, with the Bay Area still leading the way with 34 .7% of the total investment for all regions . One particular strong segment in 2005 was the consumer services and business sector, which generated $575 .2 million in 2005 investments, nearly double what they received in 2004 . This sector includes Internet companies and other entrepreneurial start-ups that are common to Silicon Valley . The growth in this sector is attributed to the success of companies like Apple Computer, Google, and Hewlett Packard, who are increasingly consumer-focused with their products and services .

One factor that is working to constrain growth in venture capital backed companies is the U .S . IPO market . Out of the 10 largest venture-backed IPOs in 2005, only two sold shares on U .S stock exchanges, according to Dow Jones’ Venture One . NCVA reports that the IPO market is not likely to recover enough in 2006 to offer an attractive exit opportunity for many venture-backed companies, and that more companies will consider going public on foreign exchanges or soliciting offers from private equity firms . Echoing that sentiment, Boy Pavey, of Morgenthaler Ventures in Menlo Park says, “unless the SEC figures out how the anti-growth and anti-jobs impact of SOX (Sarbanes-Oxley regulation) is

on young growth companies considering an IPO, we will see U .S . venture-backed companies doing what until now has been unthinkable: going public on foreign exchanges” .

The Commercial real Estate MarketCommercial real estate deal flow may not be running on all eight cylinders, but six cylinders would not be a stretch . In fact, Silicon Valley has now generated consistent gross absorption results for a period which spans nearly eight quarters . In 2005, total Silicon Valley gross absorption of office, R&D, industrial, and warehouse space measured 28 .95 million square feet, an 8 .67% increase over the 26 .64 million square feet of gross absorption recorded in 2004 . Activity has been on the upswing for the last three years, though quarter-to-quarter figures have bounced around a bit .

Colliers expects that demand from users will remain strong well into 2006 . Although gross absorption was greater in the first half of 2005 than it was in the second half of the year, there are no signs that we are in the midst of an extended downward gross absorption trend in the near-term . And while 28 .95 million square feet of activity is strong historically, it is not an unprecedented level of activity, even for pre-1999 years . At the same time, we are not expecting a significant jump either . 28 .95 million square feet of gross absorption may not be an unprecedented figure, but it is a bit frothy for a market that is not generating significant employment growth . So, Colliers is forecasting that gross absorption will level off in 2006, with another 28 million square feet of activity projected .

There are a number of good reasons to be optimistic about net absorption, or occupancy growth, in 2006 . First, there is a clear uptrend in that direction that was driven home in a fourth quarter that generated more quarterly occupancy growth than any quarter since Q2 2000 . After recording 474,271 square feet of net absorption in Q1, Colliers measured occupancy gains of 1 .39 million square feet, 1 .83 million square feet, and 2 .84 million square feet in the quarters that followed . We are certainly not anticipating that this trend line will continue along the same path, but it is a good indicator that occupancy growth is on solid footing headed into 2006 .



We anticipate R&D

gross absorption of

13.0-14.0 million

square feet in

2006. Office gross

absorption should

again exceed 7.0

million square feet,

with industrial and

warehouse activity

approaching 4.0

million square feet

and 3.5 million

square feet. Based

upon these levels

of activity, Colliers

forecasts net

absorption in the

7.0 million square

foot range, with a

total reduction in

available supply that

could extend to 8.0

million square feet.

�


Another factor that may help drive occupancy growth in 2006 is employment gains in industry sectors that live and work in Silicon Valley . As noted above, construction job growth is expected to drop off in 2006, and to be supplanted by growth in financial services, technology, healthcare, energy and international business sectors . So, even though job growth is projected to be modest, the growth areas of 2006 should result in more employment gains for companies that we do business with in Silicon Valley .

Finally, when forecasting occupancy growth, we also look at the pipeline to see how much space is getting funneled into available supply as prior occupants move out, and that pipeline is getting decidedly smaller . Since new construction is pretty much non-existent, our pipeline consists of normal rollover space when occupants move out, and premature rollover space in the form of sublease offerings . Sublease offerings have been on a steady quarterly decent for three years and there is no reason to anticipate anything different in 2006 . So that leaves us with what turns out to be a much smaller pipeline of rollover space than we have seen in many years .

In 2005, the pipeline that we refer to totaled 22 .42 million square feet over the course of the year, meaning that 22 .42 million square feet of previously occupied space came on the market for lease or sale . That figure is the lowest we have recorded since 1997, and it is nearly 20% lower than the 2004 figure and 45% less than the 2003 figure . Silicon Valley’s rollover pipeline has been reduced significantly in all product types for the last two years, and the numbers clearly show that rollover space is back to pre-1998 levels .

While the amount of rollover space coming to market does not measure occupancy growth itself, it does give us an idea whether supply is running ahead of, or behind demand . With no significant new construction in the works, roughly 28 .0 million square feet of demand, and only 22 .0 million square feet of rollover space to contend with, the prospects for healthy net absorption in 2006 look good .

The biggest question mark about 2006 is whether economic conditions will result in a slowdown in the second half of the year . That could serve to sidetrack our optimism . But as we look at it today, we anticipate R&D gross absorption of 13 .0-14 .0 million square feet in 2006 . Office gross absorption should again exceed 7 .0 million square feet, with industrial and warehouse activity approaching 4 .0 million square feet and 3 .5 million square feet . Based upon these levels of activity, Colliers forecasts net absorption in the 7 .0 million square foot range, with a total reduction in available supply that could extend to 8 .0 million square feet . These conditions would serve to reduce total available supply to approximately 46 .0 million square feet by year end, representing an overall availability rate of less than 15% .

Rental rates should continue to show some upward momentum in 2006, particularly in higher-demand submarkets . We do not anticipate double-digit rent growth overall, but certain industrial, office and warehouse submarkets may actually exceed that range . The industrial submarket is the most likely sector to generate rent growth, on the order of 10% .



0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

5

10

15

20

25

Mill

ions

of

Squ

are

Feet

R&D Office Industrial Warehouse

annual rollover Space Vacated by Product Type

�

Silicon Valley - all ProductsJanuary 2006



Building Inventory:

availability:

absorption:GrossNetEffective Net

CompletedConstruction:

# of avails. by Size< 10K SF10K to 29K SF30K to 59 K SF60K to 99K SF100K SF +

Available Available Total Available Current and Vacant Occupied Available Current Vacancy Availability Under PendingDate Direct Direct Sublease Available Rate Rate Construction Availability4Q 2005 34,836,264 7,845,525 10,677,610 53,359,399 13 .08% 17 .12% 381,553 53,740,9523Q 2005 37,374,241 7,704,312 10,699,925 55,778,478 14 .07% 17 .88% 648,971 56,427,4492Q 2005 37,814,021 7,937,194 12,043,046 57,794,261 14 .60% 18 .53% 483,066 58,277,3271Q 2005 39,826,133 8,609,630 12,618,353 61,054,116 15 .38% 19 .57% 482,440 61,536,5564Q 2004 41,201,593 6,702,671 12,948,011 60,852,275 15 .92% 19 .51% 210,648 61,062,9233Q 2004 41,282,931 7,478,760 12,998,931 61,760,622 15 .97% 19 .72% 189,118 61,949,7402Q 2004 42,360,767 6,663,141 14,200,358 63,224,266 16 .74% 20 .19% 206,236 63,430,5021Q 2004 42,642,799 7,948,290 15,548,217 66,139,306 17 .06% 21 .12% 70,580 66,209,886

Availability Rate Breakdown Silicon Valley - All Products

SILICOn VaLLEy aLL Available

Under Construction0.71%

AvailableVacant Direct

64.82%

AvailableOccupied Direct

14.60%

AvailableSublease Vacant

11.05%

AvailableSublease Occupied

8.82%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05

Breakdown ofavailable Space

Silicon ValleyAll Products

1Q 2004 2Q 2004 3Q 2004 4Q 2004 1Q 2005 2Q 2005 3Q 2005 4Q 2005 313,149,712 313,069,989 313,195,148 311,835,538 311,922,457 311,922,457 311,925,319 311,639,090 66,139,306 63,224,266 61,760,622 60,852,275 61,054,116 57,794,261 55,778,478 53,359,399 6,659,591 7,273,177 6,497,336 6,210,631 7,519,752 8,252,614 7,000,185 6,178,005 (2,205,390) 53,171 1,212,498 (423,995) 474,271 1,387,382 1,830,383 2,840,355 (1,437,907) 1,238,701 275,900 (9,478) (1,002,006) 1,529,314 807,470 819,905 0 71,213 15,583 0 86,916 0 121,275 311,658 1723 1645 1553 1606 1662 1650 1689 1733 872 827 802 795 781 774 731 693 397 391 365 367 367 337 319 289 190 184 180 181 186 166 163 166 87 79 84 85 87 77 72 68

R&DWhile all product types shared in the

resurgent absorption numbers of 2005, the

R&D market was the greatest beneficiary.

Colliers nailed this one in its 2005 forecast

when we reported that the R&D submarket

would “pick up the absorption slack as a

result of new employment growth and

because of the shear volume of space

available, which translates to opportunities

for users who may not find their best deals

in the office market”. That is exactly what

transpired in 2005.


��

Silicon Valley r&D MarketJanuary 2006

Although the R&D

market embarked

upon a space-

absorbing journey

in 2005, the road

ahead is still a long

one. The availability

rate for R&D space

is still over 20%, at

21.16%. That’s a

significant reduction

from 23.82% one

year ago, but it is

still much higher

than the availability

rates associated with

the other product

types. Even at the

net absorption pace

of 2005, it will take

another four years

to cut the R&D

availability rate

in half.

While all product types shared in the resurgent absorption numbers of 2005, the R&D market was the greatest beneficiary . Colliers nailed this one in its 2005 forecast when we reported that the R&D submarket would “pick up the absorption slack as a result of new employment growth and because of the shear volume of space available, which translates to opportunities for users who may not find their best deals in the office market” . That is exactly what transpired in 2005 .

The shift noted in the paragraph above is not an indicator of a change in the type of space that business is looking for . We are still in the midst of a flight to quality, characterized by “office/R&D” users that need fully-improved space . Quite simply, some of the best options for large blocks of premium office space have been absorbed, leaving high-quality R&D space in a very homogeneous competitive environment with vacant office space that remains for lease . At the same time, the line which separates an office building from an R&D building, in terms of its market definition, narrows . In the end, it is the occupant’s use that defines the build out, and that build out often excludes any need for assembly, production, and distribution areas typically associated with R&D .

Gross absorption of R&D space increased by 15 .37% in 2005, to 13 .33 million square feet . This compares to year-over-year increases in the office, industrial, and warehouse markets of

2 .41%, 1 .63%, and 0 .92% respectively . It was the third straight year of increased activity in the R&D submarket, and while absorption is still well short of the results posted in the dot .com years of 1999 and 2000, deal flow has now returned to the levels that we had grown accustomed to prior to that period .

The R&D market is still the most saturated of our product types, which also means that it offers the most choices for users in the marketplace . The availability rate for R&D space is still over 20%, at 21 .16% . That’s a significant reduction from 23 .82% one year ago, but it is still much higher than the availability rates associated with the other product types . Even at the net absorption pace of 2005, it will take another four years to cut the R&D availability rate in half .

The final quarter of 2004 generated the first rent increase in the R&D market in fifteen quarters . As we forecasted, that trend signaled the bottom had been hit, but it did not signal any sweeping upward momentum in 2005 . In fact, through the first three quarters of 2005, the average start rate of R&D leases remained in that same $0 .83-$0 .86 per square foot (NNN) range that began in Q4, 2004 . But in the fourth quarter of 2005, there was another uptick, this time to $0 .89 NNN . The results of Q4 were enough to drive a 7 .23% rent increase for the year .



0%

3.5%

7.0%

10.5%

14.0%

17.5%

21.0%

24.5%

28.0%

$0.60

$0.80

$1.00

$1.20

4Q-02 1Q-03 4Q-03 3Q-03 4Q-03 1Q-04 4Q-04 3Q-04 4Q-04 1Q-05 4Q-05 3Q-05 4Q-05

Quarter-End availability rate

average Starting nnn rental rates

Silicon Valley r&D rent vs. availability rate Trends

r&D Market awakens

�2

r&D Hot SpotsEach of the five largest R&D markets posted solid gross absorption results in 2005 . Four of those cities experienced increased levels of gross absorption in 2005 over 2004 . The greatest increases came out of the cities of Santa Clara (62 .4% increase) and Mountain View (33 .0% increase), where total gross absorption was almost identical . Santa Clara claimed 1 .61 million square feet of R&D gross absorption while Mountain View generated 1 .62 million square feet of leasing and user sale activity . The only major city to produce less R&D gross absorption in 2005 than 2004 was Fremont, where 1 .79 million square feet of gross absorption occurred, down 15 .4% from the 2 .11 million square feet absorbed in 2004 .

The 3 .65 million square feet of gross absorption recorded in San Jose was 11 .9% more than that city generated in 2004 . Some of San Jose’s more significant R&D transactions include Integrated Device Technology purchasing 263,824 square in the Silver Creek area, Xilinx leasing 106,287 square feet on Great Oaks Boulevard, a 239,000 square foot R&D building sale on Embedded Way for conversion to an in-line skate and sports facility, and 124,539 square feet leased by IBM on North First Street . Despite strong activity, not much of a dent was made in San Jose’s R&D availability rate however, which was only reduced from 24 .1% to 23 .1% over the course of the year .

Mountain View and Santa Clara both generated more R&D net absorption in 2005 than San Jose . In terms of percentage, the biggest net changes were in Mountain View, where available supply dropped 26 .3%, from 3 .50 million square feet to 2 .55 million square feet; Santa Clara, with a 19 .2%

change in availability (from 6 .39 million square feet to 5 .16 million square feet); and Sunnyvale, where available inventory was cut by 12 .8% (from 4 .81 million square feet to 4 .21 million square feet) . Google, Inc . was responsible for a number of transactions in Mountain View, and the most




0

9

18

36

27

45

-12

12

18

0

-6

6

24

2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns

year-End availability

net absorption

2001 2002 2003 2004 2005

Silicon Valley r&D Vacancy

24.71%22.34% 23.82%

21.06%

0

9

18

36

27

45

-12

12

18

0

-6

6

24

2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns


net absorption

2001 2002 2003 2004 2005

Silicon Valley r&D Vacancy

24.71%22.34% 23.82%

21.06%

Silicon Valley aVailability r&d Product

Silicon Valley abSorPtionr&d Product

San Jose Santa Clara Sunnyvale Mountain View Fremont

San Jose Palo alto Santa Clara Sunnyvale Cupertino

Fremont Santa Clara San Jose Mountain View Sunnyvale

San Jose Milpitas Fremont Santa Clara Gilroy

24.12%

23.09%

22.23%

25.07%

r&D

Office

Industrial

Warehouse

19.58%

17.08%

20.55%

21.66%

25.11%

25.49%

29.29%

23.66%

0% 4% 8% 12% 16% 20% 24% 28% 32% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 30% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

26.20%

26.63%

28.23%

30.54%

24.35%

24.74%

18.23%

27.82%

2003

2002 17.59% 36.18%

22.10%

17.99%

28.29%

2004

16.86%

17.16%

16.17%

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

39.06%

29.68%

21.71%

32.21%

25.70%

26.58%

20.77%

13.97%

22.82%

17.63%

23.97%

24.42%

0% 2% 4% 6% 8% 10% 12% 14%

10.57%

11.37%

9.58%

9.17%

0% 2% 4% 6% 8% 10% 12% 14%

7.46%

7.42%

9.22%

10.00%

0% 2% 4% 6% 8% 10% 12% 14%

14.08%

9.87%

14.41%

13.59%

0% 2% 4% 6% 8% 10% 12% 14%

10.24%

11.21%

11.26%

9.36%

0% 2% 4% 6% 8% 10% 12% 14%

8.68%

6.66%

6.85%

5.09%

0% 4% 8% 12% 16% 20% 24%

17.59%

17.10%

17.23%

11.51%

0% 4% 8% 12% 16% 20% 24%

13.48%

12.38%

17.93%

25.66%

0% 4% 8% 12% 16% 20% 24% 0% 2% 4% 6% 8% 10% 12% 14%

12.75%

8.84%

6.95%

6.87%

0% 2% 4% 6% 8% 10% 12% 14%

11.75%

17.38%

6.95%

13.34%

15.50%

13.38%

22.44%

20.45%

Milpitas

0% 4% 8% 12% 16% 20% 24% 28%

1999

2001

2000

15.81%

21.52%

2002 21.52%

1.60%

Selected Cities Historical availability rate Trends - r&D

The only major city

to produce less R&D

gross absorption in

2005 than 2004

was Fremont,

where 1.79 million

square feet of gross

absorption occurred,

down 15.4% from

the 2.11 million

square feet absorbed

in 2004.

��


For the year, San Jose

generated 3.26 million

square feet of R&D

gross absorption,

a 48.6% increase

over 2003. Despite

the improved gross

absorption levels in

2004, other rollover

space continued to get

added to the pipeline,

resulting in virtually

no change in

San Jose’s R&D

availability rate.

notable R&D lease in Santa Clara was General Dynamics’ takedown of 359,000 square feet on Mission College Boulevard .

Looking ForwardSometime in the first half of 2006, Silicon Valley’s R&D availability rate should drop below 20% for the first time since Q1, 2002 . It has been a tough comeback for the R&D sector . Many of these facilities, particularly the older ones, do not meet the needs of today’s users, who frequently require fully improved office space for engineers, software designers, and the like . At the same time, there has been competition from millions of square feet of office space that was developed during the dot .com years when businesses outfitted their facilities to a higher condition than ever before . The flight-to-quality of new requirements has effectively delayed the recovery of the R&D market .

Conditions are better today, as much of the high-quality competition has been leased and owners have their vacant R&D properties better positioned to meet demand . More importantly, there is greater demand from a broader contingent of companies in Silicon Valley, and economic conditions favor more employment growth in 2006 . These factors should combine to translate into another good year for R&D net and gross absorption .

R&D gross absorption in the second half of 2005 was somewhat below the first-half results . In fact, R&D activity actually declined in both the third and fourth quarters of 2005 . But the drop-off was nominal and the picture is still bright, so we are aggressively forecasting

another 13 .0-14 .0 million square feet of R&D gross absorption in 2006 . The market is poised to deliver that kind of absorption if we can sustain the economic momentum of 2005 . A healthy economy, strong profits, and forecasts for modest Bay Area employment growth should all help R&D absorption .

Net absorption gains in the R&D sector should exceed 2005’s encouraging results . Once again, employment growth is going to be necessary to make it happen, but employment growth has not been much of a factor in any of the positive commercial real estate results so far, so it’s overdue to make a contribution . As noted in the Observations & Forecast section, there is also much less space getting funneled back into the supply chain from subleasing or even normal rollovers . In 2005, only 10 .64 million square feet of previously occupied R&D space came available during the year, the least since 1997 . These conditions have Colliers bullishly forecasting 3 .0 million square feet of R&D net absorption in 2006 . With space that gets removed from the market for other reasons, R&D supply could be cut by close to 4 .0 million square feet, leaving an R&D availability rate of approximately 16 .5% .

Despite this optimistic outlook for 2006, it is still a tenant’s market and there is plenty of space to choose from to create a competitive environment for deals . Much of that space is homogenous, class B/C space and therefore, not poised to effect much rental growth . Having said that, we should see average starting rates for R&D leases inch back up above $0 .90 per square foot NNN, per month, with greater rental growth in areas such as Mountain View, Palo Alto, and Cupertino .

Selected Colliers r&D Transactions• Stryker inked a long-term, 165,000 square foot R&D lease renewal with Mission West Properties at 5900 Optical Court in San Jose .

• Trimble navigation signed a long term, 159,874 square foot R&D lease with Carr america . The property is located at 935-995 Stewart Avenue in Sunnyvale .

• Xilinx, Inc ., subleased 106,287 square feet of R&D space from Mentor Graphics Corp ., at 79 Great Oaks Boulevard in San Jose .

• Super Micro Computer, Inc., purchased a 106,095 square foot R&D building from South Bay Development at 871 Fox Lane in San Jose .

• Philips Electronics north america sold a 150,000 square foot R&D building at 440 Wolfe Road in Sunnyvale, to aLPS .

• Philips-adac inked a 119,722 square foot office/R&D lease removal at 515, 540 and 570 Alder Drive in Milpitas with landlord Peery/arrillaga .



OFFICEA consistent stream of demand for office

space is chipping away at available supply.

The current off ice availability rate of

17.4% is still bloated, but it is a far cry

from the 24.4% availability rate at its Q2,

2003 peak. The office availability rate

has now been reduced in nine out of the

last ten quarters, during which time 3.84

million square feet of space has been cut

from available supply.


Silicon Valley Office MarketJanuary 2006

Despite decent

gross absorption

results, San Jose

had more office

space available at

the end of the year

than it started with.

Available supply

nudged upward from

3.65 million square

feet to 3.87 million

square feet over the

course of the year,

representing an

increase in the office

availability rate from

16.2% to 17.2%.

While R&D space was notable for grabbing

a greater share of total absorption in 2005,

the office market continued to demonstrate

outstanding resilience, extending its streak

of consistently-strong activity . Office gross

absorption totaled 7 .67 million square feet in

2005, a 2 .4% increase over the 7 .49 million square

feet of activity measured in 2004 . In surpassing

the 2004 results, 2005 trails only 2001 in total

office gross absorption . In fact, you find to look

all the way back to 1998 before you get to a year

that generated less than 6 .0 million square feet

of office gross absorption . Significantly, even

2002 and 2003 were solid office gross absorption

years, as healthy businesses re-absorbed space

that was built for and leased by other users a year

or two earlier, who then became victims of the

bubble’s burst .

A consistent stream of demand for office space

is chipping away at available supply . The current

office availability rate of 17 .4% is still bloated, but

it is a far cry from the 24 .4% availability rate at

its Q2, 2003 peak . The office availability rate

has now been reduced in nine out of the last ten

quarters, during which time 3 .84 million square

feet of space has been cut from available supply .

Office net absorption more than doubled in 2005,

from 764,626 square feet to 1 .75 million square

feet . That increase was fueled by the strong gross

absorption results, combined with less rollover

space coming back on the market . In 2004, 6 .72

million square feet of previously-occupied office

space came available during the year . In 2005,

only 5 .92 million square feet rolled over, making

net occupancy gains much easier to achieve .

Rental rates in the office sector showed a

modest increase over the course of the year .

Fourth quarter average starting rents were $1 .93

per square foot, full service, up 3 .76% from

deals during the same period one year earlier .

However, when looking at a more extended

transaction period, Colliers estimates that office

rents are up by about 5% in the last year .

Hot Spots

Santa Clara continues to make great strides

towards chipping away at an office availability

rate that had soared to an incredible 39 .1% at the

end of 2003 . In 2004, Santa Clara’s office market

was boosted by a series of large transactions by

the likes of Yahoo! and WebEx Communications .

In 2005, Yahoo! was a big factor again, leasing



0%

5%

10%

15%

20%

25%

$1.50

$1.75

$2.00

$2.25

$2.50

4Q-02 1Q-03 2Q-03 3Q-03 4Q-03 1Q-04 2Q-04 3Q-04 4Q-05 1Q-05 2Q-05 3Q-05 4Q-05


average Starting Full Service rental rates

Silicon Valley Office rent vs. availability rate Trends

Office Plugs and Plays away

�5

nearly 300,000 square feet on Great America

Parkway . EMC took down another 300,000

square feet on Mission College Boulevard, and

Foundry Networks leased 142,000 square feet

just up the street . All told, Santa Clara generated

1 .80 million square feet of office gross absorption,

second only to San Jose’s 2 .0 million square feet

of activity . As a result, Santa Clara’s occupancy

gain totaled 882,770 square feet, and its office

availability rate dropped from 29 .7% to 21 .7% .

Santa Clara’s occupancy gain in the office sector

was more than triple the gain in any other city .

Palo Alto followed up a very strong year in

2004, with an office occupancy gain in 2005 that

measured 277,891 square feet . Palo Alto’s office

availability rate shrank from 22 .1% to 18 .0%

in 2005, a reduction of 18 .6% . Cupertino’s

availability rate dropped from 20 .8% to 14 .0%

on the strength of 619,370 square feet of gross

absorption and a 148,005 square foot occupancy

gain . Apple was busy taking down office space in

Cupertino, and Palo Alto’s results were a function

of several mid-sized deals including 48,384 square

feet leased to CV Therapeutics, and 50,215

square feet leased to Simpson Thatcher .

Despite decent gross absorption results, San

Jose had more office space available at the end

of the year than it started with . Available supply

nudged upward from 3 .65 million square feet

to 3 .87 million square feet over the course of

the year, representing an increase in the office

availability rate from 16 .2% to 17 .2% . Most of

the headline-grabbing takedowns of office space

were in neighboring cities . Movaris leased 21,900

square feet on Gateway Place, the Diocese of

San Jose acquired a 37,200 square foot office

building on North First Street, and CoWare

leased 27,007 square feet, also on North

First Street .


C O L L I E r S I n T E r n a T I O n a L��


0

3

6

9

12

15

0 -1

-3

6

2

8

4

10

2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns


net absorption

2001 2002 2003 2004 2005

Silicon Valley Office Vacancy

23.26% 23.02%

19.40%

17.39%

0

3

6

9

12

15

0 -1

-3

6

2

8

4

10

2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns


net absorption

2001 2002 2003 2004 2005

Silicon Valley Office Vacancy

23.26% 23.02%

19.40%

17.39%

Silicon Valley aVailability office Product

Silicon Valley abSorPtionoffice Product





24.12%

23.09%

22.23%

25.07%

r&D

Office

Industrial

Warehouse

19.58%

17.08%

20.55%

21.66%

25.11%

25.49%

29.29%

23.66%

0% 4% 8% 12% 16% 20% 24% 28% 32% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 30% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

26.20%

26.63%

28.23%

30.54%

24.35%

24.74%

18.23%

27.82%

2003

2002 17.59% 36.18%

22.10%

17.99%

28.29%

2004

16.86%

17.16%

16.17%

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

39.06%

29.68%

21.71%

32.21%

25.70%

26.58%

20.77%

13.97%

22.82%

17.63%

23.97%

24.42%

0% 2% 4% 6% 8% 10% 12% 14%

10.57%

11.37%

9.58%

9.17%

0% 2% 4% 6% 8% 10% 12% 14%

7.46%

7.42%

9.22%

10.00%

0% 2% 4% 6% 8% 10% 12% 14%

14.08%

9.87%

14.41%

13.59%

0% 2% 4% 6% 8% 10% 12% 14%

10.24%

11.21%

11.26%

9.36%

0% 2% 4% 6% 8% 10% 12% 14%

8.68%

6.66%

6.85%

5.09%

0% 4% 8% 12% 16% 20% 24%

17.59%

17.10%

17.23%

11.51%

0% 4% 8% 12% 16% 20% 24%

13.48%

12.38%

17.93%

25.66%

0% 4% 8% 12% 16% 20% 24% 0% 2% 4% 6% 8% 10% 12% 14%

12.75%

8.84%

6.95%

6.87%

0% 2% 4% 6% 8% 10% 12% 14%

11.75%

17.38%

6.95%

13.34%

15.50%

13.38%

22.44%

20.45%

Milpitas

0% 4% 8% 12% 16% 20% 24% 28%

1999

2001

2000

15.81%

21.52%

2002 21.52%

1.60%

Selected Cities Historical availability rate Trends - Office

All told, Santa

Clara generated

1.80 million square

feet of office gross

absorption, second

only to San Jose’s

2.0 million square

feet of activity. As

a result, Santa

Clara’s occupancy

gain totaled 882,770

square feet, and its

office availability

rate dropped from

29.7% to 21.7%.

Looking Forward

Our forecast for the 2005 office market suggested

that deal flow would shift to markets like Santa

Clara, where an abundance of good quality space

remained at very attractive rental terms . Indeed,

we saw exactly that with the likes of the deals

mentioned in the paragraphs above with Foundry

Networks, EMC, and Yahoo! This trend should

continue in 2006 as new office users in the

marketplace seek out high-quality alternatives in

locations with the most options to choose from .

Santa Clara still carries a 21 .7% office availability

rate, which is the highest amongst the major

competing cities .

With some of these large blocks of space removed

from Santa Clara’s inventory, we expect to see

better results in San Jose’s office market in 2006 .

Silicon Valley’s largest city was the recipient of

surprisingly few large office deals in the last year .

Downtown San Jose, which boasts numerous

amenities and conveniences for employees, also

stands to have a more productive year .

Colliers is anticipating that office gross absorption

will eclipse 7 .0 million square feet for the third

consecutive year and for the fourth year out

of the last five . All of the same economic

conditions are in play that we outlined in the R&D

forecast, namely better prospects for Silicon

Valley employment growth and a healthy business

climate . On the real estate side, office gross

absorption has trailed off a bit in each of the last

three quarters, from its 2005 high of 2 .08 million

square feet in Q1 to a 1 .51 million square foot

Q4 . Our expectation is that gross absorption

levels will pick back up, but not enough to

surpass last year’s 7 .67 million square foot gross

absorption total .

Though office gross absorption may trail the 2005

figure, we would not be surprised to see more

net absorption, on the order of 2 .0 million square

feet . Companies are carrying less excess space

and we see fewer sublease offerings than we have

seen in recent years . Large users are filtering

back into the marketplace and effecting pure

occupancy growth as a result of their expansions .

And less office space is getting recycled back

into available supply than in any year since 2000 .

At the same time, good deals still abound, but

that fuse is growing shorter and those who have

waited for business conditions to improve, will

need to act now if they are in the market for

class-A space . Another 2 .0 million square feet of

net absorption would serve to reduce the office

availability rate to about 14% by year end .

On the matter of rents, another 5% bump in

2006 would drive the average starting rents for

office space back above $2 .00 per square foot,

full service, for the first time since 2002 . But the

barrier is an office availability rate that still hovers

at 17 .4% . If that rate drops to the 14% availability

rate that we have targeted for year-end, then we

can expect more rent growth in 2007 for office

properties .

��




• Sublessor Philips Electronics completed a 287,644 square foot office sublease at 950-1000 West Maude Avenue in Sunnyvale . Palm One is the subtenant .

• Lockheed Martin Corporation executed a 437,700 square foot office lease renewal with Legacy Partners, at 3100, 3120 and 3130 Zanker Road in San Jose .

• C.M. Capital Corp., signed a 42,625 square foot office lease renewal and expansion at 525 University Avenue in Palo Alto, with Skadden, arps, Slate, Meagher & Flom, LLP .

• Carramerica realty Corporation completed a long term, 76,710 square foot office lease with aT&T at 400 Holger Way in San Jose .

• Vine Street Properties sold a 49,926 square foot office building at 1551 McCarthy Boulevard in Milpitas to Balch Enterprises .

Selected Colliers Office Transactions

2006 should be the

year that Sobrato

Development

Companies finally

leases its premier,

380,000 square foot

downtown high-rise,

and that deal alone

will be a bellwether

office transaction not

only for San Jose,

but for all of

Silicon Valley.

INDUSTRIALThe increasing tightness of the industrial

market is apparent in an availability rate

that has dropped to 8.9%, down from

10.4% one year ago. Measured in square

footage, there is just under 5.0 million

square feet of industrial space available

in Silicon Valley, the first time available

supply has been below that threshold since

the second quarter of 2001.


0%

6%

10%

2%

4%

8%

14%

12%

$0.40

$0.50

$0.70

$0.90

$0.60

$0.80

$1.00

4Q-02 1Q-03 2Q-03 3Q-03 4Q-03 1Q-04 2Q-04 3Q-04 4Q-05 1Q-05 2Q-05 3Q-05 4Q-05



Silicon Valley Industrial MarketJanuary 2006

Industrial rents

held relatively firm

in 2004. There

was a dip recorded

in the year’s third

quarter, but that

dip was offset by an

equivalent rebound

in Q4. So far, the

tighter market

conditions in the

industrial sector have

not been enough to

precipitate upward

momentum in rents.

That may begin to

change in 2005 as

the availability rate

drops below 10%.

For nineteen consecutive quarters, industrial

gross absorption has been greater than 900,000

square feet and less than 1 .35 million square feet,

so it comes as no surprise that our forecast for

Silicon Valley’s 2005 industrial market was pretty

much on the money .

For the year, industrial gross absorption totaled

4 .45 million square feet, a 15 .4% increase over

2004, and about what we expected . In our forecast

for the 2005 industrial market, we cited that less

space was rolling over in the industrial sector and

that while “it would be an aggressive forecast

to suggest that there will be 1 .0 million square

foot of occupancy gain on 4 .0 million square feet

of gross absorption, we do think it is possible” .

That proved to be accurate observation, as 1 .08

million square feet of industrial net absorption

was chalked up in 2005 .

The increasing tightness of the industrial market is

apparent in an availability rate that has dropped to

8 .9%, down from 10 .4% one year ago . Measured

in square footage, there is just under 5 .0 million

square feet of industrial space available in Silicon

Valley, the first time available supply has been

below that threshold since the second quarter

of 2001 . Available supply has been reduced by

14 .0% in the last year and that trend will continue

in 2006 unless there is a significant turn in the

economy that would cause industrial users to give

up space they presently occupy .

It comes as somewhat of a surprise that there was

not any statistical rent growth for industrial leases

in the latter half of 2005 . In fact, the average start

rate of industrial leases was down 6 .25% in the

fourth quarter of 2005 from the same quarter

one year earlier . However, when measuring all

industrial leases in 2004 versus leases reported in

2005, Colliers does measure year-over-year rent

growth of about 5% in the industrial sector, from

$0 .61 per square foot NNN in 2004, to $0 .64

NNN in 2005 . We did suggest that low-end R&D

rents would suppress industrial rent growth in

2005, and that appears to have been the case .

Hot Spots

Much of the overall results in the industrial

market hinge on industrial leasing and sales

activity in the cities of San Jose, Santa Clara, and

Fremont . These three cities all registered strong

performances in 2005, with net occupancy gains

recorded in each city . San Jose’s gross absorption

did not quite measure up to the near-record level

of 2004, but the net absorption gains were far

greater . San Jose generated 1 .81 million square

feet of industrial gross absorption for the year,

a 12 .7% decline from the year before . But the

Valley’s largest city managed to attract 407,549



Silicon Valley Industrial rent vs. availability rate Trends

Take it to the Bank

��

square feet of industrial occupancy gains, more

than double the net absorption of 2004 . As

a result, San Jose’s industrial availability rate

dropped from 9 .6% to 9 .2% during the year .

Industrial gross absorption in the city of Santa

Clara measured 925,206 square feet in 2005,

a virtual repeat from the year before . But as

was the case in San Jose, vacancy rates are on

the decline as less rollover space came onto the

market to fill the pipeline in 2005 . Industrial

net absorption in Santa Clara nearly hit 300,000

square feet in 2005, a 62 .3% increase over the

184,083 square feet of net absorption in 2004 .

The current availability rate for industrial space in

Santa Clara is 7 .4%, and the actual vacancy rate is

down to 4 .6% .

Leasing and user sale activity also surged in

Fremont, where industrial gross absorption

totaled 657,512 square feet in 2005, a 46 .4%

increase over 2004 . Net absorption was negligible,

at 34,434 square feet, but the availability rate was

down significantly, from 14 .1% to 9 .9% over the

course of the year . A healthy chuck of that is

attributed to space that was taken off the market

for lease or sublease during the year . Significant

transactions include a 144,000 square feet lease by

ALOM Technologies on Warm Springs Boulevard,

and 75,983 square feet leased by AER Worldwide

on Boscell Road .

Milpitas and Sunnyvale also benefited from strong

demand for industrial space in 2005 . In Milpitas,

industrial gross absorption more than doubled

from the year before, to 291,327 square feet . Net

absorption, which was 131,724 in 2004, measured

156,934 square feet in 2005 . Sunnyvale’s industrial

gross absorption was up 31 .8% in 2005, to 215,234








24.12%

23.09%

22.23%

25.07%

r&D

Office

Industrial

Warehouse

19.58%

17.08%

20.55%

21.66%

25.11%

25.49%

29.29%

23.66%

0% 4% 8% 12% 16% 20% 24% 28% 32% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 30% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

26.20%

26.63%

28.23%

30.54%

24.35%

24.74%

18.23%

27.82%

2003

2002 17.59% 36.18%

22.10%

17.99%

28.29%

2004

16.86%

17.16%

16.17%

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

39.06%

29.68%

21.71%

32.21%

25.70%

26.58%

20.77%

13.97%

22.82%

17.63%

23.97%

24.42%

0% 2% 4% 6% 8% 10% 12% 14%

10.57%

11.37%

9.58%

9.17%

0% 2% 4% 6% 8% 10% 12% 14%

7.46%

7.42%

9.22%

10.00%

0% 2% 4% 6% 8% 10% 12% 14%

14.08%

9.87%

14.41%

13.59%

0% 2% 4% 6% 8% 10% 12% 14%

10.24%

11.21%

11.26%

9.36%

0% 2% 4% 6% 8% 10% 12% 14%

8.68%

6.66%

6.85%

5.09%

0% 4% 8% 12% 16% 20% 24%

17.59%

17.10%

17.23%

11.51%

0% 4% 8% 12% 16% 20% 24%

13.48%

12.38%

17.93%

25.66%

0% 4% 8% 12% 16% 20% 24% 0% 2% 4% 6% 8% 10% 12% 14%

12.75%

8.84%

6.95%

6.87%

0% 2% 4% 6% 8% 10% 12% 14%

11.75%

17.38%

6.95%

13.34%

15.50%

13.38%

22.44%

20.45%

Milpitas

0% 4% 8% 12% 16% 20% 24% 28%

1999

2001

2000

15.81%

21.52%

2002 21.52%

1.60%

0

2

4

6

8

0

5

3

2

1

-1

-2

4

6

2002 2003 2004 2005

2001 2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns


net absorption

Silicon Valley Industrial Vacancy

11.68%

10.37% 8.92%

11.25%

0

2

4

6

8

0

5

3

2

1

-1

-2

4

6

2002 2003 2004 2005

2001 2002 2003 2004 2005

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns


net absorption

Silicon Valley Industrial Vacancy

11.68%

10.37% 8.92%

11.25%

Silicon Valley aVailabilityinduStrial Product

Selected Cities Historical availability rate Trends - Industrial

Silicon Valley abSorPtioninduStrial Product

Industrial net

absorption in Santa

Clara nearly hit

300,000 square feet

in 2005, a 62.3%

increase over the

184,083 square feet

of net absorption in

2004. The current

availability rate for

industrial space in

Santa Clara is 7.4%,

and the actual vacancy

rate is down to 4.6%.

square feet . Net absorption was nominal, but

the availability rate declined from 11 .3% to 9 .4%

during the year .

Looking Forward

In recent years, all that it has taken to look

forward and forecast the industrial market is

to look back a year or two, rinse, wash, and

repeat . That may be a bit of a stretch, but it

is an approach that we are sticking with for

2006 . The industrial market has become too

consistent to forecast anything other than subtle

changes from year to year . The types of users

in the marketplace are relatively consistent,

the percentage of total absorption that comes

from the industrial market is consistent, and it’s

an increasingly tight market, which also makes

forecasting a bit more predictable . Of course,

it is precisely when you think you have figured it

out, that you’re most likely to get it wrong .

Leasing and user sale activity was not much

different in the second half of 2005 from the first .

There was an uptick in Q4, but that may have

been due in part to the large volume of industrial

sales transactions that get recorded at year-end .

So, there is no real movement in the trend line to

suggest much deviance from what was transacted

in 2005, and that means that we can expect at

least another 4 .0 million square feet of industrial

gross absorption in the coming year .

Of course, a repeat of 2005 will mean that the

tightest product-type category is going to get

tighter, and that is what we expect . The industrial

availability rate dropped below 9% in the last

quarter of 2005, and it will likely drop even

lower in 2006 . Colliers is forecasting another

1 .0 million square feet of net absorption in the

coming year and that should be sufficient to lower

the industrial availability rate to about 7% .

One factor that could eventually slow industrial

net absorption is rising rents . So far, industrial

rents have remained fairly stable, with annualized

growth that we pegged at about 5% in 2005 .

One reason that rents may not be going up more

quickly is that most of these properties were built

a number of years ago and there is less pressure

from proforma expectations or institutional

partners . Also, it is hard to drive rent increases

in one property category when the market as

a whole is not moving in the same direction or

at the same velocity . But that could change in

2006, and with 5%-10% rent growth projected in

other product categories, we can easily see 10%

movement to the upside for industrial space .

2�


The industrial

availability rate

dropped below 9%

in the last quarter

of 2005, and it will

likely drop even

lower in 2006.

Colliers is forecasting

another 1.0 million

square feet of net

absorption in the

coming year and that

should be sufficient

to lower the

industrial availability

rate to about 7%.



Selected Colliers Industrial Transactions• Catellus Operating Limited Partnership inked a 47,703 square foot industrial lease at 41049 Boyce Road in Fremont, with PODS of San

Francisco, LLC .

• General Electric leased an additional 57,651 square feet of industrial space at 1989 Little Orchard Street in San Jose, from Barry Swenson .

• F.E. Trimble, LLC, completed a 47,476 square foot industrial lease at 696 East Trimble Road in San Jose with Berger Manufacturing, Inc.

• JDr Microdevices, Inc., sold a 105,600 square foot industrial building at 1850 South Tenth Street in San Jose, to John Dean Tran .

• a&B Investments purchased a 71,296 square foot industrial building at 1500 Duane Avenue in Santa Clara, from Melvin Sosnick Company.

General Electric leased an additional 57,651 square feet

of industrial space at 1989 Little Orchard Street in San

Jose, from Barry Swenson.

WAREHOUSEThe overall availability rate for warehouse

space fell to 12.0% at year-end, down

from 15.2% to start the year. This

continues a rapid decent that began in

the second quarter of 2003, when the

warehouse availability stood at 20.1%.

In the eighteen months since, available

supply of warehouse space has been

reduced by 41.0%.


Silicon Valley Warehouse MarketJanuary 2006

After only managing

to tread water in

2004, San Jose

stepped to the

forefront in 2005,

leading the way with

1.86 million square

feet of warehouse

gross absorption and

464,720 square feet

of net absorption.

San Jose’s gross

absorption results

are a 53.1%

improvement over

the 1.22 million

square feet of

activity in 2004

Despite rounding out the year with rather

mediocre Q4 activity, 2005 was another very

strong year overall for gross and net absorption

of warehouse space . Activity was strongest in

the middle half of the year, and no extended

downward spiral is forecasted out of the lackluster

results measured in Q4 . All told, 2005 generated

3 .50 million square feet of warehouse gross

absorption, a statistical repeat of 2004 . Net

absorption measured 1 .0 million square feet, and

like the industrial submarket, that figure hit the

bulls-eye of Colliers’ forecast .

The overall availability rate for warehouse space

fell to 12 .0% at year-end, down from 15 .2% to

start the year . This continues a rapid decent

that began in the second quarter of 2003, when

the warehouse availability stood at 20 .1% . In

the eighteen months since, available supply of

warehouse space has been reduced by 41 .0%,

from 7 .88 million square feet, to 4 .64 million

square feet . Another 1 .0 million square feet

of occupancy gain in 2006 would reduce the

warehouse availability rate to 9 .4%

The warehouse market has been burdened by a fairly

high sublease component, which still accounted for

20% of all available space at the beginning of the

year . That figure actually dropped to 17 .2% after

the third quarter, but then jumped back to 20% in

Q4 . As the warehouse market continues to tighten

in 2006, we anticipate that sublease offerings will

show more leasing activity and that this figure will

once again begin to decline .

Our rental rate forecast for the year was for

warehouse rents to remain flat in 2005, and then

to nudge upward in location-specific submarkets

in 2006, provided that the availability rate

dropped below 13% . Indeed, the starting rent

for warehouse leases began and finished the year

at $0 .35 per square foot, per month, NNN . In

between, the number moved a little above, and

then a little below $0 .35, before settling back

in at that figure in Q4 . As we have noted in the

past, traditional warehouse users start feeling

the pinch at rents much above that figure, and

demand seems to drop off precipitously .

Hot SpotsThe Fremont/Milpitas, I880/I680 corridor came

off a very strong gross absorption year in 2004,

and those numbers were going to be hard

to duplicate in 2005 . Indeed, warehouse gross

absorption was down in both cites by more

than 30% . But our Fremont/Milpitas corridor

still generated a combined total of 1 .01 million

square feet of gross absorption, which is 84%



Silicon Valley Warehouse rent vs. availability rate Trends

Back-to-Back Warehouse Gains

2�

0%

8%

16%

4%

12%

24%

20%

$0

$.30

$.15

$.45

$.60

$.75

$.90

4Q-02 1Q-03 2Q-03 3Q-03 4Q-03 1Q-04 2Q-04 3Q-04 4Q-04 1Q-05 2Q-05 3Q-05 4Q-05



more activity than was generated in 2003 . Adding

to that was another 382,560 square feet of

combined net absorption, which nearly matches

the 397,155 square foot warehouse occupancy

gain for those two cities in 2004 .

After only managing to tread water in 2004, San

Jose stepped to the forefront in 2005, leading the

way with 1 .86 million square feet of warehouse

gross absorption and 464,720 square feet of net

absorption . San Jose’s gross absorption results

are a 53 .1% improvement over the 1 .22 million

square feet of activity in 2004, and the healthy

net absorption figure comes on the heels of a

warehouse occupancy loss that totaled nearly

100,000 square feet in 2004 . As a result, San

Jose warehouse availability rate dropped by one-

third in 2005, from 17 .2% to 11 .5% . Significant

San Jose warehouse transactions include Valley

Relocation taking down 212,840 square feet

on Little Orchard Street; 122,313 square feet

leased by Green Valley Corporation on Auzerais

Avenue, and 109,400 square feet leased by 2XL

on Brennan Street .

Santa Clara and Sunnyvale combined to generate

390,120 square feet of warehouse gross

absorption, a 13 .2% increase over the 338,819

square foot figure of 2004 . Together, these

neighboring cities added 222,038 square feet of

net occupancy, compared to a net increase of only

31,780 square feet the year before .

One of the warehouse/industrial “hot spots” has

been anywhere you can re-zone warehouse and

industrial properties to residential . The prevailing

consensus is that this trend is slowing down, but

we still anticipate that some amount of warehouse

and industrial space will be removed from those

building bases in 2006 .




0

2

4

6

8

5

3

2

1

0

-1

-2

-3

4

6

2003 2004 20052002

Gross absorption

Squ

are

Feet

in M

illio

ns

Squ

are

Feet

in M

illio

ns


net absorption

2002 2003 2004 20052001

Silicon Valley Warehouse Availability

18.09%

15.24%

8.92%

16.65%

0

2

4

6

8

5

3

2

1

0

-1

-2

-3

4

6

2003 2004 20052002

Gross absorption

Sq

uar

e F

eet

in M

illio

ns

Sq

uar

e F

eet

in M

illio

ns


net absorption

2002 2003 2004 20052001

Silicon Valley Warehouse Availability

18.09%

15.24%

8.92%

16.65%

Silicon Valley aVailabilityWarehouSe Product

Silicon Valley abSorPtionWarehouSe Product





24.12%

23.09%

22.23%

25.07%

r&D

Office

Industrial

Warehouse

19.58%

17.08%

20.55%

21.66%

25.11%

25.49%

29.29%

23.66%

0% 4% 8% 12% 16% 20% 24% 28% 32% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 30% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28%

26.20%

26.63%

28.23%

30.54%

24.35%

24.74%

18.23%

27.82%

2003

2002 17.59% 36.18%

22.10%

17.99%

28.29%

2004

16.86%

17.16%

16.17%

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

2003

2002

2004

2005

39.06%

29.68%

21.71%

32.21%

25.70%

26.58%

20.77%

13.97%

22.82%

17.63%

23.97%

24.42%

0% 2% 4% 6% 8% 10% 12% 14%

10.57%

11.37%

9.58%

9.17%

0% 2% 4% 6% 8% 10% 12% 14%

7.46%

7.42%

9.22%

10.00%

0% 2% 4% 6% 8% 10% 12% 14%

14.08%

9.87%

14.41%

13.59%

0% 2% 4% 6% 8% 10% 12% 14%

10.24%

11.21%

11.26%

9.36%

0% 2% 4% 6% 8% 10% 12% 14%

8.68%

6.66%

6.85%

5.09%

0% 4% 8% 12% 16% 20% 24%

17.59%

17.10%

17.23%

11.51%

0% 4% 8% 12% 16% 20% 24%

13.48%

12.38%

17.93%

25.66%

0% 4% 8% 12% 16% 20% 24% 0% 2% 4% 6% 8% 10% 12% 14%

12.75%

8.84%

6.95%

6.87%

0% 2% 4% 6% 8% 10% 12% 14%

11.75%

17.38%

6.95%

13.34%

15.50%

13.38%

22.44%

20.45%

Milpitas

0% 4% 8% 12% 16% 20% 24% 28%

1999

2001

2000

15.81%

21.52%

2002 21.52%

1.60%

Selected Cities Historical availability rate Trends - Warehouse

Net absorption gains

in the warehouse

sector were quite

high relative to the

gross figure, and we

expect that trend to

repeat itself in 2006.

This is caused by a

very shallow pipeline

of space coming

on the market.

In fact, the 2.49

million square feet

of warehouse space

that rolled over and

became vacant in

2005 was the lowest

figure since 1994.

25


Looking ForwardNow that the warehouse market is back to

some degree of normalcy, it is time to see if

the consistency of the last ten quarters can be

stretched out another year . We have already been

witness to the fact that in a bad market, almost no

warehouse absorption occurs at all . And there

is also a tendency for warehouse activity to slow

down when space options become fewer or when

rents increase appreciably . But our expectation

is that we have another year of strong warehouse

leasing ahead of us and that we will continue

to see warehouse space leased by all sorts of

traditional and non-traditional warehouse users

in Silicon Valley .

Warehouse gross absorption is more volatile than

industrial absorption, in part because the deals

tend to be both larger and fewer . Therefore,

a couple of deals can cause a big swing from

one quarter to the next . That is why we are

not too worried about the modest warehouse

gross absorption figure of 445,415 square feet

that was produced in the fourth quarter of

2005 . Each of the preceding two quarters were

very strong, both exceeding 1 .0 million square

feet . Our forecast for 2006 calls for warehouse

gross absorption to once again register in the 3 .5

million square foot range, with net absorption

probably a bit shy of 1 .0 million square feet .

Net absorption gains in the warehouse sector

were quite high relative to the gross figure, and

we expect that trend to repeat itself in 2006 .

This is caused by a very shallow pipeline of space

coming on the market . In fact, the 2 .49 million

square feet of warehouse space that rolled over

and became vacant in 2005 was the lowest figure

since 1994 . The numbers suggest that warehouse

users who have remained in Silicon Valley intend

to stay here . This entrenched, existing user base

affords fewer options for growing companies

or new companies seeking warehouse space .

Together, these dynamics point to a declining

warehouse availability rate that should drop

below 10% in 2006 .

Last year, we noted that six of the seventeen

remaining available warehouse spaces in excess

of 100,000 square feet were located in San Jose

and that San Jose was poised to have a great year .

As noted above, that is precisely what happened .

Presently, there are just twelve warehouse spaces

available that are greater than 100,000 square

feet, and those are spread out in cities all over

the valley with no more than three in any one

city . So, we do not anticipate that any one city

will have a breakout year . San Jose and the I880/

I680 corridor will generate most of the results

however, with the lion’s share going to San Jose .

Warehouse rents are still another year away from

moving too much, and even then it remains to be

seen how much appreciation these types of users

can bear . After a flat year in 2005, we anticipate

warehouse rental rate growth on the order of

5%-10% in 2006 . It should be noted that 10%

growth on $0 .35 rents only amounts to $0 .035

per square foot .



Selected Colliers Warehouse Transactions• Golden Legacy, LLC, purchased a 103,490 square foot warehouse building at 835-865 Sinclair Frontage Road in Milpitas, from nL Properties, Inc.

• 2XL, Inc., signed a 109,400 square foot warehouse lease at 590 Brennan Street in San Jose, with landlord O’Donnell Brigham & Partners.

• allen Mirzaei sold a 143,438 square foot warehouse building at 6850 Stevenson Boulevard in Fremont . Harvest Properties, Inc. was the buyer .

• Chaboya ranch Partners completed a long term, 90,000 square foot warehouse lease at 2070 South 7th Street in San Jose, with tenant Golden State T’s, Inc .

• Toyota Tsushao america, Inc., inked a 75,300 square foot warehouse lease with aMB Property Company at 41460 Boyce Road in Fremont .

• InterWorld network International, Inc., and landlord, Milpitas Industrial Properties, Inc., completed a 61,340 square foot warehouse lease at 48541 Warm Springs Boulevard in Fremont .

Presently, there are

just twelve warehouse

spaces available that

are greater than

100,000 square feet,

and those are spread

out in cities all over

the valley with no

more than three in any

one city. So, we do

not anticipate that any

one city will have a

breakout year.

2�

INVESTMENT


Capital invested in Silicon Valley office and industrial real estate during 2005 was at a record level of $3 .5 billion . This level of investment reflects broadly based confidence in the mid and long-term outlook for the area . Several bold deals of the last few years were well rewarded as yields for properties were compressed, especially for those with credit tenants and longer term leases .

Each year, from 2002 through 2005, the total capital invested in Silicon Valley properties has more than doubled . Private Advisors had the most extensive increase of capital placed, increasing from $120 million in 2004 to one billion dollars in 2005 . Investments by REITs also increased

substantially from just under $300 million to $775 million . Domestic Realty Advisors continued to be the largest investment group, but their increase over the prior year was modest . Investments by the Domestic High Net Worth (individuals or with partners) and other (mainly international investors) groups also increased substantially, to $350 and $330 million, respectively .

Another notable trend was the relative absence of distressed sales, such as foreclosures, despite the dramatic cyclical downturn during the first half of this decade . While vacancies have lingered, most owners are weathering the storm .

Silicon Valley Investment MarketJanuary 2006


$0

$500

$1,000

$1,500

$2,500

$3,000

$3,500

$4,000

$2,000

1999 2001 2002 2003 2004 20052000

Inve

stm

ent

in M

illio

ns

ISG Charts

2001 2002 2003

REIT

Private Advisor

Domestic RealtyAdvisor

Other

Domestic HighNet Worth

$0 $50 $100 $150 $200 $250 $300 $350 $400

29157

5355

61

96180

358

67175

47

223

52

1191,000

3239

0330

618

198

145

2002 2003 2004 2005

REIT

PrivateAdvisor

DomesticRealty

Advisor

Other


$0 $1000$800$600$400$200Investment in Millions

295775

106264

9361,050

67279

195350

74110

$0

$500

$1,000

$1,500

$2,500

$3,000

$3,500

$4,000

$2,000

1999 2001 2002 2003 2004 20052000

Inve

stm

ent

in M

illio

ns

ISG Charts

2001 2002 2003

REIT

Private Advisor

Domestic RealtyAdvisor

Other


$0 $50 $100 $150 $200 $250 $300 $350 $400

29157

5355

61

96180

358

67175

47

223

52

1191,000

3239

0330

618

198

145

2002 2003 2004 2005

REIT

PrivateAdvisor

DomesticRealty

Advisor

Other


$0 $1000$800$600$400$200Investment in Millions

295775

106264

9361,050

67279

195350

74110

Silicon Valley Capital Investment Trends Investment activity by Buyer Type

While the markets

are frothy, long

time owners are

not cashing out.

Extensive Peery/

Arrillaga and Sobrato

holdings have been

presented to the

market; however,

the prices offered

were not sufficiently

compelling, and

these owners have

decided to retain

them… so far.

There also has been a lot of discussion about Tenant In Common (TIC) partnerships as vehicles for exchange buyers . The concept is to provide advantages of scale for better income yield and management by putting a number of exchange buyers together to enable them to buy a bigger property . This type of investment is quite active in some markets; yet, few if any Silicon Valley office or industrial properties were purchased with this vehicle in 2005 .

While the markets are frothy, long time owners are not cashing out . Extensive Peery/Arrillaga and Sobrato holdings have been presented to the market; however, the prices offered were not sufficiently compelling, and these owners have decided to retain them… so far .

Several local advisors have reaped benefits from their insights over the last few years . Investments by DivcoWest and Menlo Equities

were made when many of the Valley’s major firms still had negative or very modest earnings and an uncertain outlook . DivcoWest’s investment in the 280,000 square foot Mission Towers increased from an all-in cost of $150 per square foot to $250 per square foot (66%) . Menlo Equities realized an increase of over 35% for its one year hold of a portfolio of properties in Shoreline Business Park . ING Clarion also had a nice gain of 20% on its Mathilda Research Centre, which it held less than one year . With long term leases in place for the Menlo and ING deals, the cap rate yields dropped in proportion to the values gained .

Capital continues to be abundant for both debt and equity as we move into this new year, yet given the record level transaction volume during 2005, the pace for 2006 may be reduced . With interest rates stable or rising, we do not expect further compression of yields .

Selected Colliers Investment Transactions• Blackrock realty sold a six-building, 346,825 square foot R&D/office portfolio on Arques Road and Caribbean Drive in Sunnyvale, to Broadreach

Capital Partners .

• Dra advisors completed the sale of a four-building, 320,047 square foot R&D project on 18 .28 acres, located at 3105-3195 Kifer Road in Santa Clara . LBa realty is the buyer .

• Home Depot u.S.a., acquired the Mervyn’s East Shopping Center from Mervyn’s East Partners. The purchase and sale included 114,461 square feet of retail/commercial space on 11 .91 acres at 2855 Story Road in San Jose .

• Cisco Systems completed the sale of four R&D/office buildings totaling 649,104 square feet to DivcoWest Properties. Two buildings are in north San Jose at 4300-4400 North First Street, and two buildings are in south San Jose at 4949 Hellyer Drive and 5729 Fontanoso Way .

• Equity Office Properties sold an eight-building portfolio of office/R&D buildings in Mountain View, containing 350,986 square feet, to Eagle ridge Partners.

C O L L I E r S I n T E r n a T I O n a L 2�

C O L L I E r S I n T E r n a T I O n a L2�

SILICOn VaLLEy OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail.

4Q05 Total Available 10,024,963 17 .39% 33,694,349 21 .16% 4,996,790 8 .92% 4,643,297 11 .99% 53,359,399 17 .12% New Construction 0 311,658 0 0 311,658 Net Absorption 632,312 1,612,555 542,787 52,701 2,840,355 Gross Absorption 1,513,816 3,084,639 1,134,135 445,415 6,178,005

3Q05 Total Available 10,307,118 17 .88% 35,219,413 22 .12% 5,645,745 10 .08% 4,606,202 11 .80% 55,778,478 17 .88% New Construction 0 121,275 0 0 121,275 Net Absorption 582,594 362,301 104,017 781,471 1,830,383 Gross Absorption 1,741,255 3,220,858 907,898 1,130,174 7,000,185

2Q05 Total Available 10,773,462 18 .68% 35,740,602 22 .45% 5,456,708 9 .75% 5,823,489 14 .89% 57,794,261 18 .53% New Construction 0 0 0 0 0 Net Absorption 583,092 703,566 431,485 -330,761 1,387,382 Gross Absorption 2,083,063 3,639,156 1,320,354 1,210,041 8,252,614

1Q05 Total Available 11,322,685 19 .63% 37,936,600 23 .83% 5,897,291 10 .54% 5,897,540 15 .08% 61,054,116 19 .57% New Construction 13,576 73,340 0 0 86,916 Net Absorption -51,245 15,313 4,595 505,608 474,271 Gross Absorption 2,331,406 3,387,089 1,089,751 711,506 7,519,752

TOTALS

New Construction 13,576 506,273 0 0 519,849 Net Absorption 1,746,753 2,693,735 1,082,884 1,009,019 6,532,391 Gross Absorption 7,669,540 13,331,742 4,452,138 3,497,136 28,950,556

Disclaimer: Colliers International is pleased to be able to provide the market information contained herein, and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for its use.

Silicon Valley Market StatisticsColliers international 2005 - 2006 siliCon Valley market report & ForeCast

CaMPBELL OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail.

4Q05 Total Available 222,527 10 .84% 309,120 20 .71% 10,579 2 .56% 24,142 14 .89% 566,368 13 .74% New Construction 0 0 0 0 0 Net Absorption -11,693 14,807 9,415 0 12,529 Gross Absorption 31,521 21,938 9,415 0 62,874

3Q05 Total Available 205,853 10 .03% 306,797 20 .55% 19,994 4 .84% 24,142 14 .89% 556,786 13 .51% New Construction 0 0 0 0 0 Net Absorption 65,062 31,016 -6,383 0 89,695 Gross Absorption 151,730 96,273 0 0 248,003

2Q05 Total Available 312,629 15 .23% 363,381 24 .34% 10,870 2 .63% 24,142 14 .89% 711,022 17 .25% New Construction 0 0 0 0 0 Net Absorption -17,567 -122,466 8,792 0 -131,241 Gross Absorption 91,031 19,709 12,204 0 122,944

1Q05 Total Available 283,286 13 .80% 236,964 15 .87% 16,299 3 .95% 23,482 14 .48% 560,031 13 .59% New Construction 0 0 0 0 0 Net Absorption 58,399 30,742 -5,275 0 83,866 Gross Absorption 109,630 33,437 3,304 0 146,371

January 2006

Silicon Valley Market StatisticsJanuary 2006

CuPErTInO OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 457,047 13 .97% 536,343 15 .52% 0 0 .00% 0 0 .00% 993,390 14 .76% New Construction 0 0 0 0 0 Net Absorption 54,368 63,373 0 0 117,741 Gross Absorption 76,067 70,765 0 0 146,832

3Q05 Total Available 465,162 14 .22% 590,466 17 .09% 0 0 .00% 0 0 .00% 1,055,628 15 .68% New Construction 0 0 0 0 0 Net Absorption 45,818 50,234 0 0 96,052 Gross Absorption 158,995 79,832 0 0 238,827

2Q05 Total Available 505,979 15 .46% 626,988 18 .14% 0 0 .00% 0 0 .00% 1,132,967 16 .83% New Construction 0 0 0 0 0 Net Absorption -112,396 36,500 0 0 -75,896 Gross Absorption 133,742 43,000 0 0 176,742

1Q05 Total Available 614,583 18 .78% 668,736 19 .35% 0 0 .00% 0 0 .00% 1,283,319 19 .07% New Construction 0 0 0 0 0 Net Absorption 160,215 -1,167 0 0 159,048 Gross Absorption 250,566 5,248 0 0 255,814

FrEMOnT OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 171,703 10 .46% 4,966,458 26 .63% 823,573 9 .87% 944,120 12 .38% 6,905,854 19 .04% New Construction 0 0 0 0 0 Net Absorption 2,175 47,920 -9,537 -2,264 38,294 Gross Absorption 21,268 270,826 104,519 75,300 471,913

3Q05 Total Available 187,694 11 .44% 5,096,785 27 .33% 1,050,796 12 .59% 1,050,134 13 .77% 7,385,409 20 .36% New Construction 0 0 0 0 0 Net Absorption 35,351 120,163 -66,694 221,699 310,519 Gross Absorption 42,332 699,937 40,568 261,383 1,044,220

2Q05 Total Available 134,402 8 .19% 5,303,960 28 .44% 963,481 11 .54% 1,103,431 14 .47% 7,505,274 20 .70% New Construction 0 0 0 0 0 Net Absorption 28,218 -101,335 222,293 -29,314 119,862 Gross Absorption 53,668 374,101 417,245 143,974 988,988

1Q05 Total Available 158,236 9 .64% 5,109,662 27 .40% 1,304,724 15 .63% 975,003 12 .78% 7,547,625 20 .81% New Construction 0 0 0 0 0 Net Absorption 11,809 -26,080 -111,719 57,085 -68,905 Gross Absorption 31,886 441,594 95,380 115,623 684,483




2�

OCTOBEr 2000

GILrOy OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 25,106 13 .17% 123,529 33 .06% 124,103 9 .44% 285,005 8 .84% 557,743 10 .93% New Construction 13,576 0 0 0 13,576 Net Absorption 46,419 0 31,065 16,000 93,484 Gross Absorption 50,146 0 46,255 16,000 112,401

3Q05 Total Available 69,645 36 .54% 120,729 32 .31% 139,744 10 .63% 301,005 9 .34% 631,123 12 .37% New Construction 13,576 0 0 0 13,576 Net Absorption 2,486 0 -17,579 -14,074 -29,167 Gross Absorption 4,586 0 2,106 45,446 52,138

2Q05 Total Available 64,319 33 .74% 120,729 32 .31% 98,165 7 .47% 286,931 8 .90% 570,144 11 .17% New Construction 13,576 0 0 0 13,576 Net Absorption 0 0 54,724 -70,225 -15,501 Gross Absorption 0 0 58,830 162,020 220,850

1Q05 Total Available 0 0 .00% 0 0 .00% 0 0 .00% 0 0 .00% 0 0 .00% New Construction 13,576 0 0 0 13,576 Net Absorption 0 0 0 0 0 Gross Absorption 0 0 0 0 0

LOS aLTOS OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 140,298 13 .61% 0 0 .00% 0 0 .00% 0 0 .00% 140,298 13 .61% New Construction 0 0 0 0 0 Net Absorption 9,612 0 0 0 9,612 Gross Absorption 20,546 0 0 0 20,546

3Q05 Total Available 134,022 13 .00% 0 0 .00% 0 0 .00% 0 0 .00% 134,022 13 .00% New Construction 0 0 0 0 0 Net Absorption 28,609 0 0 0 28,609 Gross Absorption 59,043 0 0 0 59,043

2Q05 Total Available 154,905 15 .03% 0 0 .00% 0 0 .00% 0 0 .00% 154,905 15 .03% New Construction 0 0 0 0 0 Net Absorption -4,302 0 0 0 -4,302 Gross Absorption 31,702 0 0 0 31,702

1Q05 Total Available 151,291 14 .68% 0 0 .00% 0 0 .00% 0 0 .00% 151,291 14 .68% New Construction 0 0 0 0 0 Net Absorption -16,608 0 0 0 -16,608 Gross Absorption 23,994 0 0 0 23,994



C O L L I E r S I n T E r n a T I O n a L�0



LOS GaTOS OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 71,905 8 .96% 125,292 27 .51% 1,750 26 .92% 0 0 .00% 198,947 15 .53% New Construction 0 0 0 0 0 Net Absorption 11,131 11,497 -1,750 0 20,878 Gross Absorption 17,047 11,497 0 0 28,544

3Q05 Total Available 79,253 9 .87% 70,389 15 .45% 0 0 .00% 0 0 .00% 149,642 11 .68% New Construction 0 0 0 0 0 Net Absorption 8,378 3,704 0 0 12,082 Gross Absorption 30,447 3,704 0 0 34,151

2Q05 Total Available 67,736 8 .44% 48,300 10 .60% 0 0 .00% 0 0 .00% 116,036 9 .06% New Construction 0 0 0 0 0 Net Absorption -3,728 42,202 1,750 0 40,224 Gross Absorption 31,552 56,906 1,750 0 90,208

1Q05 Total Available 60,532 7 .54% 83,323 18 .29% 1,750 26 .92% 0 0 .00% 145,605 11 .37% New Construction 0 0 0 0 0 Net Absorption 1,313 -15,700 4,600 0 -9,787 Gross Absorption 34,017 10,735 4,600 0 49,352

MILPITaS OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 120,867 11 .86% 3,968,000 28 .08% 250,009 9 .24% 659,376 13 .38% 4,998,252 21 .94% New Construction 0 0 0 0 0 Net Absorption -6,533 166,790 79,367 -15,951 223,673 Gross Absorption 5,435 332,580 109,005 16,042 463,062

3Q05 Total Available 122,434 12 .01% 4,256,815 30 .12% 345,458 12 .77% 448,753 9 .10% 5,173,460 22 .71% New Construction 0 0 0 0 0 Net Absorption 44,969 136,809 65,512 161,366 408,656 Gross Absorption 60,404 412,421 94,611 182,869 750,305

2Q05 Total Available 252,965 24 .82% 4,372,813 30 .94% 466,071 17 .23% 884,419 17 .94% 5,976,268 26 .23% New Construction 0 0 0 0 0 Net Absorption -54,395 -128,767 29,784 -113,551 -266,929 Gross Absorption 37,744 391,057 65,014 100,181 593,996

1Q05 Total Available 222,291 21 .81% 4,767,759 33 .74% 383,123 14 .16% 915,922 18 .58% 6,289,095 27 .60% New Construction 0 0 0 0 0 Net Absorption -25,838 -143,270 -17,729 103,490 -83,347 Gross Absorption 23,035 484,951 22,697 115,490 646,173




��

OCTOBEr 2000

MOrGan HILL OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 80,381 15 .31% 352,079 13 .09% 289,732 14 .17% 172,440 46 .43% 894,632 15 .89% New Construction 0 93,000 0 0 93,000 Net Absorption 20,658 11,106 49,181 0 80,945 Gross Absorption 20,658 20,706 52,241 0 93,605

3Q05 Total Available 114,638 21 .84% 328,259 12 .65% 346,013 16 .93% 172,440 46 .43% 961,350 17 .36% New Construction 0 0 0 0 0 Net Absorption -13,948 -7,000 62,727 0 41,779 Gross Absorption 7,096 1,486 77,245 0 85,827

2Q05 Total Available 33,291 6 .34% 349,907 13 .48% 387,444 18 .95% 172,440 46 .43% 943,082 17 .03% New Construction 0 0 0 0 0 Net Absorption -6,587 46,058 23,327 0 62,798 Gross Absorption 4,320 81,058 33,069 0 118,447

1Q05 Total Available 27,704 5 .28% 423,217 16 .30% 445,300 21 .78% 172,440 46 .43% 1,068,661 19 .30% New Construction 0 0 0 0 0 Net Absorption 3,732 13,208 -36,171 8,000 -11,231 Gross Absorption 8,979 13,208 12,925 8,000 43,112

MOunTaIn VIEW OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 803,498 21 .88% 2,546,459 18 .23% 135,462 5 .09% 0 0 .00% 3,485,419 17 .16% New Construction 0 0 0 0 0 Net Absorption 104,163 253,727 28,197 0 386,087 Gross Absorption 154,178 440,578 67,683 0 662,439

3Q05 Total Available 738,245 20 .10% 2,975,926 21 .12% 208,310 7 .82% 0 0 .00% 3,922,481 19 .20% New Construction 0 45,195 0 0 45,195 Net Absorption -69,113 180,388 5,812 0 117,087 Gross Absorption 51,676 417,728 18,504 0 487,908

2Q05 Total Available 661,555 18 .01% 3,303,094 23 .32% 197,322 7 .41% 0 0 .00% 4,161,971 20 .23% New Construction 0 0 0 0 0 Net Absorption 101,705 13,766 -41,309 0 74,162 Gross Absorption 197,375 306,069 32,601 0 536,045

1Q05 Total Available 755,531 20 .57% 3,371,707 23 .80% 167,904 6 .30% 0 0 .00% 4,295,142 20 .88% New Construction 0 0 0 0 0 Net Absorption -122,733 240,807 17,139 0 135,213 Gross Absorption 69,880 452,062 31,730 0 553,672






PaLO aLTO OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 1,085,270 17 .99% 480,635 4 .67% 132,178 10 .44% 0 0 .00% 1,698,083 9 .49% New Construction 0 0 0 0 0 Net Absorption -36,078 28,726 9,500 0 2,148 Gross Absorption 88,054 35,311 22,700 0 146,065

3Q05 Total Available 1,019,745 16 .91% 524,515 5 .10% 209,765 16 .57% 0 0 .00% 1,754,025 9 .80% New Construction 0 0 0 0 0 Net Absorption 286,250 36,539 -6,250 0 316,539 Gross Absorption 418,392 76,771 0 0 495,163

2Q05 Total Available 1,348,883 22 .36% 596,244 5 .79% 221,634 17 .51% 0 0 .00% 2,166,761 12 .11% New Construction 0 0 0 0 0 Net Absorption 54,117 60,520 15,514 0 130,151 Gross Absorption 295,302 107,371 34,354 0 437,027

1Q05 Total Available 1,301,176 21 .57% 652,748 6 .34% 216,116 17 .07% 0 0 .00% 2,170,040 12 .12% New Construction 0 0 0 0 0 Net Absorption -26,398 72,954 23,654 0 70,210 Gross Absorption 217,453 72,954 23,654 0 314,061

San JOSE OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 3,874,019 17 .16% 10,915,921 23 .09% 2,094,890 9 .17% 1,869,972 11 .51% 18,754,802 17 .22% New Construction 0 218,658 0 0 218,658 Net Absorption 55,537 668,835 168,550 39,736 932,658 Gross Absorption 460,389 1,103,050 426,751 269,911 2,260,101

3Q05 Total Available 3,826,720 16 .95% 11,282,612 23 .89% 2,260,153 9 .89% 2,040,350 12 .32% 19,409,835 17 .77% New Construction 0 0 0 0 73,340 Net Absorption 56,859 -93,283 67,823 347,740 379,139 Gross Absorption 484,846 815,289 459,709 575,736 2,335,580

2Q05 Total Available 3,840,364 17 .00% 10,885,254 23 .05% 2,051,736 9 .01% 2,702,228 16 .31% 19,479,582 17 .85% New Construction 0 73,340 0 0 73,340 Net Absorption 261,385 302,791 -18,438 -245,449 300,289 Gross Absorption 566,013 850,670 308,554 610,988 2,336,225

1Q05 Total Available 3,952,243 17 .49% 11,842,191 25 .08% 2,142,180 9 .41% 2,692,285 16 .25% 20,628,899 18 .90% New Construction 0 73,340 0 0 73,340 Net Absorption -391,088 -345,784 189,614 322,693 -224,565 Gross Absorption 484,530 880,406 620,375 408,053 2,393,364




��

OCTOBEr 2000

SanTa CLara OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail.

4Q05 Total Available 1,985,142 21 .71% 5,162,645 23 .66% 819,138 7 .42% 561,242 17 .38% 8,528,167 18 .86% New Construction 0 0 0 0 0 Net Absorption 345,215 125,162 220,080 0 690,457 Gross Absorption 488,062 244,654 275,218 52,982 1,060,916

3Q05 Total Available 2,357,933 25 .79% 5,201,911 23 .84% 843,000 7 .64% 492,898 15 .26% 8,895,742 19 .67% New Construction 0 0 0 0 0 Net Absorption 34,284 82,161 -20,328 40,240 136,357 Gross Absorption 115,539 252,582 158,024 40,240 566,385

2Q05 Total Available 2,323,939 25 .42% 5,292,331 24 .26% 809,562 7 .33% 483,218 14 .96% 8,909,050 19 .70% New Construction 0 0 0 0 0 Net Absorption 221,559 315,889 56,110 20,472 614,030 Gross Absorption 463,539 715,418 267,291 70,392 1,516,640

1Q05 2,456,854 26 .87% 5,812,122 26 .64% 771,655 6 .99% 465,696 14 .42% 9,506,327 21 .02% Total Available 0 0 0 0 0 New Construction 281,712 142,518 42,904 -30,000 437,134 Net Absorption 735,365 394,267 224,673 20,000 1,374,305

SunnyVaLE OFC % avail. r&D % avail. InD % avail. WHSE % avail. Total % avail. 4Q05 Total Available 959,838 17 .63% 127,000 17 .08% 315,376 9 .36% 127,000 4 .87% 1,529,214 15 .56% New Construction 0 0 0 0 0 Net Absorption 47,517 220,612 -41,281 15,180 242,028 Gross Absorption 78,415 532,734 20,348 15,180 646,677

3Q05 Total Available 949,704 17 .45% 76,480 18 .13% 222,512 6 .60% 76,480 2 .93% 1,325,176 15 .85% New Construction 0 76,080 0 0 76,080 Net Absorption 53,603 -178,430 19,377 24,500 -80,950 Gross Absorption 143,853 364,835 57,131 24,500 590,319

2Q05 Total Available 1,034,874 19 .01% 166,680 18 .24% 250,423 7 .43% 166,680 6 .39% 1,618,657 16 .49% New Construction 0 0 0 0 0 Net Absorption 109,439 238,408 78,938 107,306 534,091 Gross Absorption 171,431 693,797 89,442 122,486 1,077,156

1Q05 Total Available 1,234,424 22 .68% 273,986 19 .73% 362,647 10 .76% 273,986 10 .51% 2,145,043 18 .67% New Construction 0 0 0 0 0 Net Absorption 11,263 47,085 -32,776 44,340 69,912 Gross Absorption 335,373 598,227 48,313 44,340 1,026,253

Disclaimer : Colliers International is pleased to be able to provide the market information contained herein, and in so doing believes its validity. However, we cannot guarantee its accuracy or take responsibility for




�5

General TermsJanuary 2006



General Termsavailability: Vacant or occupied space that is offered for lease, sublease or sale (to an owner-occupant) .

Build-to-Suit: A developable parcel that an owner will improve to suit the needs of a particular tenant . Construction does not begin until a tenant has committed to the property .

Building Base: Total square footage developed . Colliers tracks office buildings from 3,000 square feet, R&D from 5,000 square feet, industrial buildings from 7,500 square feet, and warehouse buildings from 10,000 square feet .

CBD: Central Business District, generally the downtown area of a major city .

Completed Construction: Construction which is completed during the period .

Direct Space: Space available through a landlord/owner .

Effective net absorption: Effective net absorption is a Colliers measurement of the net change in available space during a given period of time after adjustments for space taken off the market . Effective net absorption utilizes the same formula to measure change of occupancy as net absorption except that it treats any newly available space, whether available direct or for sublease, as if it is coming onto the market vacant.

Gross absorption: The total square footage sold (to owner/occupants) or leased during a given time period .

net absorption: The net change in occupied space during a given period of time .

PSF: Per square foot .

PSF/MO: Per square foot per month .

SF: Square foot or square feet .

Silicon Valley: Colliers International defines Silicon Valley as all of Santa Clara County plus Fremont, for the purposes of its market reports .

Speculative Construction: Construction that will commence without any prior commitment from a tenant .

Sublease Space: Space available through a sublessor to a fourth party .

T.I.s: Tenant Improvements are a dollar amount offered by the lessor generally for the construction or modification of the premises .

Total available: The sum of available direct and available sublease space .

Vacancy: Percentage of vacant inventory available including both vacant direct, and vacant sublease space .

Product ClassificationClass “a” Office: Modern, steel-framed low, mid or high-rise structures used exclusively for office tenants .

Class “B” Office: Wood and steel mix framed low to mid-rise structures and older brick or concrete structures used predominately for office .

Industrial/Light Industrial: Buildings with drive-in and/or dock-high truck capabilities, clear heights of less than 20 feet and parking ratios of 2 .0/1,000 or less .

research and Development (r&D): One to three story structures with extensive glass, heavy office buildout and 3 .5/1,000 parking ratio . Buildings may include high-end production facilities, laboratory space and grade level truck doors .

Warehouse/Distribution: Buildings with a minimum 20-foot clear height, dock-high truck loading and parking ratios of 2 .0/1,000 or less .

rental TermsCaM: Common area maintenance charge . Generally used in Industrial Gross and NNN leases where the tenant pays a share of the costs associated with the maintenance of the common areas .

Full Service: Rental type generally used in office product where the landlord’s rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, maintenance, janitorial, and utilities .

Industrial Gross: Rental type generally used in industrial product where the landlord’s rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, and maintenance .

rental rates: All rental rates for office space are calculated on a Full Service basis unless otherwise noted . All rental rates for R&D, industrial and warehouse space are calculated on a NNN basis unless otherwise noted .

Triple net (nnn): Rental type where the tenant pays rent to the landlord and additionally assumes all costs regarding the operation, taxes and maintenance of the premises and building .

unDErSTanDInGaBSOrPTIOn

Change in availability: This measurement is simply the difference between the amounts of space available at the end of one period to the next . The table below shows that total available space was reduced by 7 .49 million square feet in 2005 . Note that “change in availability” includes adjustments for space that is “taken off the market” . Space “taken off the market” is not a factor in net absorption measurements .

Total Available end of 2004 60,852,275Plus: Vacant & occupied space that came available in 2005 29,139,304 2004 Available + Newly Available in 2005 = 89,991,579Less: 2005 Gross Absorption -28,950,556Less: 2005 Taken off the Market -7,681,624Total Available end of 2005 53,359,399

net absorption: Net absorption measures the change in occupied space from one period to the next . In this measurement, it is important to distinguish that a building may be “available”, but not vacant (often the case in a sublease situation, for example) . Therefore, occupancy is not reduced (negative net absorption) until the space is vacated, and sometimes that does not happen until the space is leased, creating a net absorption “wash” for the deal and for that particular period . Vacant space that came available 2005 -11,684,421Previously available space that was vacated in 2005 -10,733,7442005 Total Vacant Added (occupancy loss) -22,418,165 2005 Gross Absorption (occupancy gain) 28,950,5562005 Net Absorption (change in occupancy) 6,532,391

Effective net absorption: In 2003, Colliers created a measurement of “effective net absorption” . Effective net absorption uses the same formula as the net absorption formula, except that it treats any space that comes available as if it is vacant, whether it is or it isn’t . The purpose of the measurement is to get a better “real time” gauge of occupancy flow in and out of the market, acknowledging that space that is available for lease is likely to be vacated shortly and under utilized presently .

Vacant space that came available 2005 -15,543,113Occupied space that came available 2005 -14,828,4202005 Total Available Added -30,371,533 2005 Gross Absorption 28,950,5562005 Effective Net Absorption -1,420,977

Colliers uses several measurements to track market conditions and deal flow.

While related, the formulas to arrive at these measurements differ. using the results of the most recent quarter, here is how Colliers measures change in availability, net absorption and effective net absorption.

OCTOBEr 2000Brokerage ProfileJanuary 2006

C O L L I E r S I n T E r n a T I O n a L��


James R . Abarta (925) 227-6228 jabarta@colliersparrish .com

Philip Arnautou, Jr ., CPA (650) 494-5565 parnautou@colliersparrish .com

Matt Arya (408) 282-3835 marya@colliersparrish .com

Jeffrey A . Barnes (408) 842-7000 jbarnes@colliersparrish .com

Terry Bell (408) 282-3923 tbell@colliersparrish .com

Ara Bezdijan (408) 282-3924 abezdijan@colliersparrish .com

David Buchholz (408) 282-3843 dbuchholz@colliersparrish .com

Michael J . Burke (408) 236-3525 mburke@colliersparrish .com

Samuel E . Burnett (408) 978-1916 sburnett@colliersparrish .com

Dion Campisi (408) 282-3875 dcampisi@colliersparrish .com

Peter C . Carlston (650) 494-5576 pcarlston@colliersparrish .com

Steve Clark (408) 282-3939 sclark@colliersparrish .com

Mike Cobb (650) 494-5571 mcobb@colliersparrish .com

Jon Condrey (408) 282-3931 jcondrey@colliersparrish .com

Duffy D’Angelo, sior (408) 282-3950 ddangelo@colliersparrish .com

Brent Dressen (408) 842-7000 bdressen@colliersparrish .com

Craig Eckstein (650) 494-5562 ceckstein@colliersparrish .com

Stephanie Elkins (650) 494-5572 selkins@colliersparrish .com

Joe Elliott (408) 282-3922 jelliott@colliersparrish .com

David N . Evans (408) 282-3825 devans@colliersparrish .com

Craig L . Fordyce, sior, cciM (408) 282-3911 cfordyce@colliersparrish .com

Greg Galasso, sior (408) 282-3816 ggalasso@colliersparrish .com

Denni D . Ghilarducci (408) 282-3935 dghilarducci@colliersparrish .com

Stephen J . Gibson, sior (408) 282-3890 sgibson@colliersparrish .com

Mark Giovanzana (408) 282-3861 mgiovanzana@colliersparrish .com

Susan Gregory (408) 282-3940 sgregory@colliersparrish .com

David Gray, IFMA-R .E .C . (650) 494-5564 dgray@colliersparrish .com

Robert Grubb (650) 494-5568 rgrubb@colliersparrish .com

Joan S . Haynes (408) 282-3920 jhaynes@colliersparrish .com

Terry Healy (408) 282-3826 thealy@colliersparrish .com

H . L . (Bing) Heckman (408) 282-3805 bheckman@colliersparrish .com

Edward M . Hofer, sior (408) 282-3819 ehofer@colliersparrish .com

Steve Hunt (408) 282-3846 shunt@colliersparrish .com

Michael R . Johnson, sior (408) 282-3852 mjohnson@colliersparrish .com

W . Parker Jones (408) 282-3847 pjones@colliersparrish .com

James Kaye (408) 282-3810 jkaye@colliersparrish .com

Joe Kelly (408) 282-3832 jkelly@colliersparrish .com

Mark R . Kuiper (408) 282-3850 mkuiper@colliersparrish .com

John Kovaleski (408) 282-3844 jkovaleski@colliersparrish .com

Carla Lindorff, MBA (408) 282-3908 clindorff@colliersparrish .com

John Machado, JD, MBA (408) 282-3862 jmachado@colliersparrish .com

Douglas Marks, MBA (650) 494-5567 dmarks@colliersparrish .com

James Marzoni (650) 494-5569 jmarzoni@colliersparrish .com

John McMahon (408) 282-3944 jmcmahon@colliersparrish .com

Jonathan McNulty (408) 282-3946 jmcnulty@colliersparrish .com

David C . Mein (408) 282-3828 dmein@colliersparrish .com

Ed Mendence, sior (408) 282-3818 emendence@colliersparrish .com

Marne Michaels, sior (408) 282-3838 mmichaels@colliersparrish .com

Mike Miller (408) 282-3842 mmiller@colliersparrish .com

Martin A . Morici, sior (408) 282-3921 mmorici@colliersparrish .com

Tom Nelson (408) 282-3960 tnelson@colliersparrish .com

Jeffry S . Nochimson, sior (408) 282-3941 jnochimson@colliersparrish .com

M . Steven Prehm, sior (408) 282-3936 sprehm@colliersparrish .com

George Quinn (408) 282-3912 gquinn@colliersparrish .com

Donald H . Reimann, sior (408) 282-3888 dreimann@colliersparrish .com

Jeffrey L . Rogers (408) 282-3919 jrogers@colliersparrish .com

Michael L . Rosendin, sior, cciM (408) 282-3900 mrosendin@colliersparrish .com

Cynthia Rotwein (408) 282-3856 crotwein@colliersparrish .com

Robert Rowland (408) 282-3880 rrowland@colliersparrish .com

Mark Sanchez (408) 842-7000 msanchez@colliersparrish .com

David R . Sandlin, sior (408) 282-3988 dsandlin@colliersparrish .com

David V . Schmidt, sior (408) 282-3814 dschmidt@colliersparrish .com

Robert Schwartz (650) 494-5566 rschwartz@colliersparrish .com

Robert B . Shannon, sior, cciM (408) 282-3942 rshannon@colliersparrish .com

Bob Shepherd (408) 282-3855 bshepherd@colliersparrish .com

Hitoshi Takahashi (408) 282-3933 htakahashi@colliersparrish .com

Nick Travis (408) 282-3845 ntravis@colliersparrish .com

Kenneth D . Tsukahara (408) 282-3934 ktsukahara@colliersparrish .com

Chris Twardus (408) 282-3836 ctwardus@colliersparrish .com

Gregg von Thaden (408) 282-3915 gvonthaden@colliersparrish .com

André R . Walewski (408) 282-3837 awalewski@colliersparrish .com

Catherine Westerbeck (408) 282-3943 cwesterbeck@colliersparrish .com

Mary Wimmer (408) 282-3913 mwimmer@colliersparrish .com

Mark P . Zamudio, cciM (408) 282-3822 mzamudio@colliersparrish .com

Steve Zamudio (408) 282-3824 szamudio@colliersparrish .com

Liz Zerbini (408) 282-3926 lzerbini@colliersparrish .com

Appraisal & Property Tax Division Donn H . Byrne, Jr ., MAI, ASA (408) 282-3853 dbyrnejr@colliersparrish .com

Property Management Steve LaBlanc (408) 282-3848 slablanc@colliersparrish .com

Managing Partner Jeff S . Fredericks, sior (408) 282-3801 jfredericks@colliersparrish .com

associates - Silicon Valley

��

Colliers Offices & Individual MembershipsJanuary 2006



United StatesAkron, OHAllentown, PAAtlanta, GAAustin,TXBakersfield, CABaltimore, MDBellevue,WABentonville,ARBoise, IDCarlsbad, CACharleston, SCCharlotte, NCChicago, ILCincinnati, OHCleveland, OHColumbia, SCDallas/Ft .Worth,TXDayton, OHDenver, CODetroit, MIFairfield, CAFort Myers, FLFresno, CAFt . Lauderdale, FLGilroy, CAGreenville, SCHartford, CTHonolulu, HIHouston,TXIndianapolis, INJacksonville, FLKansas City, MOLas Vegas, NVLittle Rock,ARLos Angeles, CALouisville, KYMemphis,TNMiami, FLMilwaukee,WIMinneapolis, MNNashville,TNNew Jersey, NJNew York, NYOakland, CAOrlando, FLPalo Alto, CAPhiladelphia, PAPhoenix,AZPittsburgh, PAPleasanton, CAPlymouth Meeting, PAPortland, ORRaleigh, NCReno, NVRoseville, CASacramento, CASan Diego, CASan Francisco, CASan Jose, CASan Mateo, CAScottsdale,AZSeattle,WASt . Louis, MOSt . Paul, MNStockton, CASun Valley, ID

Tacoma,WATampa, FLWalnut Creek, CAArgentinaBuenos AiresBrazilRio de JaneiroSao PauloCanadaCalgaryEdmontonHalifaxKitchenerMonctonMontrealOttawaReginaSaskatoonSurreyTorontoVancouverVictoriaWinnipegChileSantiagoColombiaBogotaMexicoCancunGuadalajaraMexico CityMonterreyPueblaQueretaroTijuanaPeruLimaAustriaViennaBelgiumAntwerpBrusselsBulgariaSofiaVarnaCroatiaZagrebCzech RepublicPragueDenmarkAalborgAarhusCopenhagenOdenseVejleFinlandHelsinkiFranceBordeauxCannesLorientLyonMarseilleMontpellierNantesNiceParis

RennesToulouseGermanyBerlinDusseldorfFrankfurtHamburgMunichStuttgartGreeceAthensHungaryBudapestIrelandCorkDublinItalyMilanRomeBaltic StatesLatviaRigaLithuaniaVilniusNetherlandsAmsterdamNorwayBergenOsloPolandWarsawPortugalLisbonPortoRomaniaBucharestRussiaMoscowSerbia andMontenegroBelgradeSlovak RepublicBratislavaSouth AfricaCape TownDurbanGuatengPort ElizabethSwedenGothenburgMalmoStockholmSwitzerlandBaselGenevaZurichTurkeyIstanbulUkraineKyivUnited ArabEmiratesAbu DhabiAl AinDubaiUnited KingdomBelfast

BirminghamBristolEdinburghGlasgowLeedsLondonManchesterAustraliaAlbury WandangoAdelaideBrisbaneCairnsCanberraDarwinFremantleGold CoastMelbourneNewcastlePalmerstonPerthSunshine CoastSydneyTownsvilleChinaBeijingGuangzhouHong KongShanghaiIndiaBangaloreChennaiMumbaiNew DelhiIndonesiaJakartaJapanOsakaTokyoNew ZealandAucklandChristchurchHamiltonHawkes BayNapierPalmerston N .TaurangaWellingtonPhilippinesManilaSingaporeSouth KoreaSeoulTaiwanTaipei

Colliers Offices Worldwide Individual Memberships

local real estate, globally Colliers International r e g i o n a l o f f i c e S

San Jose/Silicon Valley450 West Santa Clara Street

San Jose, CA 95113(408) 282-3800

Oakland/East Bay

1999 Harrison St ., #1750Oakland, CA 94612

(510) 986-6770

Pleasanton/East Bay5050 Hopyard Rd ., #180

Pleasanton, CA 94588(925) 463-2300

Gilroy/South County8339 Church Street, #101

Gilroy, CA 95020(408) 842-7000

Palo Alto/PeninsulaTwo Palo Alto Square, #200

3000 El Camino RealPalo Alto, CA 94306

(650) 813-0560

San Francisco Peninsula950 Tower Lane, #1725Foster City, CA 94404

(650) 638-4300

Fairfield/North Bay360 Campus Lane, #101

Fairfield, CA 94534(707) 863-0188

Walnut Creek/East Bay

1850 Mt . Diablo Blvd ., #200Walnut Creek, CA 94596

(925) 279-0120

Central Valley/Stockton3414 Brookside Road, #300

Stockton, CA 95219(209) 475-5100

Additional offices located in Reno and Las Vegas, NV . Colliers International member firms located throughout the U .S . and abroad .

trust honesty integrity respect family generosity ... · trust honesty integrity respect family...

Documents