CORPORATE OFFICE PERSPECTIVES | FEBRUARY 1, 2006

“The San Francisco office market has continued to tighten in the fourth quarter,
falling 50 basis points to 13.2 percent, according to the latest market report from
Colliers International. The rate – the lowest in four years – is down 200 basis
points from this time last year and may venture into the single digits by the end of
2007,” according to the report. CityFeet (1/10/06) “The San Francisco
commercial property market is climbing its way out of a downward spiral that
began with the dot-com bust. As of the third quarter of this year, the officevacancy
rate was down to 12.5 percent – the lowest level since early 2001.
Tenants are filling up buildings, rents are being bumped up and office users are
leasing more space than they are vacating.” Investors Business Daily (12/30/05)

Here comes the new wave of office development – this will start slowly and in
spurts and accelerate as the gap between today’s office rents and new
construction proforma rents narrow. “Developer Jay Paul of San Francisco has
tied up 52 acres in the Sunnyvale Moffett Business Park with visions of a
stabilized 1.6 million sf Class A office park worth $750 million … the plan is to
complete the entitlement process and close on land in the spring and then break
ground in the summer.” CityFeet (12/04/05) “Tishman Speyer is planning to
begin developing San Francisco’s largest entitled office site as soon as next year
(2006) – with or without a tenant, The New York firm is fine-tuning plans to
transform a parking lot at 555 Mission St. into a 547,000 square foot office
building. Its goal is to break ground mid-2006 and deliver the space in early
2008.” San Francisco Business Times (11/25/05)

In just the month of December 2005, the State of California added 24,300 jobs,
pushing the unemployment rate down to 5.1 percent. For all of 2005, employers
created 233,700 jobs, a growth rate of 1.6 percent that brought California payrolls
to about 14.9 million in December. San Francisco Chronicle (1/21/06) “The
East Bay accounted for about 60 percent of all the new jobs created in the Bay
Area during 2005 … producing nearly 10 percent of the 233,700 new jobs gained
in all of California. What’s more, some analysts who track the economy in the
Alameda-Contra Costa region and elsewhere say the area is poised to become
even stronger in 2006.” Contra Costa Times (December 1/21/06)

Enhancing employee collaboration, increasing communication while increasing space efficiencies …
finding a way to make a hallway or gathering space do more than one thing. “By increasing the width
of a circulation hallway or space pocket, and placing soft seating and a teaming table there, we’re able
to maximize use of that space by creating an informal collaboration hub,” according to Carol Rickard
with Little Diversified Architectural Planning. “Employees are able to concentrate on a project alone
if necessary, but can correspond with colleagues at a moments notice with the informal meeting area
located just steps away from individual workstations. We call it ‘chair ballet,’ says Rickard, people
literally wheel themselves over to the table and are able to meet. Even the walls reflect this concept:
They’re covered with material that turns the surface into a dry-erase board, which can be used for
formal presentations or spur-of-the-moment discussions. ‘Conference rooms really are not an
efficient use of space, because they’re dedicated to one function that’s used only 15 to 20 percent of
the time,’ says Rickard. Companies are starting to look at their bottom line and say; ‘How do we
make our space do more?’ Buildings (December 2005)

“The Outsourcing Reality – Backlash against outsourcing to India has diminished, primarily because
corporate America stopped talking about it. But it hasn’t stopped doing it. Today, experts estimate
that one-half to two-thirds of Fortune 500 companies have sent jobs to India because they can’t afford
not to do so” … U.S. commercial real estate brokerage and development companies have landed in
India during the past 10 years, and with an estimated 2 million IT/ITES workers expected to be added
to India’s labor pool in the next four to five years, at 100 sf per person this would translate to a need
for 150 to 200 million square feet of additional office space. Commercial Investment Real Estate
(Jan/Feb 2006)

“Planning for Disasters – The recent hurricanes that struck the Gulf Coast region and parts of Florida
have shown the need for better disaster planning on the part of building owners and managers. From
data protection to site selection, a host of technologies are available to help facilities better prepare.
The location of a data center is critical for the survival of a facility and its tenants in the event of a
disaster. Basements are among the worst places for a data center, due to their tendency to flood. The
top floor is also a bad place, meaning that the building’s central core is ideal. Fuel needs to be
available for a building’s back-up generator. Consequently, it becomes important to know how much
will be needed in the event of a disaster. A multi-fuel generator is recommended, one that can run on
both gasoline and natural or LP gas.” Today’s Facility Manager (October 2005)

A few interesting snippets from a recent article on corporate real estate trends … “Despite a push
away from real estate ownership, U.S. corporations invested $1.2 trillion in their facilities, such as
office buildings, industrial campuses and call centers, in 2004.” That figure, according to Ernst &
Young LLP’s recent U.S. Investment Monitor, was the highest since 2000. Of that amount, $270
billion was spent on new properties and $950 billion was used to replace or renovate existing assets.
The survey also indicated there have been sizable investments in new back-office and call center
facilities in the U.S., “even taking into account all of the stories about the explosion of offshoring,”
says Chris Steel, “a business location specialist with Ernst & Young’s BRS practice in New York
City … And despite their high business costs, New York and California continue to see new
construction coming from the biotech, publishing and high-tech sectors.” Real Estate Forum
(December 2005)

Outsourcing … “Equinox is a company in Irvine that processes mortgage documents in India for
America lenders. Chisk Inc., is exploring ways to outsource routine legal-discovery work to India.
India is making a transition from being only a back office. In the pharmaceutical industry and others,
you will see India’s companies playing a bigger role in the world.” San Ramon Times (12/15/05)

“While cheaper labor is the main reason companies take business overseas, offshoring also is boosting
corporate bottom lines through capital savings,” according to a Boston Consulting Groups study. In a
rapidly developing economy, a company can add about 6 percent to the return on capital expenditures
such as manufacturing facilities, researchers found. By using locally made equipment, companies
save 20 percent to 80 percent on fixed assets, and since labor is cheaper, they use more labor and less
or older machinery. Better productivity is an added bonus as most offshore locations have six-day
work weeks and lower pay for overtime and holidays.” Commercial Investment Real Estate (Jan/Feb
2006) Not including the great benefit packages and pension plans offered overseas …

In reading “Contra Costa’s credit rating falls due to declining reserves,” San Ramon Times (12/1/05),
leads me to wonder if all city, county and state governments understand that the past four years of
housing fury which generated huge amounts of government tax revenue might not be sustainable and
future budgets should reflect this …

Just in case someone stops you in the hallway and asks if you know what BACnet is (no, its not a
tennis term … ) BACnet is a data communication protocol for Building Automation and Control
Networks. BACnet is an American national standard, a European pre-standard and an ISO global
standard, and has the ability to tie in utilities, financial systems, work order systems and other
enterprise-level systems to share data for a more efficient, coordinated facility. If you’d like more
information please go to www.bacnet.org.

Insourcing – “Insourcing is defined as jobs created by U.S.-based subsidiaries of corporations based in
other countries. California is in the forefront of insourcing, according to a report released Wednesday
by an association of foreign companies with U.S. operations. The Golden State has the most
‘insourced’ workers of any state in the country, with 561,000.” San Ramon Valley Times (12/1/05)

Deals & Rumors: Vacancy rates continue downward and here’s why: In San Francisco, Advent
Software leased 100,000 sf at 600 Townsend St.; Stub Hub leased 18,000 sf at 55 Second St.; Surplus
Line Associates took 19,000 sf at 50 California St.; Pepler Mastromoncaco LLP leased 11,000 sf at
100 First St.; Barclays Global Investors preleased 321,000 sf at 400 Howard St., to be built as part of
Foundry Square; GSA leased 70,000 sf at 50 Beale St. as well as 71,000 sf at 120 Montgomery;
GroundWork Open Source Solutions will be relocating from Emeryville to a 15,000 sf sublease at
139 Townsend St.; Blue Shield is still rumored to looking at renewing or relocating 250,000 sf in San
Francisco, and CitiCorp might be looking for 90-100,000 sf; Clarium Capital Management took
22,000 sf at the Lucas campus in the Presidio; Kirshenbaum Bond & Partners leased 20,000 sf at
1596 Howard St.; Alaska National Insurance inked for 10,000 sf at 601 California St.; and Yahoo just
expanded by 43,000 sf at 475 Sansome St. Up in Novato, Bank of Marin leased 30,000 sf at Pell Plaza. Down the Peninsula, in South San Francisco, Genetech expanded once again by 125,000 sf at
681 Gateway Blvd. Virgin America will be leasing 42,000 sf at 555 Airport Blvd. in Burlingame.
In Foster City, Entelos Design Labs is reportedly searching for 400,000 sf, with one source
reporting a possible LOI at Pacific Shores in Redwood City, and in the same city, Merced System
leased 28,000 sf at 333 Twin Dolphin Dr. Over the Bay in Emeryville, ZipRealty expanded to 23,000
sf at Watergate, and in Downtown Oakland, the University of California is planning a 11-story office
building with 190,000 sf for 2008. In Concord, John Muir is rumored to be doing a 70,000 sf buildto-suit
in North Concord and Fidelity Home Warranty is rumored to be leasing 33,000 sf at One
Concord Gateway. In Walnut Creek, the 100,000 sf Class A 2700 Ygnacio Valley Rd. just sold, as
did the 28,500 sf 100 N. Wiget Lane office building. In San Ramon, Bedford sold his two office
buildings on Crow Canyon and Taylor Woodrow leased 18,000 sf at Bishop Ranch 8. In Pleasanton,
Tanner Insurance expanded to 34,000 sf at 4480 Willow Road, MacKay & Somps expanded from
11,000 sf to 20,000 sf at 5142 Franklin Dr. I sold the 67,000 sf 6101 Stoneridge Drive former
PeopleSoft/Oracle building to Thoratec Laboratories for their headquarters, the 200,000 sf Hacienda
Lakes just closed escrow last month, and the 285,000 sf Cisco buildings across from the Pleasanton
BART Station are rumored to be in escrow to an owner/user.

Office environments affect creativity … “More than half, 55 percent, of 250 advertising and
marketing executives polled said their office environments ‘greatly’ affect innovation. And,
38 percent responded that their workplaces impact staff creativity ‘somewhat.’” The survey was
conducted by an independent research firm for The Creative Group, a staffing agency based in Menlo
Park. “Physical surroundings can heavily influence an employee’s ability to concentrate and perform
well,” said Tracey Fuller, executive director of the Creative Group. “Companies can encourage
productivity and innovation by providing staff members with comfortable, attractive areas for team
meetings, as well as individual work stations that can be tailored to personal needs and preferences.”
To create stimulating work environments, The Creative Group suggests: having “creative zones”
where informal meetings can occur; offering private sanctuaries where employees can work without
distractions; maximizing opportunities to benefit from natural daylight; installing an “idea wall”
where employees can post ideas; and, holding meetings in unusual places to spark creativity.
East Bay Business Times (11/25/05)

“The U.S. Bureau of Labor Statistics reports that building materials spiked in 2005, with asphalt
increasing 25 percent and plastic plumbing soaring 39 percent during the 12-month period ending on
Nov. 30.” BOMA (1/19/06)

If you would like to view the Colliers International Office Real Estate: Vision 2006 Forecast, go to
www.officetimes.com/Office06RE.pdf. Features include Top 10 Trends, including Acute
shortages of large blocks of space will increasingly be reported. A handful of markets are going to be
the catalyst to push rents significantly higher; and the Office – Investment Market Summary (core
buyers will pursue Class A, value-add buyers, Class B, and Class C real estate will disappear for
adaptive re-use). There is also a 12-month office forecast.

The case for wireless – Building automation through a wireless system incorporating HVAC, door
locks, security, lighting and any other system that a facility manager wants to include … “Wireless is
fast becoming one of the best ways to monitor and report system alarms, HVAC failures, or
emergency occurrences such as frozen pipes, water in the sump area, carbon monoxide, fire or
medical emergency. One of the problems with adopting any new technology is the question of
reliability. And rightfully so. A facility manager has the option of installing a redundant system at
the central station, composed of a second receiver and monitor. Planning for backup batteries for
portable units and backup power will facilitate a seamless operation. In most cases, access control and
key infrastructure protection are the major beneficiaries for a wireless-based system. Intrusion and
equipment sensor monitoring provide the most tangible potential benefits for facility managers. Once
the HVAC, access control, and lighting systems have been incorporated into the wireless system, the
building can begin to run much more efficiently. Costs from having maintenance staff on hand can be
reduced, and rather than having to access the lighting system from a terrestrial computer station, a
facility manager can access it wirelessly and shut the lights off from anywhere. This contributes to
energy conservation and reduces costs. A wireless system is highly superior in a disaster.
Sensors/transmitters are generally not affected and continue to perform and connect back to the central
station, providing data on a continuous basis through the crisis. Because the system continues to
operate, not even something as catastrophic as a hurricane or earthquake will force the wireless system
to stop working. There is no ‘cutting’ a wireless network or infrastructure. By contrast a Sonet ring
or cable can be physically damaged or severed, thus interrupting terrestrial connectivity.” Today’s
Facility Manager (November 2005) Every time I see the phrase “terrestrial connectivity,”
I flash on ET and his outstretched fingers, not building systems …

Jobs for 2006? “Will new and better-paying jobs provide the income boost consumers need to keep
the economy bustling in 2006? Even if the economy adds another 2 million jobs each year until 2010,
total employment growth from 2000-2010 will be about 14 million – the lowest figure of any decade
since the 1950’s, according to Torto Wheaten Research. Economists say today’s more efficient
companies have simply learned to grow with fewer new hires.” National Real Estate Investor
(December 2005)

“The Tri-Valley region including San Ramon, Dublin, Pleasanton and Livermore filed three times the
per capita rate of patents as compared to the State of California and five times higher than that of the
United States. Forty-four percent of Tri-Valley residents have bachelor’s degrees or higher. Since
1990 more than 18,000 new companies have been created here.” Diablo Magazine (January 2006)

“Despite falling vacancies and limited new construction, the national office market is experiencing
only a modest uptick in rents. Landlords in tight markets like Washington, D.C. and New York City
are two notable exceptions to the rule. Data from New York-based REIS shows that average effective
rents nationally increased by just 0.9% between mid-year and the end of September when they hit
$20.45 per sq. ft. And rents are still well below the $27.35 per sq. ft. peak achieved in late 2001 …
How can that be? One explanation behind the slow office recovery is the rise in worker productivity
since the recession. Also, corporate real estate executives have become more adept at controlling
occupancy costs. The prospect of slower job growth, higher energy costs and rising interest rates in
2006 could only compound the problem for landlords.” National Real Estate Investor (December
2005).

There are several additional factors having a major impact on office absorption. Leasing velocity is still
relatively slow, particularly in office leases of more than 10,000 sf. I have reported every 10K and
larger transaction in the Bay Area every other month for the past 25 years. Comparing current and nearrecent
figures (please go to www.officetimes.com to see past OfficeTimes newsletters) with the heyday
of 1999-2001 or the early 1980s boom years illustrates this trend. Also, the effect of offshoring may be
larger then many want to think – there have been huge amounts of job growth created during the past
few years by U.S. corporations, but these jobs are occurring in India, China, the Philippines and not on
American soil. A third major reason is telecommuter/virtual office/cube sharing etc. which for a
number of corporations has allowed significant office space reductions while still maintaining or even
increasing employee headcount.

c“Sun Microsystems has been a pioneer in driving down occupancy costs. Through its iWork Solutions
initiative, more than half the company’s workforce – 20,000 out of 35,000 employees – don’t have
assigned seats. Workers can enter any Sun Microsystems facility around the world, log on to a
computer, and access their own files and have calls routed to their workstations. By taking that
aggressive stance, Sun Microsystems has been able to shed millions of square feet from its real estate
portfolio and trim its annual real estate operating budget from approximated $1 billion in 2000 to $450
million today.” National Real Estate Investor (December 2005). In the “good old days” there would be
frequent media announcements of huge corporate hirings and with that major office expansion … now
we see headlines such as on November 29, 2005 “Merck to slash 7,000 jobs” or “Ford rumored to be
laying off 30,000 including 12% of their office workers” … and it takes a lot of 2 to 7,000 sf startups to
fill these shoes …

The Dead Zone: “Everyone has had the frustrating experience of a cell phone call being dropped in a
dead zone. This occurrence can range from a minor inconvenience to a major disruption in business.
Assuming the user is in a populated area that has reasonable good cell coverage, this problem can be
related to either a coverage hole or structural interference. The solution to both coverage holes and
structural interference is the same: a cell phone repeater system. These systems are fairly simple to
install and quickly and economically solve cell signal problems.” Today’s Facility Manager
(November 2005)

The Dead Zone: “Everyone has had the frustrating experience of a cell phone call being dropped in a
dead zone. This occurrence can range from a minor inconvenience to a major disruption in business.
Assuming the user is in a populated area that has reasonable good cell coverage, this problem can be
related to either a coverage hole or structural interference. The solution to both coverage holes and
structural interference is the same: a cell phone repeater system. These systems are fairly simple to
install and quickly and economically solve cell signal problems.” Today’s Facility Manager
(November 2005)

One approach to hiring … “To lure workers, Google offers perks, including free cafeteria meals, free
use of laundry machines, a child care center, a free annual one-night ski trip, dog-friendly offices and an
on-site doctor. Engineers can devote 20 percent of their time to projects of their choice. What’s not
mentioned is that much of the largesse is designed to keep workers at their desks longer.” San Francisco
Chronicle (12/15/05). This gives new meaning to the dog days of summer, there’s no such thing as a
free lunch, and keeping your dirty laundry out of the office …

“The U.S. markets seeing strong population growth are those with high-paying jobs and high quality of
life. Well-established markets with low salary and benefit ranges are also seeing population inflows. But
as markets with strong in-migration continues to grow, housing affordability could drop. Top inmigration
cities by market type: High-tech swing cities are Austin; Denver; Raleigh-Durham; San Jose;
Seattle … quality job centers are Nassau-Suffolk, N.Y.; Orange Co., CA; San Diego, CA; Washington,
D.C. Affordable job centers are Atlanta-Charlotte, N.C.; Dallas-Fort Worth; Houston; Orlando; TampaSt.
Petersburg, Fla.” Realtor Magazine (December 2005)

At the recent World Economic Forum awards program held in Davos, Switzerland, which recognizes on
an international business basis those companies whose technology could transform commerce and society,
almost half of the 36 awardees are based in the United States, and of those 17 firms, 11 came from
Northern California. San Francisco Chronicle (12/15/05)

I’ve heard a lot of complaining and hand-wringing about all the American jobs that have been offshored.
It’s as if we are losing entire sectors of industry that formerly employed American workers on American
soil. Let’s step back and look at this objectively versus emotionally. There are at least five reasons that
support the premise that global offshoring might be good for America. First, this is a global economy and
in order to be globally competitive, American companies must utilize all methods and processes that can
keep costs down. I had an international engineering client that was losing international jobs to foreign
competitors who hired engineers in India for $20,000/year versus my client whose per-engineer overhead
in the U.S. was $100,000/year. They recently packed up and moved these jobs offshore. There is a lot of
corporate profit today in American companies and part of this is due to usage of lower cost goods and
services offshore. Second, if we were to keep these low-paying jobs, either minimum wage laws would
prohibit them or Americans wouldn’t want to work for $5 or $7 per day. Third, our unemployment rate is
5.5 percent, and my friends running companies tell me it is extremely hard to find new qualified
employees as everyone seems to already have a job, Fourth, I have a lot of faith in American creativity,
tenacity and doing whatever it takes to succeed, and we are and will continue to be at the forefront of
creating the technological, biological and other tools needed for tomorrow’s industry. Fifth, we flattened
the world ourselves creating computers, intranet, fiber, high-speed transmission, software and everything
else that China, India and other countries are utilizing. We sold it to them, so why should we complain
when these clients actually use our products to facilitate offshoring?

“Oracle Corp. plans to add 1,400 employees to its sales, consulting and support operations in India, as it
focuses on expanding business among small and mid-sized companies in the country’s towns and rural
areas. Oracle already operates in six Indian cities, and it plans to set up ship in nine more in the next eight
months, as it adds to its Indian workforce of 8,600. “This expansion can give us a whole wave of
growth,” said Derek Williams, executive vice president for Asia Pacific at the Redwood City software
company. He said India is one of Oracle’s fastest-growing markets in Asia and called the country’s
smaller towns the “up-and-coming economic engines of India.” San Francisco Chronicle (1/11/06)
Microsoft will invest $1.7 billion in India during the next four years and nearly double its employee ranks
in the nation, its chairman, Bill Gates, said. “We have about 4,000 people; we would be growing that by
over 3,000 in the next several years.” Contra Costa Times (12/8/05) “J.P. Morgan Chase said it plans to
double its staff of 4,500 employees in India by 2007.” Tri-Valley Herald (12/12/05) “Intel announced
that it will invest $1.1 billion in India over the next five years, hiring more people in India to tap into a
highly educated work force that can be employed at a fraction of costs in the United States.” San
Francisco Chronicle (12/6/05) So hang on tight, this ride has only begun!

“ProLogis Corp’s $5.5 billion acquisition of Catellus Development Corp. resulted in a portfolio comprising
372 million sq. ft. in 2,336 properties in 75 markets around the world.” Real Estate Forum
(November 2005)

The last few months have been filled with special family moments. My wife and I took our two children,
Jordan, 8, and Madison, 3, to Monterey for several days of visiting the Monterey Aquarium and checking
out Cannery Row. During the December holidays we learned to appreciate the basics as up at Lake
Tahoe, we were totally without power (as were 10,000 other homes) for more than two days. Candlelight
is romantic but with two kids used to the DVD player, the toaster, microwave and lights, it became quite
an adventure playing board games and putting together puzzles by flashlight. It actually turned into one
of the most special family events I’ve ever experienced! In January, Madison started ski lessons for the
first time while my wife, son and I explored the upper regions of Squaw Valley’s famed slopes. By the
time you read this, we will be completing a six-day ski clinic where all four of us will be taking all day
lessons at Taos, New Mexico. For those unfamiliar with Taos, the base is 9,500’ and rises to more than
12,500’ with some of the most spectacular ski runs in the world. Please go to
www.officetimes.com/JMFeb2006.htm if you’d like to see photo’s of their recent adventures.

I hope you have the best winter ever, whether you are in Minnesota or Hawaii, and if we can assist you or
your company in any way please don’t hesitate to call. Thank you!
Sincerely,
Jeffrey S. Weil, MCR.h, CCIM, SIOR
Senior Vice President
(925) 279-5590