CORPORATE OFFICE PERSPECTIVES | DECEMBER 1, 2008

What is the “Big Picture” macro view for the 2009/2010 office space market
in the United States? I post almost-daily blogs on commercial real estate at
http://jeffreyweil.blogspot.com/ and it has been increasingly difficult to
report positive news about the office market from just about any angle,
unless you are an office tenant currently in the market or about to renew,
expand or relocate with a current 2009 or 2010 lease expiration. In this
case, almost all the news that is dismal to office landlords, lenders and
listing brokers is music to the tenant’s ears … there are regional submarket
exceptions but overall, “How much in tenant improvements did you want
the landlord to contribute?” or “How much free rent will it take to entice
your tenancy?” Daily layoff announcements, office lender concerns about
property tenant quality, term rosters and massive amounts of space coming
back to the market unexpectedly due to the Wall Street meltdown, and the
tightening of the credit markets have put increased pressure on companies
now struggling for survival. Mervyns and Circuit City declaring bankruptcy
has also impacted office landlords now faced with unforeseen office
vacancy. This 2008 holiday season is expected to be the worst in decades
and what additional company closures might be announced in early 2009 as
a result? If you’re a major office user with a lease coming up in 2010 do
you extend short-term and try to catch the market at its bottom, or do you
take advantage of the amazing lease terms available now from still-solvent
landlords with still-accessible tenant improvement dollars? Of what value is
it to a major corporation waiting for the absolute best “deal” only to watch
their “institutional” landlord go under with possible building maintenance
and operational issues like we saw back in the early 1990s? How
thoroughly have you investigated who really owns your Class A trophy
office building? Golden names of the past like Lehman Brothers, Wachovia
and Merrill Lynch turned out to be only goldplated at best … it is an entirely
new game with rules being written as we play each round. Perhaps ask your
exclusive tenant rep broker to provide a detailed ownership breakdown of
your landlord(s) and check with your legal counsel regarding your lease
subordination and attornment status …

If you think commercial real estate development during normal times in the United States is
challenging, with city design review boards, planning departments and neighbor associations
primed to protest, what about India … with convoluted rules surrounding land ownership, and civil
issues mediated by the courts with a near-endless appeal process that could easily last 15 years …
Bangalore office space in 2001 sold for $1 a square foot but now can go for $400 a square foot …
some 85 percent of citizens occupy land illegally … 40 percent of land transactions occur on the
black market … an avalanche of corruption blamed on the outsourcing boom … IT companies
work with people who have only a shady title to the land … then they occupy buildings that are
constructed illegally, without permission from the authorities … huge companies build illegally
here … Wired (November 2008)

San Francisco East Bay Commercial Real Estate Update: Retail – Downtown Walnut Creek still
strong, but East County retail in a downturn with the next possible wave of business closures being
restaurants: retail foreclosures coming, but as our retail guru Deborah Perry answered when asked
if there were upcoming retail center “bargains” – “You wouldn’t want them as they shouldn’t have
been built in the first place!” Commercial centers in East County were hot two years ago, but now
we are beginning to see several go into foreclosure with pricing 40 percent less than originally
sold. In Silicon Valley, the industrial market is 8 percent vacant but office vacancy has jumped to
19 percent. San Francisco has been hammered with reports of 2008 negative absorption in the
700,000 sf range as companies continue to dump sublease space.

Oil skyrockets from $60 a barrel to $140 a barrel and all of a sudden SUVs are albatrosses, Prius
commands a price premium and office commuters are frantic. Oil drops back, gas prices come
down and SUVs don’t look as evil … if you think future gas prices won’t at some point spike back
up and maybe stay at much higher levels … but to see the long time effect on employee surveys,
Robert Half recently did a survey on commute costs and found 44 percent said higher gas prices
are affecting their commutes, up from 34 percent two years ago. The top three changes cited by
the group are increased carpooling, driving a fuel-efficient car and telecommuting more frequently.
Three in 10 respondents said they are looking for a new job closer to home. The report, “What
Employers Are Doing to Help Their Employees with High Gas Prices in 2008” describes benefits
that companies are offering, including a flexible work schedule (26 percent), telecommuting (18
percent) and public transit discounts (14 percent), San Francisco Chronicle (10/19/08).

“Lending Crisis to Worsen Before It Gets Better” … “Traditional capital for real estate has dried
up in the past year and will get worse before it gets better. Banks we all know and love are in a
capital crisis themselves. We created these conditions over a long period … we’re not going to
cure them in a short period of time,” Real Estate Forum (October 2008).

Deal and Rumors: We’ll start in Oakland for a change … Tetra Tech leased 17,000 sf at 1999
Harrison St.; California Endowment sublet 23,000 sf at 1111 Broadway; and Hanna Brophy sublet
11,000 sf at 555 City Center. Emeryville was fairly active, with rumors of Inovis relocating from
Emeryville and possibly leasing 16,000 sf at 6425 Christie Ave. and Wham-O leasing 13,000 sf at
5903 Christie Ave. In Pleasanton, I represented Individual Software in their 19,000 sf lease
renewal at 4255 Hopyard Rd. and Adept leased two buildings, 5960 Inglewood for 34,000 sf and 35,000 sf at 5627 Gibraltar, vacating their former Livermore digs which are now part of the
219,000 sf Comcast facility on Triad. Up in San Ramon, Coca Cola sublet 20,000 sf at 2603
Camino Ramon. I represented Air Liquide in a 10,000 sf office/warehouse lease at 4000
Nelson, but the big rumor in Concord is Bank of the West possibly consolidating all their East
Bay office operations to 300,000 sf at the BofA Tech Center near the Concord BART Station.
Across the hills and the Bay, Ziosoft leased 19,000 sf at 1000 Bridge Parkway in Redwood
City and King & Spalding took 28,000 sf at 333 Twin Dolphin Drive. McDermott Will &
Emery leased 80,000 sf at 275 Middlefield Road in Menlo Park. In San Mateo, Webcor
Builders leased 21,000 sf at 951 Mariners Island; Dun & Bradstreet sublet 31,000 sf at 2207
Bridgepoint Parkway, and in South San Francisco, ComScore leased 17,000 sf at 4000
Shoreline Court. In San Francisco, SmartTurn leased 14,000 sf at 177 Fremont St.; Elastron
Corp. took 17,000 sf at 160 Pacific Ave.; AKQA expanded by 22,000 sf to 50,000 sf at 118
King St.; HDR Architects is relocating to 21,000 sf at 560 Mission St.; Weisscom Partners
leased 16,000 sf and Comcast Spotlight took 34,000 sf, both at 50 Francisco St. in Waterfront
Plaza; liveBooks, Inc. leased 16,000 sf at 989 Market St.; TRUSTe sublet 18,000 sf at 55
Second St.; Del Monte sublet 18,000 sf at 50 California St., and N24 took 20,000 sf at 201
Third St.

“Construction loan delinquencies nationally rose to 10 percent in the third quarter of 2008. The
delinquency rate was 8.1 percent at mid-year, 7.2 percent in the first quarter and 5.5 percent in
the fourth quarter of 2007. The increase is being driven by a sharp rise in nonaccruals – past
due loans on which the lender has stopped accruing interest because full repayment is doubtful.
The main source of the problem is single-family residential construction lending … and the
delinquency rate for commercial mortgages has been rising steadily since mid-2007,”
GlobeSt.com (11/5/08).

Good news for the San Francisco commercial market … The Urban Land Institute and
PricewaterhouseCoopers (hope they don’t do more mergers …) reported that San Francisco is
Number one for development and homebuilding, and also a strong buy for apartments and
offices! … the report went on to say that commercial real estate will see its worst year since the
wrenching 1991-1992 industry depression. Values could easily sink 15 percent to 20 percent
from their mid-2007 peaks, with losses possibly even more severe for lesser-quality
commercial properties in secondary markets … and I was hoping it would be all good news …

Telecommuting 2008 update: “Though a third of the more than 150 million working
Americans telecommute at least occasionally, most do so just a few days each month. Only 40
percent of companies permit any sort of work-at-home arrangement, which means most insist
on full-time attendance. According to a 2006 survey by the Telework Exchange, the top fear
among resisters is that they’ll lose control of their employees, whom they doubtlessly envision
frittering away the hours between 9 and 5 playing Minesweeper and munching Cheetos.
Telecommuting’s foes couldn’t be more misguided… time and again, studies have shown that
telecommuters are every bit as engaged as their cubicle-bound brethren – and happier and more
productive to boot. Last year, researchers from Penn State analyzed 46 studies of
telecommuting conducted over two decades and covering almost 13,000 employees. Their
sweeping inquiry concluded that working from home has ‘favorable effects on perceived autonomy, work-family conflict, job satisfaction, performance, turnover intent, and stress’ … Earlier this year, an IDC report from Asia found that 81 percent of managers believe telecommuting
improves productivity, up from 61 percent in 2005. The increase is attributable largely to the
proliferation of unified communications technologies – tools that connect mobile and remote
workers. These include products like LifeSize Express, the first hi-def videoconferencing system
priced at less than $5,000, as well as Web-based services like Google Docs and Glance, which let
users view a remote colleague’s onscreen work in real time … and it costs more than $15,000 per
year to provide an employee with 200 square feet of cubicle. So the savings would be significant –
so great, in fact, that companies would still come out thousands of dollars ahead after springing for
workers’ broadband and VoIP expenses,” Wired (October 2008).

The U.S. office vacancy posts fourth consecutive increase… the overall vacancy rate is 13.69
percent. For this Colliers Third Quarter 2008 report with a complete city-by-city breakdown report
go to http://officetimes.com/Market%20Reports/NA.Office.pdf.

The Institution Recycling Network (IRN) works with more than 200 colleges and universities,
hospitals, private firms, public and private schools, and state agencies to match office furniture, lab
equipment and other surplus items with U.S.-based and international charities involved in disaster
relief and economic development programs. There is a charge for these services, but IRN states the
cost for handling the reuse items is typically 10 to 30 percent less than disposal and recycling. For
more info go to www.ir-network.com/prog_prop.html, Today’s Facility Manager (October 2008).

October and November were filled with weekend soccer games. Madison, who is 6 and playing her
first season for Mustang Soccer (our local league with more than 5,000 kids) with her Superstars
team. Madison loves soccer and averaged at least one goal every game this season. Her dad
coaching nine 6 year old girls on usually balmy weekend days – what could be better? Jordan is 11
and is playing in a slightly more competitive Boys White Plus team – amazing defense and this
season for the first time did leaping ball blocks and aggressive one-on-one ball control. Jordan is
also an active Boy Scout, has just received his First Class and is working on a host of merit badges
ranging from Family Life, Dog Care and Citizenship. One weekend we had six soccer games
between both kids and after the 2 p.m. Saturday game was over, we hurriedly changed into the Scout
uniform, led an overnight camping trip on Mt. Diablo complete with hiking and the boys cooking
three meals, then Sunday morning, changed back into soccer uniforms and raced over to the 9:30 on
Sunday game (followed by 11 a.m. Madison game and 2 p.m. Jordan second game). Don’t worry, all
weekends aren’t this packed and the kids have plenty of “play” time! For recent photos of Madison
and Jordan’s adventures go to http://officetimes.com/2008/Dec2008/JMDec08.htm.

Stock market swings of 500 or 800 points in a day, household corporate names announcing
insolvency, an $11 trillion dollar national debt that is beyond comprehension, global warming and yet
if one tries very diligently to not get caught up in all the doom and gloom avalanche, this is still an
awesome time to be in commercial real estate. As an exclusive tenant rep broker, Corporate America needs me more than ever to help keep their office occupancy costs as low as possible andmake sure their facility solutions match corporate objectives. By the deluge of e-mails, we know
landlords need us more than ever to help them fill vacancies and reduce tenant turnover. Lenders need
us to stabilize their loan portfolio tenant rent rolls, the foundation of their security risk. My company
needs me to be a role model to younger brokers, a mentor to those who need assistance, and an
income-producer so my company can survive and thrive through these challenging times. My
community needs me to help volunteer in the classroom, on the sports field and give financial support
to those less fortunate. Most importantly, my children, wife and family need me to be strong and there
for them, even when the financial day has been less than kind to myself or my clients. To each his or
her own, whether it be a good book, special glass of wine, time in the garden or being with friends, but
being able to escape and get mini-rejuvenated makes it so much easier to go back into battle the
following day. As we approach this holiday season with its own set of stresses, please remember what
your personal “de-stresses” are, make time to do them and remember the age old saying, “this too will
pass,” Peace!

Remember… please call me for all your commercial real estate needs anywhere in the world!