Manulife US REIT - Annual Report 2021

MANULIFE US REIT 54 • Los Angeles, along with New York and San Francisco, continues to lag the nation as a whole in terms of macroeconomic recovery, but is nonetheless making strides as unemployment approaches 7%. • Downtown, which has lagged the Westside and Mid-Wilshire clusters throughout the previous cycle, continues to witness limited activity, driven mostly by mid-sized renewals. • New product is mostly coming in the form of conversions of historic assets to creative space on the fringes of Downtown rather than corporate-grade, centrally located space. • Conditions will stay highly favourable, but also challenge law firms, professional services tenants and other traditional users looking for newer product. Los Angeles (Downtown) Office Market Trends Downtown Los Angeles, like the broader metro area, saw further negative net absorption in Q4, bringing 2021 occupancy losses to 564,899 sq ft, an increase over 2020, and pushing vacancy up an additional 260 basis points over the course of the year to 21.2%. As a result, Downtown vacancy is now 100 basis points above the regional average. Asking rents continue to hold steady at US$44.36 psf, having stayed between US$43 and US$45 per square foot for more than three years. Leasing activity in the second half of the year was driven mostly by mid-sized tenants and a combination of renewals and new leases. A traditional anchor of the CBD market, law firms were responsible for the majority of notable leases, including but not limited to Hueston Hennigan, Vinson& Elkins andHaight Brown, which leased a combined 88,474 sq ft. Other activity was sparse, a result of limited Overall market statistics Forecast YTD net absorption (s.f.) -5,720,854 Under construction (s.f.) 4,718,148 Total vacancy (%) 20.2% Sublease vacancy (s.f.) 3,878,616 Asking rent ($ p.s.f.) US$45.48 Concessions Stable CBD vacancy continues to rise 0.5 25% 20% 15% 10% 0.0 -0.5 -1.0 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Net absorption (m.s.f.) Total vacancy (%) 2022 2024 2023 2025 Only one building is under construction in the CBD Downtown Rest of market 3,143,475 470,000 309,673 795,000 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Class A cap rates are holding firm at around 6% 7% 6% 5% 4% 3% CBD Class A cap rate (%) Table refers to overall market, while charts refer to Manulife submarkets Independent Market Report By JLL as at 31 December 2021