Manulife US REIT - Annual Report 2021

MANULIFE US REIT 60 • Orange County leads Los Angeles and San Diego in terms of economic recovery, with an unemployment rate of 4.1% and total employment 3.4% from pre-pandemic levels. • Large leasing is coming from tenants across a variety of industries, including tech, life sciences, aerospace and defense, among others. • Irvine’s diversified tenant base is helping it withstand uncertainty and rapidly changing economic conditions better than many peer markets and submarkets. • With all construction underway to be delivered by the end of 2022, the potential for oversupply is less severe than other high-profile markets. Office Market Trends Orange County and in particular Irvine’s diversified and skilled tenant base has helped it to weather the pandemic better than many peer office markets. Large leasing continued during the latter half of the year, led by three deals larger than 100,000 sq ft from Verizon, Amazon and Genesis. Similarly, high-profile companies such as JPMorgan Chase, TYVAK and Bandai Namco made meaningful commitments to the submarket, underlining the variety of industries taking advantage of Irvine’s developed talent pool. Combined with a smaller development pipeline that brought 680,717 sq ft of new supply to the submarket throughout 2021, occupancy losses have been less acute in Irvine than in similar markets. The rate of increase in vacancy slowed once again, rising to 17.6% at year- end. As major users have taken down top-priced blocks, Overall market statistics Forecast YTD net absorption (s.f.) -820,813 Under construction (s.f.) 1,013,471 Total vacancy (%) 16.2% Sublease vacancy (s.f.) 1,565,155 Asking rent ($ p.s.f.) US$33.98 Concessions Stable Occupancy loss less severe than other submarkets 2.0 25% 15% 20% 5% 10% 0% 1.0 0.0 -1.0 -2.0 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Net absorption (m.s.f.) Total vacancy (%) The pipeline in both Irvine and OC is limited 2022 2024 2023 2025 Irvine Rest of market 630,256 383,215 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Class A cap rates recovered in 2021 9% 8% 7% 6% 5% 4% 3% CBD Class A cap rate (%) Orange County (Irvine) Table refers to overall market, while charts refer to Manulife submarkets Independent Market Report By JLL as at 31 December 2021