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7/f$ CB RICHARD ELLIS CONSULTING Sedway Group CBRE C8 RICHARD ELLIS Job Growth. Redwood City's 36,980-job employment base is the third-largest in San Mateo County after Daly City and San Mateo, comprising 10 percent of the total workforce. According to ABAG, Redwood City is forecasted to add nearly 6,000 jobs between 2005 and 2010, equating to average annual growth of 1.9 percent. ABAG expects employment growth to slow during the five-year period from 2010 to 2015, to 0.8 percent annually, or just 540 jobs per year. Demand for Office Space. CBRE Consulting believes Redwood City will capture less than its historical pro rata share of SFP absorption (43 percent since 1997) through 2010. Strong demand for Redwood City space in the late 1990s was partially attributable to a lack of available supply in other SFP submarkets, a condition that does not apply today. ABAG's forecast for Redwood City to capture 18 percent of overall San Mateo County office employment growth from 2005 to 2010 translates into expectations of 744,000 square feet of net office absorption during the five-year period, or an annual average of 150,000 square feet. Assuming no new construction, this increase in occupied space would result in a decrease in the vacancy rate, to 22 percent by 2010. CBRE Consulting believes this forecast is conservative. While Redwood City is expected to lag the overall SFP recovery in the near term, it should regain some ground as the supply of quality, vacant space in other SFP submarkets declines. Assuming the submarket captures an increasing share of SFP office absorption through the next five years, CBRE Consulting expects Redwood City to achieve a 1.4 million-square-foot increase in occupied space (see Figure 2). With an average of 240,000 square feet of net absorption per year, 28 percent of the SFP total, the Redwood City vacancy rate will likely fall to 15 percent by 2010. Figure 2 Redwood City Office Market Forecast 2,500 2,000 ~ 1,500 0 0 ::- 1,000 Q Q LL Q ... ('I :J t:r en 500 0 -500 35% 30% 25% 20% ~ c:: ('I C,,) 15% ('I > 10% 5% 0% -1,000 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ "Q) "Q) "Q) r{,CS r{,CS r{,CS r55 ~cs ~CS ~CS r{,~~ ~cs ~CS ~~ 1- New Supply - Net Absorption ""9Ìr- RC Vacancy - SFP Vac~ Source: Costar ond CBRE Consulting forecast. Rent Growth. If, as expected, the vacancy rate remains above 15 percent through 2010, it is unlikely that Redwood City's office market will experience significant rent growth over the forecast horizon. Office rents in the SFP as a whole are not expected to show upward movement until 2007,