Sales Velocity Surges as Rents Push Higher

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1 Research & Forecast Report GREATER PHOENIX MULTIFAMILY 2 Sales Velocity Surges as Push Higher Key Takeaways > > The Greater Phoenix multifamily market continued to improve in the fourth quarter, capping a very strong 2. ended the year considerably lower than the market s long-term average, and the rate has continued to decline even as new units have come online at a healthy pace in recent years. > > With renter demand elevated and vacancy tight, rents are on an upswing. Average asking rents rose 6.5 percent in 2, building on a 4.1 percent increase in the preceding year. Additional gains are forecast for the year ahead. Market Indicators Relative to prior period Transaction Activity Price Per Unit Cap Rates Market 2 Market 2 > > Investors are responding to the strong operating conditions by increasing acquisition activity. In 2, sales velocity accelerated, prices increased by more than 1 percent and cap rates compressed slightly. In addition, some of the newer projects that have been completed in recent years have begun to change hands at some of the highest prices on record. Greater Phoenix Multifamily Market The Greater Phoenix multifamily market closed 2 on a high note, with rents rising and vacancy continuing to trend lower. has improved even as the delivery of new units has increased the overall supply of multifamily rental inventory by nearly 7 percent over the past three years. Looking ahead to 216, renter demand for apartment units is expected to remain strong, particularly with employment growth forecast to accelerate after four straight years of fairly steady growth. One of the primary drivers of additional employment growth in the local market is likely to stem from the new home market, which could create some additional competition for multifamily properties. The metrowide homeownership rate has declined significantly over the past several years, following the housing bust, increasing the renter pool. While demand for for-sale housing should receive a modest boost in the next -24 months, renter demand should be strengthened by an increasing rate of population growth and in-migration. Summary Statistics Phoenix Market Rate 5.7% Change from 2 (bps) -5 Asking Per Month $872 Change from 2 6.5% Median Sales Price Per Unit (YTD) $91,2 Average Cap Rate 5.3%

2 Greater Phoenix Multifamily Market (continued) Investment activity continued to surge in the fourth quarter, making 2 the strongest year of sales activity in nearly a decade. There are several drivers fueling the spike in activity: property performance has been on a multi-year improvement cycle, acquisition financing remains available at attractive terms and some of the recent deliveries of new product to the market are now being marketed for sale. Prices have continued to rise and cap rates compressed slightly in 2, reflecting both the positive investor sentiment in the market place as well as the mix of assets changing hands. There has been a great deal of speculation as to how much longer the multifamily run will last, but the outlook at least through 216 remains favorable, particularly with the supply-side pressures beginning to ease. SUBMARKET STATISTICS Submarket Name 2 Annual Change (BPS) 2 2 Annual Rent Change (%) N Scottsdale/Fountain Hills 4.3% 5.1% (8) $1,7 $1,58 5. Chandler % () $1, $ Central City/Sky Harbor 4.5% 5. () $1,243 $1,2 7.9% N Mesa 4.7% 5.% (3) $734 $ North Mountain 4.7% 5.% (3) $8 $ % N Paradise Valley 4.9% 6. () $1,67 $ % S Scottsdale 4.9% 4.9% - $1,13 $1,48 5. S Mesa 5.% 6.% (1) $787 $ S Gilbert/Queen Creek 5.% 5. (8) $1,26 $ % Gilbert/Superstition Springs 5.% 5.3% (3) $9 $831 1.% Goodyear/Avondale 5.1% 5. (5) $871 $ % Ahwatukee Foothills 5.1% 5.3% (2) $951 $ % Union Hills/Cave Creek (4) $84 $83 4. S Tempe 5.3% 5. 1 $945 $ S Paradise Valley % () $863 $ E Mesa/Apache Junction 5.5% 5.9% (4) $851 $8 4.5% Deer Valley/N Peoria 5.5% 5. (1) $99 $ Maryvale/Estrella (22) $672 $ W Central Phoenix 5.9% 6.5% (6) $585 $557 5.% Glendale 6.% 6.5% (5) $67 $ NW Black Canyon 6.1% 6.5% (4) $744 $72 6.% Peoria/Sun City % 1 $86 $858. S Phoenix/Laveen % 5 $861 $ % E Central Phoenix 6.5% 6.5% - $88 $ % N Tempe % 9 $1,27 $98 4. Metrocenter 7.3% 6.9% 4 $671 $61. Central Phoenix/Encanto 8.7% 9. (7) $1, $ % N Central Phoenix/Alhambra () $852 $ % NE Central Phoenix 9.3% 9.3% - $1,6 $937.1% Central Black Canyon.1% 1.1% 1 $598 $ % 2 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

3 Employment: > > Employment growth gained momentum in the second half of 2, after a fairly slow first six months of the year. In total, employers added approximately 54,6 jobs in 2, a 2.9 percent gain. During the past four years, employment growth has averaged just over 5, jobs per year. > > Construction employment had its strongest year of expansion since 25, as approximately 8, jobs were added, representing annual growth of 8.2 percent. The new jobs are being driven by a gradual recovery in the for-sale housing market. Permitting for single-family homes rose more than 4 percent in 2, with a similar increase forecast for 216. Employment Overview Quarterly Jobs Added (s) % 1% % Year over Year Employment Change > > More widespread employment growth is forecast for 216. One segment of the economy that could gain momentum in the year ahead is the leisure and hospitality sector, which added nearly 7, jobs in 2 for growth of 3.3 percent. Several area hotels have undergone significant renovations in recent months, which could prompt additional hiring. Number of Jobs Annual Change Construction: Construction Trends: Major Submarkets > > Multifamily development surged in 2, with more than 6,6 units coming online, up from 5,6 units delivered in 2. This marked the strongest year of apartment deliveries since 2 in Greater Phoenix. Looking ahead, completions in 216 should slow to approximately 5, units. Units 3, 2,5 2, 1,5 1, Completions 2 2 Under Construction > > While cities such as Tempe and Scottsdale were hotspots for new development, multifamily construction began to stretch out to other regions of Greater Phoenix in recent quarters. In 2, submarkets in the Valley recorded new construction, including a few areas where there had not been any new construction in five years or more. 5 > > Permitting for multifamily units slowed in 2, suggesting that the pace of new multifamily deliveries will ease in the coming quarters. Approximately 5,5 multifamily permits were issued in 2, down 35 percent from the 2 total. Permitting activity in 216 is forecast to be similar to the 2 total. Quarterly Trends : > > Multifamily vacancy in Greater Phoenix ticked lower in the fourth quarter, dropping 1 basis points to 5.7 percent. The rate ended 2 5 basis points lower than the year-end 2 vacancy rate. in Greater Phoenix was below 6 percent in three of the four quarters in 2. Rate 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% > > Approximately one-third of all the submarkets in Greater Phoenix feature vacancy rates at or below 5 percent. Some of the lowest rates in the Valley are high-demand submarkets such as North Scottsdale/Fountain Hills and Chandler. 5.5% 5.% > > While the prevailing trend is for tightening vacancy, there are a few areas where the delivery of new supply is driving a shortterm uptick in vacancy. During the past months, both the North Tempe and South Tempe submarkets have recorded modest vacancy increases. Both submarkets have had new units delivered in recent years. 3 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

4 : > > continued to trend higher to close 2. Average asking rents hit $872 per month in the fourth quarter, up 6.5 percent year over year, following a 4.1 percent increase in 2. > > Every submarket in Greater Phoenix is recording rent growth and most areas are posting gains that are far outpacing the rate of inflation. In 2, 7 percent of the submarkets in Greater Phoenix had rent increases of at least 5 percent. > > As developers continue to bring luxury units to the market, Class A asking rents are on the rise. In 2, the average Class A asking rent spiked 7.4 percent to $1,288 per square month, or $1.32 per square foot, per month. At nearly $1,5 per month, South Scottsdale features some of the highest Class A asking rents in all of Metro Phoenix. Quarterly Rent Trends Asking Rent per Month $9 $88 $86 $84 $82 $8 $78 $76 $74 $72 $7 Per Month Per SF $1.4 $1.2 $1. $.98 $.96 $.94 $.92 $.9 $.88 $.86 Asking Rent per SF Investment Trends: > > The fourth quarter was an active period for sales of multifamily buildings. The transaction count spiked 28 percent from the third quarter to the fourth quarter, and total sales velocity for 2 was percent higher than in 2. The number of buildings sold in the fourth quarter of this year was the most for any single quarter since mid-27. > > Strengthening fundamentals are supporting price appreciation. The median price rose percent from the third quarter to the fourth quarter, topping $91, per unit. The median price for all transactions in 2 was $78,3 per unit, a percent increase from the 2 median. > > Cap rates compressed slightly in the fourth quarter, due to heightened demand and several newer assets changing hands. The average cap rate in properties sold during the fourth quarter was in the low- to mid-5 percent range, bringing the average for all of 2 down to 5.6 percent. In 2, the average cap rate was just under 6 percent. Investment Trends Median Price per Unit (s) $ $1 $8 $6 $4 $2 $ Price per Unit Cap Rate 7% 5% Average Cap Rate Recent Transactions in the Market MULTIFAMILY SALES ACTIVITY Property Name Street Address Units Sales Price Price per Unit Pillar at Scottsdale 172 N Scottsdale Rd., Scottsdale 539 $95,75, $177,644 San Melia 435 S 48th St., Phoenix 488 $84,, $172,1 Broadstone Lincoln 71 E Lincoln Dr., Scottsdale 264 $79,, $299,242 Broadstone Trevi 635 S Ellis St., Chandler 29 $47,5, $163,793 Aventura 135 W McDowell Rd., Avondale 48 $42,24, $13,529 Cabana on McClintock 171 E Don Carlos Ave., Tempe 181 $16,6, $91,7 4 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

5 Outlook: The Greater Phoenix multifamily market is poised to have another year of strong performance, as supply and demand will remain very close to equilibrium. Employment growth and population expansion will continue to support renter demand for multifamily units, even as a handful of renters begin to transition into homeownership in the years ahead. On the supply side, deliveries of new units will continue, but the pace of development will slow, easing some of the competitive pressures from new inventory. This will keep vacancy near a -year low, allowing landlords to continue to implement healthy rent increases. With property performance continuing to outperform historical norms, investors are expected to remain active in 216. Prices have been on the rise, fueled by strengthening cash flows stemming from tightening vacancies, rising rents and concession burn off. In addition, as new construction projects become stabilized, more of these buildings will be marketed for sale. Looking ahead, there is a potential for some limited upward pressure on cap rates if interest rates rise, but the recent uncertainty surrounding slowing global economic growth will likely delay additional rate increases. Employment Forecast Rent Forecast 8, 4.% $95 1% Net Employment Change 7, 6, 5, 4, 3, 2, 1, 3.5% 3.% 2.5% 2.% 1.5% 1.%.5% Year over Year Change Average Asking Rent $9 $85 $8 $75 $7 % Year over Year Rent Change * Jobs Gained/Lost Annual Change.% $ * Asking Annual Change Construction and Permitting Forecast Forecast 9, 8, 7, % 1% Permits/Units 6, 5, 4, 3, 2, Rate 1, * MF Permits Completions % * FOR MORE INFORMATION Bob Mulhern Managing Director Greater Phoenix Bob.Mulhern@colliers.com Jim Keeley SIOR Founding Partner Scottsdale Office Jim.Keeley@colliers.com Pete O Neil Research Director Greater Phoenix Pete.ONeil@colliers.com Copyright 2 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International Greater Phoenix 239 E. Camelback Road, Suite 1 Phoenix, AZ colliers.com/greaterphoenix 5 North American Research & Forecast Report 2 Office Market Outlook Colliers International