Increasing Activity Sets the Stage for a Healthy Fourth Quarter

Research & Forecast Report GREATER PHOENIX INDUSTRIAL Increasing Activity Sets the Stage for a Healthy Fourth Quarter Key Takeaways >> Industrial vacancy in Greater Phoenix improved modestly in the third quarter. Despite some quarter-to-quarter movement, the overall vacancy rate has been fairly stable over the past 18 months as both new supply and demand growth have been active. >> Construction of new industrial space slowed in the third quarter, and should ease again in the final three months of. With fewer new projects delivering, there should be some downward pressure on the local vacancy rate in the months ahead. >> Net absorption gained momentum in the third quarter, topping 1.3 million square feet. Looking ahead, absorption should increase in the fourth quarter, bringing the total to approximately 5.5 million square feet. >> Asking rents are edging higher, but at a modest pace. Vacancies will likely need to be closer to 10 percent for the market to record most robust rent growth. >> After a slow start to, investment activity has accelerated. Prices have ticked higher year to date and cap rates are up slightly from levels. The fourth quarter is traditionally an active period for transactions, suggesting sales velocity should close on an upswing. Greater Phoenix Industrial Market Following a fairly sluggish second quarter, the Greater Phoenix industrial market gained momentum in the third quarter. Net absorption accelerated and the local vacancy rate inched lower. In addition, many of the largest leases signed thus far in were negotiated over the past few months. A few of these tenants have already moved into their spaces, with the remainder of the absorption scheduled for the fourth quarter of this year. Market Indicators Market Q3 Relative to prior period Market Q3 Net Absorption Construction Rental Rate Third Quarter Economic Trends* Phoenix Metro Employment U.S. Employment *Source: Bureau of Labor Statistics Summary Statistics Rate Change from (bps) Net Absorption (thousands SF) Phoenix Industrial Market 11.9% +10 1,380 New Construction (thousands SF) 793 Under Construction (millions SF) 2.6 Asking Rents Per Square Foot Per Month Change from $0.52 2.4%

Greater Phoenix Industrial Market (continued) The local housing market remains the greatest wild card impacting the local industrial outlook. Permitting continues to gain momentum and construction employment is expanding at an annual pace of more than 6 percent. This is in contrast to the local manufacturing sector, which has actually shed jobs over the past 12 months. While new housing starts are not expected to fuel a spike in tenant demand for industrial space before the end of this year, housing-related momentum in the industrial market is expected to be generated in 2016-2017. Investment activity for industrial properties has gained momentum in each of the past two quarters, and sales velocity is typically strong in the final few months of each year. With market fundamentals improving, and with some previously vacant spaces securing tenants, the market is likely poised for additional investment activity in the coming quarters. Recent Transactions in the Market SALE ACTIVITY Property Address Submarket Sale Date Sale Price Size SF Sale Price SF Class 4550 W Watkins St., Phoenix SW S of Buckeye Road 7/21 $20,320,000 313,600 $65 B 5125 E Madison St., Phoenix Tempe Northwest 9/21 $14,700,000 352,415 $42 A 640 S 51st Ave., Phoenix SW N of Buckeye Road 7/15 $8,100,000 108,287 $75 B 15570 N 83rd Way, Scottsdale Scottsdale Airpark 9/18 $6,450,000 48,111 $134 B 4501 E McDowell Rd., Phoenix North Airport 7/28 $5,900,000 63,400 $93 B LEASE ACTIVITY Property Address Submarket Tenant Size SF 7037 W Van Buren St., Phoenix Tolleson Menlo Logistics 552,330 5555 W Lower Bucekeye Rd., Phoenix SW S of Buckeye Rd Stitch Fix 365,110 4550 W Watkins Rd., Phoenix SW S of Buckeye Rd OMCO Solar 131,840 7419 S Roosevelt St., Tempe Tempe Southwest Consumer Cellular 75,068 219 S Mulberry St., Mesa Mesa Industrial Door 58,900 Historical Absorption, Deliveries and Rates 14,000,000 12,000,000 10,000,000 18% 16% 14% Square Feet 8,000,000 6,000,000 4,000,000 2,000,000 - (2,000,000) (4,000,000) 12% 8% 6% 4% 2% (6,000,000) 2007 2008 2009 2010 2011 * 2016* * Forecast Net Absorp on Deliveries 2 Greater Phoenix Research & Forecast Report Industrial Colliers International

: > > in the Greater Phoenix industrial market crept lower in the third quarter, dipping slightly to 11.9 percent. This marked the sixth consecutive quarter where vacancy has remained in the high-11 percent to low-12 percent range. > > in the Southwest is positioned to improve in the coming quarters, as a handful of large leases have been signed in recent months in buildings that had been vacant. The Southwest vacancy rate ended the third quarter at 14.6 percent, after being as low as 11.5 percent in late-/early-. > > in manufacturing buildings has ticked higher in the past 12 months, ending the third quarter at 13.4 percent. This recent rise in the vacancy rate in these buildings has coincided with a modest year-over-year decline in local manufacturing employment. > > Forecast: The Greater Phoenix industrial rate is forecast to end at 11.4 percent, 50 basis points lower than at the end of. With spec construction slowing, the pace of vacancy improvements should accelerate beginning in 2016. Absorption and Leasing Activity: > > Net absorption totaled approximately 1.4 million square feet during the third quarter, up from less than 550,000 square feet in the second quarter. Year to date, tenants have moved into a net of more than 3.5 million square feet. > > Quarterly net absorption in Greater Phoenix topped 1 million square feet for the sixth time in the past eight quarters. During the pre-recession surge from 2003-2007, net absorption averaged nearly 1.8 million square feet per quarter. > > With net absorption of more than 770,000 square feet in the third quarter, the Southwest accounted for more than 55 percent of the Greater Phoenix total. Since the beginning of, tenants have moved into a net of more than 5 million square feet in the Southwest. > > Forecast: Net absorption will gain momentum in the fourth quarter, bringing the total for the full year to approximately 5.5 million square feet. In, net absorption approached 8 million square feet, but this was due in part to several large build-to-suit projects coming online. by Building Type 25% 2 15% 5% 2011 2011 Warehouse Manufacturing Flex Among Major Submarkets 16% 14% 12% 8% 6% 4% 2% Airport Area Northeast Asking Rent Trends Northwest Southeast Southwest Greater Phoenix Rental Rates: > > Asking rents were essentially flat from the second quarter to the third quarter, averaging $0.52 per square foot, per month. While rents leveled off in the most recent period, they are up 2.4 percent over the past 12 months. > > The Airport Area is benefitting from the introduction of newer, more expensive space into inventory. Average asking rents in the Airport Area have posted a 6 percent increase in the past 12 months, ending the third quarter at $0.64 per square foot, per month. Average Asking Rent (per SF, per month) $0.54 $0.53 $0.52 $0.51 $0.50 $0.49 $0.48 $0.47 $0.46 $0.45 $0.44 2011 3 Greater Phoenix Research & Forecast Report Industrial Colliers International

>Rental > Rates (continued): > > With a vacancy rate below 5 percent, rents are rising in showroom space. Average asking rents in showroom properties are now $0.69 per square foot, per month, after averaging approximately $0.60 per square foot, per month over the past two years. Despite the recent rise, asking rents for showroom properties are still approximately 20 percent below pre-recession peak levels. > > Forecast: Asking rents in Greater Phoenix are forecast to post average increases ranging from 2.0 to 2.5 percent in. Historically, local industrial rents have generally been modest unless vacancy has been below 10 percent Construction: > > Less than 800,000 square feet of industrial space was completed in the third quarter, down from more than 1.6 million square feet of new construction in the second quarter. Year to date, developers have delivered nearly 4.2 million square feet of new industrial space. > > Development of new industrial space is slowing, which should ease the current supply-demand imbalance in the coming months. The third quarter marked just the second period in the past 10 quarters where new development has not reached 1 million square feet in Greater Phoenix. The outlook for the fourth quarter is also for more modest deliveries. > > Approximately 2.6 million square feet of industrial space is currently under way, with the strongest concentrations of new construction in the Southwest and the Airport Area. Of the properties currently under construction, approximately half of the square footage is spec development. > > Forecast: Industrial construction will slow to approximately 4.6 million square feet this year, following the delivery of more than 7 million square feet in. The total for new development will mark a three-year low. Construction Employment Overview Construciton Jobs (thousands) 200 160 120 80 40 0 Dec 07 Construc on Employment Employment Change Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec e 08 08 e 09 09 e 10 10 e 11 11 e 12 12 e 13 13 e 14 14 Construction Trends by Submarket Square Feet 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - Airport Area * YE Forecast * Northeast Northwest Southeast Aug 15 - -2-3 -4 Annual Change Southwest Investment Trends: > > The momentum in the industrial investment market that was achieved in the second quarter was sustained in the third quarter. Sales velocity rose approximately 5 percent in the third quarter, although total activity through the first nine months of is down 10 percent from the same period, one year earlier. > > The median sales price ticked down to $65 per square foot during the third quarter. Year to date, the median price is $71 per square foot, 6 percent higher than the median price. On the whole, sales prices were fairly consistent across property sizes during the third quarter. > > Cap rates have inched higher to this point in, averaging approximately 7.8 percent, approximately 20 basis points higher than in. With interest rates likely to increase at some point in the coming quarters, a modest uptick in cap rates is consistent with prevailing market sentiment. Investment Trends Median Price per SF Sales Price Cap Rate $100 $80 $60 $40 $20 $- 2009 2010 2011 YTD 15 9% 8% 7% 6% 5% Average Cap Rate 4 Greater Phoenix Research & Forecast Report Industrial Colliers International

Industrial Market EXISTING PROPERTIES BUILDING TYPE INDUSTRIAL MARKET TOTAL INVENTORY SF DIRECT VACANCY SUBLEASE VACANCY SF RATE SF RATE SF TOTAL VACANCY NET ABSORPTION - SF NEW SUPPLY - SF UNDER CONSTR AVG. RENT VACANCY VACANCY RATE Q2-15RATE Q2-14 CURRENT PERIOD YTD CURRENT PERIOD YTD SF RATE (NNN) Airport Market Cluster: North Airport, S Airport N of Roeser, S Airport S of Roeser, SC N of Salt River, SC S of Salt River General Industrial 5,838,084 892,360 15.3% - 0. 892,360 15.3% 10. 14,875 351,919-217,994 319,070 $0.66 Warehouse 24,677,684 1,963,804 8. 155,488 0.6% 2,119,292 8. 8.4% 29,412 (27,639) - 31,488 116,135 $0.50 Manufacturing 8,600,024 977,081 11.4% 0 0. 977,081 11.4% 13.4% 130,750 115,550 - - - $0.49 Service Ctr/Showroom 1,772,963 66,808 3.8% 77,155 4.4% 143,963 8.1% 10.4% (13,000) 40,713 - - - $0.79 Flex 3,977,269 813,924 20.5% - 0. 813,924 20.5% 17.4% (71,410) (112,982) - - 245,000 $1.05 Total 44,866,024 4,713,977 10.5% 232,643 0.5% 4,946,620 11. 10.4% 90,627 367,561-249,482 680,205 $0.64 Northeast Market Cluster: Central Phoenix, Scottsdale Airpark, Scottsdale/Salt River General Industrial 773,435 119,999 15.5% 41,789 5.4% 161,788 20.9% 16.5% 10,789 (27,003) - - - $0.82 Warehouse 5,436,899 481,974 8.9% 4,242 0.1% 486,216 8.9% 9.3% 35,353 35,160 - - - $0.84 Manufacturing 2,862,069 24,855 0.9% - 0. 24,855 0.9% 0.9% 13,501 6,303 - - - $0.93 Service Ctr/Showroom 981,118 62,625 6.4% - 0. 62,625 6.4% 7.8% 21,751 13,934 - - - $1.26 Flex 4,392,557 614,530 14. 0 0. 614,530 14. 15.9% 6,094 (2,277) 23,200 23,200 - $0.94 Total 14,446,078 1,303,983 9. 46,031 0.3% 1,350,014 9.3% 9.9% 87,488 26,117 23,200 23,200 - $0.91 Northwest Market Cluster: Deer /Pinnacle Peak, Glendale, Grand Avenue, N Glendale/Sun City, North Black Canyon, North Outlying, W Phx N of Thomas, W Phx S of Thomas General Industrial 6,417,633 670,807 10.5% - 0. 670,807 10.5% 9.2% 18,138 5,671 - - 412,000 $0.42 Warehouse 28,344,454 2,137,856 7.5% 21,600 0.1% 2,159,456 7.6% 7.9% 146,671 266,201 220,831 231,902 81,884 $0.59 Manufacturing 10,192,902 723,924 7.1% - 0. 723,924 7.1% 5.8% 51,747 69,342-173,000 - $0.51 Service Ctr/Showroom 1,869,171 106,433 5.7% - 0. 106,433 5.7% 3.5% (88,393) (76,274) - 14,940 - $0.54 Flex 4,886,307 611,447 12.5% - 0. 611,447 12.5% 13. (25,729) 40,672 - - - $0.80 Total 51,710,467 4,250,467 8.2% 21,600 0.1% 4,272,067 8.3% 8. 102,434 305,612 220,831 419,842 493,884 $0.57 Southeast Market Cluster: Chandler Airport, Chandler, Chandler N/Gilbert, Falcon Field/Apache Junction, Mesa, Tempe East, Tempe Northwest, Tempe Southwest General Industrial 10,107,898 793,910 7.9% - 0. 793,910 7.9% 10.9% 35,575 533,862 122,823 285,323 148,797 $0.54 Warehouse 35,128,246 3,239,637 9.2% 61,941 0.2% 3,301,578 9.4% 10.2% 123,639 596,547 139,735 523,244 319,187 $0.56 Manufacturing 24,092,119 3,475,639 14.4% 217,000 0.9% 3,692,639 15.3% 15.9% 32,909 69,612 - - - $0.54 Service Ctr/Showroom 3,120,727 105,558 3.4% - 0. 105,558 3.4% 5.7% 19,228 28,665 - - - $0.60 Flex 12,798,542 2,294,142 17.9% 175,628 1.4% 2,469,770 19.3% 18. 115,777 242,477-237,000 72,000 $0.99 Total 85,247,532 9,908,886 11.6% 454,569 0.5% 10,363,455 12.2% 12.9% 327,128 1,471,163 262,558 1,045,567 539,984 $0.64 Southwest Market Cluster: Goodyear, SW N of Buckeye Road, SW S Buckeye Road, Tolleson, Southwest Outlying General Industrial 43,161,640 6,517,292 15.1% 0 0. 6,517,292 15.1% 15.8% 457,939 1,198,712 100,000 747,489 735,324 $0.36 Warehouse 32,182,336 4,024,629 12.5% 144,170 0.4% 4,168,799 13. 11.3% 291,834 (38,643) 187,000 846,618 - $0.39 Manufacturing 11,051,852 1,761,188 15.9% 458,839 4.2% 2,220,027 20.1% 17. 17,970 188,565-844,420 54,200 $0.30 Service Ctr/Showroom 2,610,868 55,546 2.1% 0 0. 55,546 2.1% 3.4% (4,540) 17,139 - - 98,442 $0.51 Flex 1,354,650 258,388 19.1% - 0. 258,388 19.1% 19.9% 8,703 9,738 - - - $0.57 Total 90,361,346 12,617,043 14. 603,009 0.7% 13,220,052 14.6% 14. 771,906 1,375,511 287,000 2,438,527 887,966 $0.37 GRAND TOTAL General Industrial 66,298,690 8,994,368 13.6% 41,789 0.1% 9,036,157 13.6% 14. 537,316 2,063,161 222,823 1,250,806 1,615,191 $0.41 Warehouse 125,769,619 11,847,900 9.4% 387,441 0.3% 12,235,341 9.7% 9.5% 626,909 831,626 547,566 1,633,252 517,206 $0.50 Manufacturing 56,798,966 6,962,687 12.3% 675,839 1.2% 7,638,526 13.4% 13.1% 246,877 449,372-1,017,420 54,200 $0.44 Service Ctr/Showroom 10,354,847 396,970 3.8% 77,155 0.7% 474,125 4.6% 5.7% (64,954) 24,177-14,940 98,442 $0.69 Flex 27,409,325 4,592,431 16.8% 175,628 0.6% 4,768,059 17.4% 17.5% 33,435 177,628 23,200 260,200 317,000 $0.96 Total 286,631,447 32,794,356 11.4% 1,357,852 0.5% 34,152,208 11.9% 11.8% 1,379,583 3,545,964 793,589 4,176,618 2,602,039 $0.52 QUARTERLY COMPARISON AND TOTALS Q3-15 Total 286,631,447 32,794,356 11.4% 1,357,852 0.5% 34,152,208 11.9% 11.8% 1,379,583 3,545,964 793,589 4,176,618 2,602,039 $0.52 Q2-15 Total 286,646,098 33,458,288 11.7% 1,402,737 0.5% 34,861,025 12.2% 547,644 1,624,659 2,008,521 $0.52 Q1-15 Total 285,021,439 32,397,271 11.4% 1,386,739 0.5% 33,784,010 11.9% 1,618,737 1,758,370 2,527,395 $0.51 Q4-14 Total 283,263,069 31,984,523 11.3% 1,659,854 0.6% 33,644,377 11.9% 728,873 1,119,221 3,984,795 $0.51 Q3-14 Total 282,143,848 31,320,060 11.1% 1,933,969 0.7% 33,254,029 11.8% 1,857,210 670,185 3,210,691 $0.50 As new, corrected or updated information is obtained, it is incorporated in both current and historical data, which may invalidate comparison to previously issued reports. 5 Greater Phoenix Research & Forecast Report Industrial Colliers International

Outlook: The Greater Phoenix industrial market gained some momentum in the third quarter, setting the stage for an active last few months of. Many of the largest industrial leases in were signed during the third quarter, and vacancy should trend lower as these tenants occupy spaces and additional leases are inked. One driver than has been holding back the Greater Phoenix industrial market in recent years has been the local single-family housing market, which was battered during the recession but has finally begun to show some signs of strengthening. After gradually trending higher in recent years, single-family permitting has posted double-digit increases to this point in. Additional permitting activity could support a healthier outlook for industrial properties in 2016 and beyond. Investment activity has been steady in recent quarters, and will likely pick up to close the year. These end-of-year spikes in investment activity have been quite common in recent years. FOR MORE INFORMATION Bob Mulhern Managing Director Greater Phoenix +1 602 222 5038 Bob.Mulhern@colliers.com Jim Keeley SIOR Founding Partner Scottsdale Office +1 480 655 3300 Jim.Keeley@colliers.com Pete O Neil Research Director Greater Phoenix +1 602 222 5029 Pete.ONeil@colliers.com Copyright 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 2390 E. Camelback Road, Suite 100 Phoenix, AZ 85016 +1 602 222 5000 colliers.com/greaterphoenix 6 North American Research & Forecast Report Q4 Office Market Outlook Colliers International