Rents Spike, Brightening the Second-Half Outlook

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1 Research & Forecast Report GREATER PHOENIX MULTIFAMILY Q2 217 Rents Spike, Brightening the Second-Half Outlook Key Takeaways > > The Greater Phoenix multifamily market recorded an active first half of 217, with significant levels of new development and net absorption. These trends are forecast to continue in the second half of this year. > > rose 3 basis points in the second quarter to reach 5.9 percent. Although there was a brief uptick during this period, the rate is identical to where it was at this point last year. Seasonal vacancy rises are common during the second quarter. > > Rents continue to push higher at an accelerating pace. Asking rents have advanced by 5 percent year to date and are up 6.3 percent during the past 12 months. Average asking rents reached $977 per month in the second quarter and are forecast to top $1, per month by the end of the year. > > The investment market displayed strengthening signals during the second quarter of 217. More properties are trading at a higher price, and cap rates compressed to the mid-5 percent range. Greater Phoenix Multifamily Market The Greater Phoenix multifamily market continues to record favorable conditions. The outlook for the second half of this year remains optimistic, despite a modest uptick in vacancy during the second quarter. The rise in vacancy was largely seasonal; the Greater Phoenix multifamily vacancy rate has risen during the second quarter in each of the past seven years. The vacancy rise in the summer months is not changing the overall direction of the market, which is one that is in its eighth year of a sustained improvement cycle. Market Indicators Relative to prior period Rents Transaction Activity Price Per Unit Cap Rates Summary Statistics Phoenix Market Rate 5.9% Change from 2Q 216 (bps) Asking Rents (per month) $977 Change from 2Q % Median Sales Price (per unit YTD) Market Q2 217 $12,147 Average Cap Rate (YTD) 5.7% Market Q2 216 Developers are responding to the ongoing renter demand for high-end rentals by bringing new units to the market. Deliveries have averaged approximately 5,8 units per year since 213, and approximately 3,3 units have come online in the first half of this year.

2 Greater Phoenix Multifamily Market (continued) Renter demand is proving strong enough to more than offset the new construction. Central Phoenix and North Central Phoenix are hot spots for recent development. Projects totaling more than 75 units along 16th Street north from Highland Avenue to Colter Road will come online in in the next 12 months. The second quarter was an active period for the local investment market. Sales velocity picked up, prices rose and cap rates compressed. With property performance healthy across the market, there is a broad mix of assets changing hands. Cap rates in newer product in areas such as Tempe and Chandler are averaging around 5 percent, while some older properties are changing hands with cap rates closer to 6 percent. SUBMARKET STATISTICS Submarket Name 2Q 217 2Q 216 Annual Change (BPS) 2Q 217 Asking Rents 2Q 216 Asking Rents E Mesa/Apache Junction 4.3% 5.% (7) $969 $895 W Central Phoenix % (5) $89 $615 Maryvale/Estrella (2) $75 $725 Gilbert/Superstition Springs 4.9% 4. 5 $1,2 $972 N Mesa 4.9% 4. 1 $837 $782 NW Black Canyon 5.% 5. (6) $824 $786 Goodyear/Avondale 5.% 5.% - $988 $922 S Phoenix/Laveen (2) $96 $93 N Paradise Valley (4) $1,76 $1,6 S Mesa % 5 $889 $838 E Central Phoenix 5.5% 5.5% - $896 $846 North Mountain % 5 $875 $841 S Tempe $1,58 $1, Chandler 5.9% 5.1% 8 $1,84 $1,53 Ahwatukee Foothills 5.9% 5.1% 8 $1,59 $1,23 Deer Valley/N Peoria 5.9% 4.7% 12 $1,19 $967 Glendale 6.% 5. 6 $743 $74 Union Hills/Cave Creek 6.% 5.9% 1 $978 $91 S Gilbert/Queen Creek 6.1% 5.3% 8 $1,99 $1,43 S Scottsdale 6.1% 5. 9 $1,315 $1,121 N Scottsdale/Fountain Hills 6.3% 7.% (7) $1,222 $1,155 N Central Phoenix/Alhambra % (1) $874 $92 Central Black Canyon 6.5% 12.9% (64) $655 $67 Peoria/Sun City % 7 $961 $914 N Tempe 6.9% 1.% (31) $1,176 $1,72 Metrocenter % 3 $778 $732 Central City/Sky Harbor 7.3% 6.9% 4 $1,29 $1,38 NE Central Phoenix 7.7% 9.1% (14) $1,59 $1,54 S Paradise Valley 8. 5.% 36 $1,33 $757 Central Phoenix/Encanto 9.% 7.% 2 $1,9 $1,5 2 Greater Phoenix Research & Forecast Report Q2 217 Multifamily Colliers International

3 Employment: > > The Greater Phoenix employment market continued to expand, with employers adding 52, net new jobs during the past 12 months. The pace of growth has slowed modestly; year-overyear, total employment has expanded by 2.7 percent, compared to a 3.1 percent increase at this time last year. > > The leisure and hospitality sector, which is fueled by business and recreational travel, added 15, jobs during the past year for a growth rate of 7.1 percent. This is the fastest pace of expansion in the sector in more than a decade. > > Another sector that displayed robust job growth was education and health services. This sector added 11,9 jobs over the past year, a pace of 4.2 percent. Growth is being led by Banner Health, which recently announced an acquisition of 32 urgent care facilities, and added 4, workers thus far in 217. Employment Overview Year over Year Jobs Added (s) Number of Jobs Annual Change 5% 3% 1% % Year-over-Year Employment Change Construction: > > Multifamily development has been quite active. More than 1,8 units came online during the second quarter, up 23 percent from the first quarter total. During the past 12 months, more than 5,8 units have come online, a 2.2 percent increase to inventory. > > Apartment construction is forecast to gain momentum in the coming quarters. Currently, there are more than 12,2 units under construction and another 17, planned units. One year ago, there were fewer than 1, units under way. > > Permitting activity was strong in the second quarter with more than 2,3 permits pulled, an increase of over 21 percent from the first few months of the year. Although activity picked up in the second quarter, multifamily permitting in the first half of 217 was down 16 percent from activity levels in the previous year. : > > After a decline in the first few months of 217, vacancy in the Greater Phoenix multifamily market ticked up 3 basis points to 5.9 percent. The rate remains unchanged from where it was one year ago. > > The North Mesa submarket posted a vacancy rate of 4.9 percent in the second quarter, one of the five submarkets in the Valley with a rate below 5 percent. Over the past two years, the vacancy rate in the submarket has averaged 4.8 percent. > > While vacancy is generally low throughout Greater Phoenix, there are some areas where the rate is rising in response to new development. in the Central Phoenix/Encanto submarket reached 9 percent during the second quarter, 2 basis points higher than one year ago. More than 1,2 new units have been delivered in the submarket during the past 12 months, increasing the local inventory by more than 15 percent. Construction Trends: Major Submarkets Units Quarterly Trends Rate Completions Under Construction 3,5 3, 2,5 2, 1,5 1, 5 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% 4.% 3 Greater Phoenix Research & Forecast Report Q2 217 Multifamily Colliers International

4 Rents: > > For the past several years, asking rents have continued to rise at an accelerating pace in the Greater Phoenix multifamily market. In the second quarter, the asking rate reached $977 per month, or $1.15 per square foot, per month. This is a year-over-year increase of 6.3 percent. > > South Scottsdale posts the highest average rental rate of any submarket in Greater Phoenix. Asking rents in the submarket reached $1,315 per month in the second quarter, up more than 17 percent from one year ago. There are more than 6 units scheduled to come online during the second half of this year in the submarket, which could put upward pressure on concessions. > > While Class A properties posted the largest rent increase, there was prominent rent growth throughout all property classes in the second quarter. Asking rents in Class A buildings advanced 8.7 percent to reach $1,45 per month. Annual increases in Class B and Class C properties are averaging between 6 percent and 7 percent. Investment Trends: > > Sales of apartment properties rose 13 percent from the first quarter to the second quarter. Despite the recent surge in transactions, total sales activity in the first half of 217 was down 8 percent from the levels in the first half of last year. > > In the second quarter, properties trading had a median price of more than $116, per unit, an increase of over 21 percent from the previous period. Nine properties changed hands at more than $15, per unit during the second quarter, after only a handful of sales topped this pricing threshold during the first quarter. Year to date, the median price is $12,147 per unit. > > Cap rates compressed as prices pushed higher. The average cap rate in transactions during the second quarter was 5.5 percent, down from 5.8 percent in the first quarter. Year to date, cap rates have averaged approximately 5.7 percent. Quarterly Rent Trends Asking Rent per Month Per Month $1, $975 $95 $925 $9 $875 $85 $825 $8 $775 $75 $725 Investment Trends Median Price per Unit (s) $12 $1 $8 $6 $4 $2 $ Price per Unit Per SF Cap Rate $1.25 $1.2 $1.15 $1.1 $1.5 $1. $.95 $.9 $.85 $.8 1% 9% 7% 5% Asking Rent per SF Average Cap Rate Recent Transactions in the Market MULTIFAMILY SALES ACTIVITY Property Name Street Address Units Sales Price Price per Unit Andante Apartments 1581 S 48th St., Phoenix 576 $85,25, $148,3 Onnix 15 E Broadway Rd., Tempe 659 $77,5, $116,919 Arcadia Cove 2252 N 44th St., Phoenix 432 $71,5, $165,59 4 Greater Phoenix Research & Forecast Report Q2 217 Multifamily Colliers International

5 Outlook: The Greater Phoenix multifamily market is positioned for a strong second half of the year. Vacancies have fluctuated a bit as new units come online with a few submarkets showing intermittent, short-term vacancy rises but the rate is generally stable and well below the market s long-term average. These tight vacancy conditions are setting the stage for rapid rent growth. Asking rents advanced by approximately 5 percent in the first half of 217 and are on pace to post the strongest annual gains in the past 1 years. Sales of local multifamily buildings have been accelerating for the past several years, reaching a peak in 216. Through the first half of this year, sales velocity has lagged 216 levels, but the market is still on pace for significant volume in 217. Prices surged in the second quarter, in part due to an increased number of newer properties changing hands. With development continuing at a robust pace, there should be additional opportunities to acquire new multifamily development going forward. Employment Forecast Rent Forecast 7, 4.% $1,1 1% Net Employment Change 6, 5, 4, 3, 2, 1, * Jobs Gained/Lost Annual Change 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% Year-over-Year Change Average Asking Rent $1,5 $1, $95 $9 $85 $8 $75 $ * Asking Rents Annual Change % - Year-over-Year Rent Change Construction and Permitting Forecast Forecast 11, 1 1, 9, 1% 8, Permits/Units 7, 6, 5, 4, Rate 3, 2, 1, * MF Permits Completions % * FOR MORE INFORMATION Bob Mulhern Senior 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 217 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 Q4 214 Office Market Outlook Colliers International