The CoStar Industrial Report. Y e a r - E n d Phoenix Industrial Market

Transcription

1 The CoStar Industrial Report Y e a r - E n d

2 Year-End 2014 Phoenix Table of Contents Table of Contents A Methodology B Terms & Definitions C Market Highlights & Overview CoStar Markets & Submarkets Inventory & Development Analysis Inventory & Development Analysis Select Top Deliveries Select Top Under Construction Properties Figures at a Glance Figures at a Glance by Building Type & Market Figures at a Glance by Building Type & Submarket Historical Figures at a Glance Leasing Activity Analysis Select Top Lease Transactions Sales Activity Analysis Sales Activity Analysis Select Top Sales Transactions Analysis of Individual CoStar Submarket Clusters Airport Market Northeast Market Northwest Market Southeast Market Southwest Market 2015 CoStar Group, Inc. The CoStar Industrial Report A

3 Phoenix Year-End 2014 Methodology The CoStar Industrial Report calculates Industrial statistics using CoStar Group's base of existing, under construction and under renovation Industrial buildings in each given metropolitan area. All Industrial building types are included, including warehouse, flex / research & development, distribution, manufacturing, industrial showroom, and service buildings, in both single-tenant and multitenant buildings, including owner-occupied buildings. CoStar Group's national database includes approximately 80.7 billion square feet of coverage in 3.5 million properties. All rental rates reported in the CoStar Industrial Report are calculated using the quoted rental rate for each property. The quoted rental rate is exclusive of the expense pass through associated with the rent. For information on subscribing to CoStar s other products and services, please contact us at COSTAR, or visit our web site at Copyright 2015 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability of the information contained herein, CoStar makes no guarantee, representation or warranty regarding the quality, accuracy, timeliness or completeness of the information. The publication is provided as is and CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CoStar Group, Inc L ST NW Washington, DC (800) NASDAQ: CSGP B The CoStar Industrial Report 2015 CoStar Group, Inc.

4 Year-End 2014 Phoenix Terms & Definitions Availability Rate: The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet. Available Space: The total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date. Build-to-Suit: A term describing a particular property, developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant. A build-to-suit can be leased or owned by the tenant. In a leased build-to-suit, a tenant will usually have a long term lease on the space. Buyer: The individual, group, company, or entity that has purchased a commercial real estate asset. Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year s net operating income and the current market value of a particular property. The Cap Rate is calculated by dividing the annual net operating income by the sales price (or asking sales price). CBD: Abbreviation for Central Business District. (See also: Central Business District) Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized core within the largest city of a given MSA. Class A: A classification used to describe buildings that generally qualify as extremely desirable investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. Such buildings are well located and provide efficient tenant layouts as well as high quality, and in some buildings, one-ofa-kind floor plans. They can be an architectural or historical landmark designed by prominent architects. These buildings contain a modern mechanical system, and have above-average maintenance and management as well as the best quality materials and workmanship in their trim and interior fittings. They are generally the most attractive and eagerly sought by investors willing to pay a premium for quality. Class B: A classification used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Such buildings offer utilitarian space without special attractions, and have ordinary design, if new or fairly new; good to excellent design if an older non-landmark building. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors. Class C: A classification used to describe buildings that generally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors. Construction Starts: Buildings that began construction during a specific period of time. (See also: Deliveries) Contiguous Blocks of Space: Space within a building that is, or is able to be joined together into a single contiguous space. Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property. Delivery Date: The date a building completes construction and receives a certificate of occupancy. Developer: The company, entity or individual that transforms raw land to improved property by use of labor, capital and entrepreneurial efforts. Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased. Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation. Flex Building: A type of building designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. A typical flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off. Full Service Rental Rate: Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance. Gross Absorption: The total change in occupied space over a given period of time, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing Activity, which is the sum of all space leased over a certain period of time. Unless otherwise noted Gross Absorption includes direct and sublease space. Growth in Inventory: The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings. Industrial Building: A type of building adapted for such uses as the assemblage, processing, and/or manufacturing of products from raw materials or fabricated parts. Additional uses include warehousing, distribution, and maintenance facilities. The primary purpose of the space is for storing, producing, assembling, or distributing product. Landlord Rep: (Landlord Representative) In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep. Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease. Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings. Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building-type specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region (See also: Region). Markets can be further subdivided into Submarkets. (See also: Submarkets) Multi-Tenant: Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different 2015 CoStar Group, Inc. The CoStar Industrial Report C

5 Phoenix Year-End 2014 tenant needs. (See also: Tenancy). Net Absorption: The net change in occupied space over a given period of time. Unless otherwise noted Net Absorption includes direct and sublease space. Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs. New Space: Sometimes called first generation space, refers to space that has never been occupied and/or leased by a tenant. Occupied Space: Space that is physically occupied by a tenant. It does not include leased space that is not currently occupied by a tenant. Office Building: A type of commercial building used exclusively or primarily for office use (business), as opposed to manufacturing, warehousing, or other uses. Office buildings may sometimes have other associated uses within part of the building, i.e., retail sales, financial, or restaurant, usually on the ground floor. Owner: The company, entity, or individual that holds title on a given building or property. Planned/Proposed: The status of a building that has been announced for future development but not yet started construction. Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date. Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA). Property Manager: The company and/or person responsible for the day-to-day operations of a building, such as cleaning, trash removal, etc. The property manager also makes sure that the various systems within the building, such as the elevators, HVAC, and electrical systems, are functioning properly. Quoted Rental Rate: The asking rate per square foot for a particular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following the negotiation of all terms and conditions in a specific lease. RBA: Abbreviation for Rentable Building Area. (See also: Rentable Building Area) Region: Core areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Regions are further divided into market areas, called Markets. (See also: Markets) Relet Space: Sometimes called second generation or direct space, refers to existing space that has previously been occupied by another tenant. Rentable Building Area: (RBA) The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant s rental obligation. Generally RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets. Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis. Sales Price: The total dollar amount paid for a particular property at a particular point in time. Sales Volume: The sum of sales prices for a given group of buildings in a given time period. Seller: The individual, group, company, or entity that sells a particular commercial real estate asset. SF: Abbreviation for Square Feet. Single-Tenant: Buildings that are occupied, or intended to be occupied by a single tenant. (See also: Build-to-suit and Tenancy) Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space. Submarkets: Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within (See also: Market). Suburban: The Suburban and Central Business District (CBD) designations refer to a particular geographic area within a metropolitan statistical area (MSA). Suburban is defined as including all office inventory not located in the CBD. (See also: CBD) Tenancy: A term used to indicate whether or not a building is occupied by multiple tenants (See also: Multi-tenant) or a single tenant. (See also: Single-tenant) Tenant Rep: Tenant Rep stands for Tenant Representative. In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep. Time On Market: A measure of how long a currently available space has been marketed for lease, regardless of whether it is vacant or occupied. Under Construction: Buildings in a state of construction, up until they receive their certificate of occupancy. In order for CoStar to consider a building under construction, the site must have a concrete foundation in place. Abbreviated UC. Vacancy Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space. Weighted Average Rental Rate: Rental rates that are calculated by factoring in, or weighting, the square footage associated with each particular rental rate. This has the effect of causing rental rates on larger spaces to affect the average more than that of smaller spaces. The weighted average rental rate is calculated by taking the ratio of the square footage associated with the rental rate on each individual available space to the square footage associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces. Year Built: The year in which a building completed construction and was issued a certificate of occupancy. YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being studied. D The CoStar Industrial Report 2015 CoStar Group, Inc.

6 Overview Year-End 2014 Phoenix Phoenix s Vacancy Increases to 11.8% Net Absorption Positive 619,372 SF in the Quarter The Phoenix Industrial market ended the fourth quarter 2014 with a vacancy rate of 11.8%. The vacancy rate was up over the previous quarter, with net absorption totaling positive 619,372 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, ending the quarter at 1,752,913 square feet. Rental rates ended the fourth quarter at $6.62, an increase over the previous quarter. A total of 14 buildings delivered to the market in the quarter totaling 1,069,221 square feet, with 3,986,684 square feet still under construction at the end of the quarter. Absorption Net absorption for the overall Phoenix Industrial market was positive 619,372 square feet in the fourth quarter That compares to positive 2,080,033 square feet in the third quarter 2014, positive 4,295,347 square feet in the second quarter 2014, and positive 781,392 square feet in the first quarter The Flex building market recorded net absorption of negative (117,771) square feet in the fourth quarter 2014, compared to positive 470,743 square feet in the third quarter 2014, positive 312,513 in the second quarter 2014, and negative (195,905) in the first quarter The Warehouse building market recorded net absorption of positive 737,143 square feet in the fourth quarter 2014 compared to positive 1,609,290 square feet in the third quarter 2014, positive 3,982,834 in the second quarter 2014, and positive 977,297 in the first quarter Vacancy The Industrial vacancy rate in the Phoenix market area increased to 11.8% at the end of the fourth quarter The vacancy rate was 11.7% at the end of the third quarter 2014, 12.4% at the end of the second quarter 2014, and 13.0% at the end of the first quarter Flex projects reported a vacancy rate of 18.2% at the end of the fourth quarter 2014, 17.6% at the end of the third quarter 2014, 19.1% at the end of the second quarter 2014, and 20.0% at the end of the first quarter Warehouse projects reported a vacancy rate of 11.0% at the end of the fourth quarter 2014, 11.0% at the end of third quarter 2014, 11.4% at the end of the second quarter 2014, and 12.1% at the end of the first quarter Largest Lease Signings The largest lease signings occurring in 2014 included: the 248,900-square-foot lease signed by Youngs Market Company at 402 S 54th Pl in the Southeast market; the 181,760-squarefoot deal signed by OMCO Solar, Inc. at 4550 W Watkins St in the Southwest market; and the 110,000-square-foot lease signed by Computershare at 2900 S Diablo Way - Diablo Technology Center - Bldg A in the Southeast market. Sublease Vacancy The amount of vacant sublease space in the Phoenix market decreased to 1,752,913 square feet by the end of the fourth quarter 2014, from 2,116,406 square feet at the end of the third quarter There was 2,035,031 square feet vacant Vacancy Rates by Building Type % Flex Warehouse Total Market 25% 20% Vacancy Rate 15% 10% 5% 0% q q q q q q q q q q q q q q q q 2015 CoStar Group, Inc. The CoStar Industrial Report 1

7 Phoenix Year-End 2014 Overview at the end of the second quarter 2014 and 2,046,449 square feet at the end of the first quarter Phoenix s Flex projects reported vacant sublease space of 246,924 square feet at the end of fourth quarter 2014, up from the 227,325 square feet reported at the end of the third quarter There were 251,635 square feet of sublease space vacant at the end of the second quarter 2014, and 268,182 square feet at the end of the first quarter Warehouse projects reported decreased vacant sublease space from the third quarter 2014 to the fourth quarter Sublease vacancy went from 1,889,081 square feet to 1,505,989 square feet during that time. There were 1,783,396 square feet at the end of the second quarter 2014, and 1,778,267 square feet at the end of the first quarter Rental Rates The average quoted asking rental rate for available Industrial space was $6.62 per square foot per year at the end of the fourth quarter 2014 in the Phoenix market area. This represented a 1.1% increase in quoted rental rates from the end of the third quarter 2014, when rents were reported at $6.55 per square foot. The average quoted rate within the Flex sector was $12.13 per square foot at the end of the fourth quarter 2014, while Warehouse rates stood at $5.61. At the end of the third quarter 2014, Flex rates were $12.01 per square foot, and Warehouse rates were $5.52. Deliveries and Construction During the fourth quarter 2014, 14 buildings totaling 1,069,221 square feet were completed in the Phoenix market area. This compares to seven buildings totaling 677,658 square feet that were completed in the third quarter 2014, 12 buildings totaling 2,379,221 square feet completed in the second quarter 2014, and 2,790,757 square feet in three buildings completed in the first quarter U.S. Vacancy Comparison Past 10 Quarters Vacancy Rate 14.0% 12.0% 10.0% 8.0% 6.0% Phoenix United States There were 3,986,684 square feet of Industrial space under construction at the end of the fourth quarter Some of the notable 2014 deliveries include: 4500 S Dobson Rd - FAB 42 - Intel Corp., a 2,145,757-square-foot facility that delivered in first quarter 2014 and is now 100% occupied, and 7502 W Durango St - WinCo Warehouse, an 800,000-squarefoot building that delivered in second quarter 2014 and is now 100% occupied. The largest projects underway at the end of fourth quarter 2014 were 7775 W Buckeye Rd - Southwest Industrial Center - Bldg 1, a 684,420-square-foot building with 0% of its space pre-leased, and 10 West Logistics Center - Bldg A, a 659,615- square-foot facility that is 0% pre-leased. Inventory Total Industrial inventory in the Phoenix market area amounted to 307,235,915 square feet in 9,941 buildings as of the end of the fourth quarter The Flex sector consisted of 33,366,578 square feet in 1,134 projects. The Warehouse sector consisted of 273,869,337 square feet in 8,807 buildings. Within the Industrial market there were 2,192 owner-occupied buildings accounting for 93,154,526 square feet of Industrial space. Sales Activity Tallying industrial building sales of 15,000 square feet or larger, Phoenix industrial sales figures rose during the third quarter 2014 in terms of dollar volume compared to the second quarter of In the third quarter, 61 industrial transactions closed with a total volume of $380,370,257. The 61 buildings totaled 3,951,636 square feet and the average price per square foot equated to $96.26 per square foot. That compares to 51 transactions totaling $227,755,141 in the second quarter. The total square footage was 3,210,708 for an average price per square foot of $ Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first nine months of 2014, the market saw 152 industrial sales transactions with a total volume of $764,608,970. The price per square foot has averaged $79.60 this year. In the first nine months of 2013, the market posted 126 transactions with a total volume of $623,531,827. The price per square foot averaged $ Cap rates have been lower in 2014, averaging 7.45%, compared to the first nine months of last year when they averaged 7.90%. 4.0% 2.0% 0.0% q q q q q 2 The CoStar Industrial Report 2015 CoStar Group, Inc.

8 Overview Year-End 2014 Phoenix One of the largest transactions that has occurred within the last four quarters in the Phoenix market is the sale of two DataCenters at 615 N 48th St. in Phoenix and 8521 E Princess Dr in Scottsdale. These 652,856-square-foot industrial buildings sold for $125,000,000, or $ per square foot. The property sold on 8/27/2014. Absorption & Deliveries Past 10 Quarters Net Absorption Deliveries Reports compiled by: Adam Jarrett, CoStar Research Manager; Tom Summers, CoStar Research Manager. Millions SF (0.3) (1.0) q q q q q 2015 CoStar Group, Inc. The CoStar Industrial Report 3

9 Phoenix Year-End 2014 Markets CoStar Submarket Clusters & Submarkets In analyzing metropolitan areas, CoStar has developed geographic designations to help group properties together, called Markets, Submarket Clusters and Submarkets. Markets are the equivalent of metropolitan areas, or areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Markets are then divided into Submarket Clusters, which are core areas within a metropolitan area that are known to be competitive with each other in terms of attracting and keeping tenants. Markets are then further subdivided into smaller units called Submarkets, which serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted competitive set, or peer group. Submarket Clusters Airport Ind Northeast Ind Northwest Ind Southeast Ind Southwest Ind Submarkets North Airport Ind S Airport N of Roeser Ind S Airport S of Roeser Ind SC N of Salt River Ind SC S of Salt River Ind Central Phoenix Ind Scottsdale Airpark Ind Scottsdale/Salt River Ind Deer Vly/Pinnacle Pk Ind Glendale Ind Grand Avenue Ind N Glendale/Sun City Ind North Black Canyon Ind W Phx N of Thomas Rd Ind W Phx S of Thomas Rd Ind Chandler Airport Ind Chandler Ind Chandler N/Gilbert Ind Falcon Fld/Apache Jct Ind Mesa Ind Tempe East Ind Tempe Northwest Ind Tempe Southwest Ind Goodyear Ind SW N of Buckeye Road Ind SW S of Buckeye Road Ind Tolleson Ind 4 The CoStar Industrial Report 2015 CoStar Group, Inc.

10 Inventory & development Year-End 2014 Phoenix Historical Deliveries Millions of SF Deliveries Average Delivered SF * Future deliveries based on current under construction buildings. Construction Activity Markets Ranked by Under Construction RBA Under Construction Inventory Average Bldg Size Market # Bldgs Total RBA Preleased SF Preleased % All Existing U/C Southwest Ind 5 2,256, , % 66, ,389 Southeast Ind 12 1,098, , % 29,112 91,551 Northwest Ind 5 381, , % 23,121 76,282 Airport Ind 3 249, , % 24,534 83,240 Northeast Ind % 19,870 0 Totals 25 3,986,684 1,698, % 30, ,467 Recent Deliveries Leased & Un-Leased SF in Deliveries Since 2010 Future Deliveries Preleased & Un-Leased SF in Properties Scheduled to Deliver 8.0 Leased Un-Leased 2,500 Preleased Un-Leased ,000 Millions of SF Thousands of SF 1,500 1,000 T q q 2015 CoStar Group, Inc. The CoStar Industrial Report 5

11 Phoenix Year-End 2014 Inventory & development Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction 3.5 Construction Starts Deliveries Millions of SF q q q q Recent Deliveries by Project Size Breakdown of Year-to-Date Development Based on RBA of Project Building Size # Bldgs RBA SF Leased % Leased Avg Rate Single-Tenant Multi-Tenant < 50,000 SF ,018 88, % $ ,876 82,142 50,000 SF - 99,999 SF 8 604, , % $ , , ,000 SF - 249,999 SF 3 436, , % $ , ,000 SF - 499,999 SF 4 1,360,395 1,082, % $0.00 1,082, ,161 >= 500,000 SF 4 4,242,806 3,545, % $0.00 4,242,806 0 Recent Development by Tenancy Existing Inventory Comparison Based on RBA Developed for Single & Multi-Tenant Use Based on Total RBA 2014 Deliveries Currently Under Construction By Building Type By Tenancy Type 82% 18% 44% 56% 89% 11% 54% 46% Multi Single Multi Single Flex Warehouse Multi Single 6 The CoStar Industrial Report 2015 CoStar Group, Inc.

12 Inventory & development Year-End 2014 Phoenix 2015 CoStar Group, Inc. The CoStar Industrial Report 7

13 Phoenix Year-End 2014 Inventory & development 8 The CoStar Industrial Report 2015 CoStar Group, Inc.

14 Figures at a Glance Year-End 2014 Phoenix Flex Market Statistics Year-End 2014 Existing Inventory Vacancy YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Ind 156 5,116, , , % (33,032) 0 0 $12.37 Northeast Ind 231 5,228, , , % 116, $12.75 Northwest Ind 258 6,589,878 1,368,586 1,368, % 129, $11.34 Southeast Ind ,045,779 2,648,507 2,876, % 144,465 81,768 60,000 $12.42 Southwest Ind 34 1,385, , , % 112, $7.09 Totals 1,134 33,366,578 5,827,025 6,073, % 469,580 81,768 60,000 $12.13 Warehouse Market Statistics Year-End 2014 Existing Inventory Vacancy YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Ind 1,880 44,834,101 4,589,224 4,897, % 557, , ,719 $6.05 Northeast Ind ,302, , , % 107, $9.53 Northwest Ind 2,272 51,905,865 3,796,727 3,858, % 1,163,522 1,069, ,410 $6.19 Southeast Ind 2,743 78,055,050 8,517,404 8,780, % 2,736,724 2,674,153 1,038,612 $6.55 Southwest Ind 1,311 87,771,781 11,090,037 11,938, % 2,741,452 2,459,049 2,256,943 $4.44 Totals 8, ,869,337 28,743,017 30,249, % 7,306,564 6,835,089 3,926,684 $5.61 Total Industrial Market Statistics Year-End 2014 Existing Inventory Vacancy YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Ind 2,036 49,950,815 5,424,666 5,741, % 524, , ,719 $6.91 Northeast Ind ,531,493 1,455,989 1,491, % 223, $11.11 Northwest Ind 2,530 58,495,743 5,165,313 5,227, % 1,292,981 1,069, ,410 $7.29 Southeast Ind 3,198 93,100,829 11,165,911 11,656, % 2,881,189 2,755,921 1,098,612 $8.12 Southwest Ind 1,345 89,157,035 11,358,163 12,206, % 2,853,949 2,459,049 2,256,943 $4.46 Totals 9, ,235,915 34,570,042 36,322, % 7,776,144 6,916,857 3,986,684 $ CoStar Group, Inc. The CoStar Industrial Report 9

15 Phoenix Year-End 2014 Figures at a Glance Flex Submarket Statistics Year-End 2014 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Phoenix Ind ,275 60,949 60, % 73, $10.18 Chandler Airport Ind , , , % 30, $14.12 Chandler Ind 73 3,571, , , % (11,381) 81,768 60,000 $10.65 Chandler N/Gilbert Ind 98 2,422, , , % 166, $11.00 Deer Vly/Pinnacle Pk Ind 85 3,466, , , % 49, $13.10 Falcon Fld/Apache Jct Ind ,866 95,884 95, % 19, $9.16 Glendale Ind ,779 67,085 67, % 16, $8.47 Goodyear Ind , % 43, $7.29 Grand Avenue Ind ,377 7,966 7, % (1,394) 0 0 $16.23 Mesa Ind ,770 17,362 17, % 15, $10.10 N Glendale/Sun City Ind ,504 88,617 88, % 66, $8.20 North Airport Ind 44 1,718, , , % 56, $11.41 North Black Canyon Ind 66 1,334, , , % 18, $8.45 S Airport N of Roeser Ind 58 2,418, , , % (94,710) 0 0 $13.27 S Airport S of Roeser Ind ,480 7,568 7, % (7,568) 0 0 $0.00 SC N of Salt River Ind , , , % 12, $10.30 SC S of Salt River Ind 4 28, % $0.00 Scottsdale Airpark Ind 108 2,466, , , % 14, $11.93 Scottsdale/Salt River Ind 69 1,816, , , % 27, $14.94 SW N of Buckeye Road Ind 9 267, % 6, $0.48 SW S of Buckeye Road Ind 6 338, , , % $0.00 Tempe East Ind ,522 35, , % 8, $11.33 Tempe Northwest Ind 72 2,441, , , % (26,406) 0 0 $14.28 Tempe Southwest Ind 93 4,154, , , % (57,331) 0 0 $13.37 Tolleson Ind 9 582,572 58,487 58, % 62, $7.61 W Phx N of Thomas Rd Ind ,191 72,943 72, % (19,694) 0 0 $6.31 W Phx S of Thomas Rd Ind 9 95,951 10,701 10, % $10.74 Totals 1,134 33,366,578 5,827,025 6,073, % 469,580 81,768 60,000 $12.13 Existing Inventory Vacancy Warehouse Submarket Statistics Year-End 2014 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Phoenix Ind 241 3,020, , , % 18, $8.28 Chandler Airport Ind 61 1,500,935 23,748 23, % 109, ,289 $7.49 Chandler Ind ,666,692 2,904,575 3,063, % 523,683 2,550, ,323 $6.56 Chandler N/Gilbert Ind ,435,206 1,742,941 1,819, % 1,285, ,540 0 $6.96 Deer Vly/Pinnacle Pk Ind ,681,260 1,029,699 1,040, % 100, , ,410 $8.12 Falcon Fld/Apache Jct Ind 207 4,236, , , % 43,817 13,923 0 $7.93 Glendale Ind 102 5,813, , , % 631, ,000 0 $5.47 Goodyear Ind 144 9,396, ,191 1,143, % 814, , ,000 $4.06 Grand Avenue Ind ,017, , , % 44, ,000 $4.95 Mesa Ind 416 6,877, , , % 146, $6.87 N Glendale/Sun City Ind 119 2,779, , , % 147,424 15,428 0 $7.21 North Airport Ind ,732,533 1,635,394 1,765, % 30, ,880 $6.64 North Black Canyon Ind 182 3,259, , , % 66, $7.55 S Airport N of Roeser Ind ,018,697 1,349,759 1,365, % 184, ,671 31,488 $6.26 S Airport S of Roeser Ind 153 4,198, , , % 280, ,351 $7.00 SC N of Salt River Ind ,951,962 1,310,851 1,470, % 54, $5.21 SC S of Salt River Ind 110 1,932,658 85,356 85, % 8, $4.92 Scottsdale Airpark Ind 264 4,616, , , % 107, $10.67 Scottsdale/Salt River Ind 96 3,665, , , % (18,499) 0 0 $8.29 SW N of Buckeye Road Ind ,987,112 3,504,561 3,633, % 603, , ,615 $4.45 SW S of Buckeye Road Ind ,854,278 2,627,528 2,778, % 546, $4.75 Tempe East Ind 319 5,600, , , % 80, $6.88 Tempe Northwest Ind 277 8,484,021 1,358,471 1,366, % 39, $6.45 Tempe Southwest Ind ,254,388 1,369,866 1,374, % 507, $5.90 Tolleson Ind ,533,672 4,273,757 4,382, % 776,615 1,661,815 1,250,328 $4.36 W Phx N of Thomas Rd Ind 426 7,522, , , % 74, $4.86 W Phx S of Thomas Rd Ind 304 6,832, , , % 99, $5.09 Totals 8, ,869,337 28,743,017 30,249, % 7,306,564 6,835,089 3,926,684 $5.61 Existing Inventory Vacancy 10 The CoStar Industrial Report 2015 CoStar Group, Inc.

16 Figures at a Glance Year-End 2014 Phoenix Total Industrial Submarket Statistics Year-End 2014 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Phoenix Ind 295 3,967, , , % 91, $9.10 Chandler Airport Ind 71 2,172, , , % 140, ,289 $8.44 Chandler Ind ,238,068 3,646,237 3,900, % 512,302 2,632, ,323 $7.90 Chandler N/Gilbert Ind ,858,041 2,239,328 2,328, % 1,451, ,540 0 $7.78 Deer Vly/Pinnacle Pk Ind ,147,967 1,836,890 1,847, % 150, , ,410 $9.99 Falcon Fld/Apache Jct Ind 236 4,701, , , % 63,140 13,923 0 $8.14 Glendale Ind 113 6,172, , , % 647, ,000 0 $5.78 Goodyear Ind 154 9,592, ,191 1,143, % 858, , ,000 $4.19 Grand Avenue Ind ,170, , , % 42, ,000 $5.00 Mesa Ind 457 7,315, , , % 161, $6.91 N Glendale/Sun City Ind 145 3,272, , , % 213,774 15,428 0 $7.34 North Airport Ind ,450,561 1,940,122 2,079, % 86, ,880 $7.33 North Black Canyon Ind 248 4,593, , , % 84, $8.03 S Airport N of Roeser Ind ,436,903 1,754,300 1,769, % 89, ,671 31,488 $8.11 S Airport S of Roeser Ind 163 4,321, , , % 272, ,351 $7.00 SC N of Salt River Ind ,780,886 1,429,456 1,589, % 66, $5.47 SC S of Salt River Ind 114 1,960,734 85,356 85, % 8, $4.92 Scottsdale Airpark Ind 372 7,082, , , % 122, $11.32 Scottsdale/Salt River Ind 165 5,481, , , % 8, $11.44 SW N of Buckeye Road Ind ,254,781 3,504,561 3,633, % 609, , ,615 $4.45 SW S of Buckeye Road Ind ,193,272 2,837,167 2,988, % 546, $4.75 Tempe East Ind 358 6,480, , , % 88, $7.94 Tempe Northwest Ind ,925,648 1,622,885 1,631, % 13, $9.66 Tempe Southwest Ind ,409,132 2,043,926 2,055, % 449, $8.18 Tolleson Ind ,116,244 4,332,244 4,441, % 839,533 1,661,815 1,250,328 $4.39 W Phx N of Thomas Rd Ind 465 8,210, , , % 54, $4.97 W Phx S of Thomas Rd Ind 313 6,928, , , % 99, $5.24 Totals 9, ,235,915 34,570,042 36,322, % 7,776,144 6,916,857 3,986,684 $6.62 Existing Inventory Vacancy 2015 CoStar Group, Inc. The CoStar Industrial Report 11

17 Phoenix Year-End 2014 Figures at a Glance Flex Market Statistics Year-End 2014 Existing Inventory Vacancy Net Deliveries UC Inventory Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates q 1,134 33,366,578 5,827,025 6,073, % (117,771) 1 81, ,000 $ q 1,133 33,284,810 5,647,085 5,874, % 470, ,768 $ q 1,133 33,284,810 6,093,518 6,345, % 312, ,768 $ q 1,133 33,284,810 6,389,484 6,657, % (195,905) $ q 1,133 33,284,810 6,193,659 6,461, % 269, $ q 1,133 33,284,810 6,466,664 6,730, % (159,814) 4 236, $ q 1,129 33,048,085 6,067,233 6,334, % 140, ,725 $ q 1,129 33,048,085 6,188,243 6,475, % 140, ,725 $ ,129 33,048,085 6,226,869 6,615, % 309, , ,700 $ ,128 33,005,515 6,499,401 6,882, % 207, , ,450 $ ,126 33,364,665 7,168,968 7,449, % 18, , ,850 $ ,125 33,260,422 6,705,204 7,363, % (211,802) , ,843 $ ,110 32,686,942 6,222,332 6,578, % (391,595) , ,323 $ ,081 31,792,430 5,030,470 5,292, % 275, ,239, ,167 $ ,060 31,154,616 4,648,037 4,929, % 364, ,548, ,075,238 $ ,606,065 3,446,408 3,746, % 2,398, ,543, ,236,670 $11.70 Quoted Warehouse Market Statistics Year-End 2014 Existing Inventory Vacancy Net Deliveries UC Inventory Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates q 8, ,869,337 28,743,017 30,249, % 737, , ,926,684 $ q 8, ,881,884 28,109,615 29,998, % 1,609, , ,258,421 $ q 8, ,226,779 29,169,485 30,952, % 3,982, ,379, ,181,218 $ q 8, ,965,427 30,896,096 32,674, % 977, ,790, ,406,840 $ q 8, ,180,070 29,129,542 30,866, % 2,394, ,309, ,237,261 $ q 8, ,905,793 30,336,098 31,986, % 479, ,996, ,151,820 $ q 8, ,056,150 29,015,339 30,616, % (461,405) 6 2,051, ,349,668 $ q 8, ,036,466 26,418,110 28,135, % 1,241, , ,119,938 $ , ,936,602 27,519,619 29,276, % 5,621, ,885, ,617,336 $ , ,297,598 31,156,321 32,259, % 6,438, ,039, ,091,951 $ , ,289,256 36,313,030 37,689, % 4,425, ,840, ,500 $ , ,002,403 39,283,149 40,828, % (4,513,311) 31 3,428, ,398,583 $ , ,878,044 32,047,910 33,190, % (1,509,419) ,761, ,713,746 $ , ,195,188 20,492,588 20,998, % 5,228, ,595, ,512,808 $ , ,889,227 14,922,964 15,920, % 6,282, ,863, ,125,073 $ , ,343,819 14,806,503 15,658, % 8,707, ,262, ,202,547 $6.19 Quoted Total Industrial Market Statistics Year-End 2014 Existing Inventory Vacancy Net Deliveries UC Inventory Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates q 9, ,235,915 34,570,042 36,322, % 619, ,069, ,986,684 $ q 9, ,166,694 33,756,700 35,873, % 2,080, , ,400,189 $ q 9, ,511,589 35,263,003 37,298, % 4,295, ,379, ,322,986 $ q 9, ,250,237 37,285,580 39,332, % 781, ,790, ,406,840 $ q 9, ,464,880 35,323,201 37,328, % 2,663, ,309, ,237,261 $ q 9, ,190,603 36,802,762 38,717, % 319, ,233, ,151,820 $ q 9, ,104,235 35,082,572 36,950, % (320,687) 6 2,051, ,586,393 $ q 9, ,084,551 32,606,353 34,610, % 1,381, , ,356,663 $ , ,984,687 33,746,488 35,892, % 5,931, ,990, ,839,036 $ , ,303,113 37,655,722 39,141, % 6,646, ,192, ,208,401 $ , ,653,921 43,481,998 45,138, % 4,444, ,945, ,350 $ , ,262,825 45,988,353 48,191, % (4,725,113) 47 4,012, ,413,426 $ , ,564,986 38,270,242 39,768, % (1,901,014) ,656, ,280,069 $ , ,987,618 25,523,058 26,290, % 5,504, ,835, ,365,975 $ , ,043,843 19,571,001 20,850, % 6,647, ,412, ,200,311 $ , ,949,884 18,252,911 19,404, % 11,105, ,806, ,439,217 $7.16 Quoted 12 The CoStar Industrial Report 2015 CoStar Group, Inc.

18 Leasing Activity Year-End 2014 Phoenix Historical Rental Rates Based on Quoted Rental Rates $14.00 Flex Warehouse Total Market $12.00 Dollars/SF/Year $10.00 $8.00 $6.00 $4.00 $2.00 $ q q q q q Vacancy by Available Space Type Vacancy by Building Type Percent of All Vacant Space in Direct vs. Sublet Percent of All Vacant Space by Building Type Phoenix United States Phoenix United States 5% 3% 17% 15% 83% 85% 95% 97% Direct Sublet Direct Sublet Flex Warehouse Flex Warehouse U.S. Rental Rate Comparison Based on Average Quoted Rental Rates Future Space Available Space Scheduled to be Available for Occupancy* $7.00 Phoenix United States $ Dollars/SF/Year $5.00 $4.00 $3.00 $2.00 $1.00 $ q q q q q Millions q q q * Includes Under Construction Space 2015 CoStar Group, Inc. The CoStar Industrial Report 13

19 Phoenix Year-End 2014 Leasing Activity Select Top Industrial Leases Based on Leased Square Footage For Deals Signed in 2014 Building Submarket SF Qtr Tenant Name Tenant Rep Company Landlord Rep Company S 54th Pl Tempe Northwest Ind 248,900 4th Youngs Market Company Cassidy Turley JLL W Watkins St SW S of Buckeye Road Ind 181,760 3rd OMCO Solar, Inc. Keyser Colliers International S Diablo Way Tempe Southwest Ind 110,000 1st Computershare Newmark Grubb Knight Frank Colliers International S 32nd St S Airport S of Roeser Ind 109,060 3rd LKQ Corporation CBRE Lee & Associates W Rio Salado Pky Tempe Northwest Ind 99,607 2nd US Airways CBRE CBRE S 75th Ave Tolleson Ind 93,489 2nd Benson Industries NAI Horizon JLL W Papago St SW S of Buckeye Road Ind 88,488 2nd HBI International Cresa Cushman & Wakeeld, Inc S Roosevelt St Tempe Southwest Ind 85,245 1st Consumer Cellular Capacity Commercial Group Lee & Associates S Hardy Dr Tempe Southwest Ind 78,996 2nd Humana DTZ CBRE N McKemy Ave Chandler Ind 78,540 1st BidOn Fusion Cutler Commercial Cutler Commercial W Van Buren St SW N of Buckeye Road Ind 75,660 2nd Conference Services Int l Etc. LLC Lee & Associates JLL W Washington St Tolleson Ind 73,781 2nd Green Light Direct CD Commercial Advisors Liberty Property Trust; JLL W Van Buren St SW N of Buckeye Road Ind 67,697 4th Marco Display Specialist Green Street Commercial Real Estate Colliers International S 55th Ave SW N of Buckeye Road Ind 65,483 2nd Amerimax Building Products, Inc. N/A Cassidy Turley S 53rd Ave SW N of Buckeye Road Ind 63,840 1st CFA Cabinetry Cushman & Wakeeld, Inc. Lee & Associates S 24th St S Airport N of Roeser Ind 63,000 3rd Anixter International, Inc. CBRE JLL W Adams St SW N of Buckeye Road Ind 62,576 4th Daikin International JLL Direct Deal N 48th Ave SW N of Buckeye Road Ind 58,240 1st Supply Source CBRE CBRE W Rio Salado Pky Tempe Northwest Ind 56,436 2nd US Airways CBRE CBRE S Priest Dr Tempe Northwest Ind 54,944 2nd Test Advantage Hardware, Inc. JLL JLL W Hadley St Tolleson Ind 51,260 2nd Sun Country Trailers & Towing Lee & Associates Commercial Properties, Inc W 21st St Tempe Southwest Ind 51,035 2nd 21st Century Healthcare DAUM Commercial Real Estate Service JLL S Kyrene Rd Chandler Ind 50,544 3rd CORT Business Service Corp. Cushman & Wakeeld, Inc. Colliers International S 65th Ave SW N of Buckeye Road Ind 48,735 4th Propak Logistics, Inc. CBRE Direct Deal W Rio Salado Pky Tempe Northwest Ind 48,066 2nd US Airways CBRE CBRE W McDowell Rd W Phx S of Thomas Rd Ind 48,041 3rd Uptters LLC Commercial Properties, Inc. JLL S 11th Ave SC N of Salt River Ind 46,428 3rd Marazzi Distribution CBRE Lee & Associates W Broadway Rd Mesa Ind 46,000 3rd United Subcontractors Cassidy Turley Cutler Commercial N Desert Dr Tempe Northwest Ind 45,705 3rd Regional Acceptance Corp. JLL CBRE W Carver Rd Tempe Southwest Ind 45,228 1st PetClub GPS Retail Advisors; Cassidy Turley Cassidy Turley W Guadalupe Rd Chandler N/Gilbert Ind 45,000 1st Viasat Lee & Associates Lee & Associates S Kyrene Rd Chandler Ind 44,602 4th Stone Creek Furniture Factory LevRose Real Estate Colliers International W Elliot Rd Tempe Southwest Ind 43,671 4th Transperfect JLL JLL W Buckeye Rd SW S of Buckeye Road Ind 43,457 2nd DAT Cabinets Southwest Commercial Brokerage JLL W Mohave St SW S of Buckeye Road Ind 43,200 1st Tireco The Everest Group, Inc. Colliers International S Arizona Ave Chandler Airport Ind 42,000 3rd Barlow Company, Inc. Cassidy Turley Lee & Associates W Van Buren St SW N of Buckeye Road Ind 40,541 2nd Global Home Imports N/A Cassidy Turley W Washington St SW N of Buckeye Road Ind 40,000 2nd Peterman Lumber Inc. Colliers International NAI Horizon N 90th Scottsdale/Salt River Ind 37,711 3rd Xyron Inc. Direct Deal Ross Brown Partners, Inc E Elwood St North Airport Ind 37,552 2nd J & K Cabinetry, Inc. Colliers International Direct Deal * Renewal 14 The CoStar Industrial Report 2015 CoStar Group, Inc.

20 Sales Activity Year-End 2014 Phoenix The Optimist Sales Index Average of Two Highest Price/SF's and Two Lowest Cap Rates Per Quarter 10.0% Cap Rate Price/SF $ % 8.0% $200 Cap Rate Percentage 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% $150 $100 $50 Dollars/SF 0.0% q q q $0 Source: CoStar COMPS Sales Volume & Price Sales Analysis by Building Size Based on Industrial Building Sales of 15,000 SF and Larger Based on Industrial Bldg Sales From Oct Sept $450 Sales Volume Price/SF $120 Bldg Size # RBA $ Volume Price/SF Cap Rate Millions of Sales Volume Dollars $400 $350 $300 $250 $200 $150 $100 $50 $100 $80 $60 $40 $20 Price/SF < 25,000 SF 25K-99K SF 100K-249K SF 348 3,268,631 $261,170,445 $ % 87 4,042,446 $282,554,044 $ % 23 3,470,455 $265,825,072 $ % $ q q q q $0 >250K SF 8 4,633,983 $400,790,463 $ % Source: CoStar COMPS Source: CoStar COMPS U.S. Price/SF Comparison Based on Industrial Building Sales of 15,000 SF and Larger U.S. Cap Rate Comparison Based on Industrial Building Sales of 15,000 SF and Larger $120 Phoenix US 10.0% Phoenix US 9.0% $ % $80 $60 $40 Cap Rate Percentage 7.0% 6.0% 5.0% 4.0% 3.0% $20 2.0% 1.0% $0 0.0% q q q q q q q q Source: CoStar COMPS Source: CoStar COMPS 2015 CoStar Group, Inc. The CoStar Industrial Report 15

21 16 The CoStar Industrial Report 2015 CoStar Group, Inc. Phoenix Year-End 2014 Sales Activity