Kent Valley Insider 3Q Market Report. Arie Salomon, SIOR, CCIM Principal

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1 Market Report 3Q 2015 Kent Valley Insider Arie Salomon, SIOR, CCIM Principal Jeff Forsberg, CCIM Principal Taylor Hoff, SIOR Partner Kent Channing Associate Vice President Al Robertson Senior Vice President Connor Powell Associate

2 3Q, 2015 Kent Valley Insider Quick Stats VACANCY 3.76% LEASE RATES $0.428 TOTAL ABSORPTION 1,820,000 UNDER CONSTRUCTION 4,225,021 Average Shell Asking Rates CLASS A Change from last CURRENT Yr. Qtr. CLASS B 5,000-15,000 SF $0.454 $ ,001-30,000 SF $0.422 $ ,001-60,000 SF $0.412 $ ,001+ SF $0.401 $0.378 Shawshank Redemption is a classic movie that resonates with many people for a variety of reasons, but primarily it hit hard on the theme of hope in a hopeless situation. Andy Dufresne, the hero, sees the big picture. He never gives up in the face of adversity. He never loses site of who he is or what it takes to succeed. And, ultimately his patience and perseverance pay off. How does this relate to the Kent Valley? In 2013, DCT started construction of the 648,644 square foot Coho Building in Sumner. At the time, the market consensus was big building/ space would be the first to be absorbed. Yet, the months passed (16 in total) and their large space remained vacant with limited prospects. Did DCT give up? No. They doubled down and started building more projects in Sumner and Fife. All told, they committed to building approximately 1.4 million square feet in seven buildings in the area. And like Andy, their resolve was rewarded. After a dizzying amount of activity this past quarter, DCT now has only 58,151 square feet of vacant space left in their new offerings. Large deals with Milguard, LKQ, UPS, Trans-Trade and Diono have all propelled DCT s portfolio to new heights. Submarket Total RBA (SF) Direct Vacant (SF) Direct Vacant (%) Sublease (SF) Total Vacant w/ Sublease Total Vacant w/ Sublease RENTON 8,941,887 64, % - 64, % SEATAC 2,967, , % 25, , % TUKWILA 11,775, , % 14, , % KENT 47,907,464 2,025, % 22,270 2,047, % AUBURN 21,322, , % 253, , % SUMNER 16,463, , % 229,804 1,101, % TOTAL 109,378,735 4,114, % 545,441 4,659, %

3 Over 100,000 SF Class A Industrial Space Trends Lease Activity Shell Rate Average Years Free Rent Free Rent Ratio 2008 $ $ $ $ $ $ $ $ Recent Lease Transactions Property City Tenant Lease or Renewal Size (SF) PROLOGIS PARK SUMNER Sumner Damco Lease 350,000 DCT WHITE RIVER CORP CENTER Sumner LKQ Lease 290,420 PORTSIDE INDUSTRIAL CENTER Fife Regal Logistics Lease 250,615 DCT FIFE DISTRIBUTION CENTER Fife Milgard Corporate Lease 239,805 DCT WHITE RIVER CORP CENTER Sumner UPS Supply Chain Logistics, Inc. Lease 215,158 SUMNER 167 Sumner Expeditors International Lease 179,339 DCT WHITE RIVER CORP CENTER Sumner Trans-Trade, Inc. Lease 143,066 TITAN BUILDING Sumner Givens Lease 132,321 SUMNER 167 Sumner Hanjin Lease 120,000 IAC PORT 167 Puyallup Cabelas Lease 107,510 PACIFIC COAST CORP PARK - PHASE II Sumner Mercer Distribution & Transport LLC Lease 97,725 DCT FIFE DISTRIBUTION CENTER Fife Northpoint Trading Co. Lease 90,000 DCT SUMNER SOUTH DC Sumner Diono Lease 83,540 ALDARRA DISTRIBUTION FACILITY Kent Kraft Foods North America Renewal 79,891 DES MOINES CREEK BUSINESS PARK Seatac Greencore USA, Inc. Lease 68,475 SIXTH & STACY BUILDING Seattle Amazon.com Lease 66,000 LARSEN BUILDING Sumner Carlson Formetec Inc. Lease 63, TH Kent La-Z-Boy Distribution Center Lease 62,544 SALMON CREEK CORP PARK Sumner Electronic Recyclers International, Inc. Lease 56,700 THE INFORMATION CONTAINED HEREIN HAS BEEN GIVEN TO US BY THE OWNER OF THE PROPERTY OR OTHER SOURCES WE DEEM RELIABLE, WE HAVE NO REASON TO DOUBT ITS ACCURACY, BUT WE DO NOT GUARANTEE IT. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO PURCHASE OR LEASE.

4 Southend Industrial Team Local Knowledge, Global Reach Let us show you what we can do! While we are experts in the local Kent Valley industrial market, we have a national and global reach through the NAI Global network that can tackle any commercial real estate need. Sale Lease 33,440 SF Romulus, MI 183,435 SF 396,000 SF Fernley, NV 135,890 SF Hazelton, PA Brownsburg, IN Not that DCT was alone in benefiting from this crazy market activity. Based upon 1.82 million square feet of absorption, our market reached a near record vacancy rate of 3.76% (4.25% with sublease space). We have not seen numbers approach these levels since the heyday of the Dot-com era when the likes of Web Van and Homegrocer.com where taking down 450,000 and 312,000 square feet on speculative basis. Our market peaked in 2Q of 1999 with a 3.61% vacancy rate with a subsequent crash two quarters later. But comparing this market to 1999 isn t fair. The fundamentals today seem much different. There is more diversity in the tenant growth, the market is substantially larger (almost 63% bigger) and 1999 s bump didn t have the rent growth we have experienced during this uptick. 180,608 SF Ontario, CA 7,500 SF San Diego, CA 110,660 SF DeSoto, TX 9,404 SF Honolulu, HI Our clients choose us for their national business because they trust our ability to manage the sale or leasing process. We ask the right questions, and we interview to find the right local broker to help; we put our client s long-term interest above our own. We are still a local, independently-owned firm, but with our NAI Global platform, we are part of something much bigger. We have tracked the rent growth since the depths of the Great Recession and our market has experienced a bump of between 23%-30% over the five year period. The table on the opposite page showing the breakdown of shell rates on Class A industrial space over 100,000 square feet gives a good indication in the direction our market has taken. Not only is the shell rate going up, but the average term length is increasing substantially and the free rent ratio is decreasing. The long and short of it is that it is a good time to be a landlord. There is not a lot to report in terms of sales last quarter. The market is waiting to see the outcome of the Segale Portfolio sale. Expected to net close to $200 million, this

5 would mark the largest asset sale this year. Interesting enough, an owner/user registered the largest sales transaction last quarter. Our team negotiated Design Import s purchase of the Tamarack Building in Sumner from Panattoni and MetLife for $14.3 million. The vacant 159,250 square foot facility will be the new warehousing option for Design Imports. Moving forward, while there is concern of a global slump and subsequent slow down, we still believe we have two or three quarters left in this cycle. Investment appetite remains strong and Seattle s job outlook has never been better (3.9% jobless rate in King Sale Activity Tamarack Building: Sale Transaction Completed by Our Team County). As long as the likes of Amazon, Boeing and Microsoft keep rolling, the market should continue to benefit. Recent Sale Transactions Sale Date Sale Price Property Name City Building Size Year Built Buyer Company 10/19/2015 $2,480,000 Renton KIA Building Renton 17, Eastern Group 2, LLC 09/21/2015 $14,332,500 Tamarack Building Sumner 159, Design Imports 09/17/2015 $4,560,000 Renton Honda Building Renton 41, EM Design Warehouse 08/27/2015 $2,250,000 Thornton Place Pacific 29, Thornton Property, LLC 08/25/2015 $5,052,000 McKillican Building Algona 50, DCT Industrial 08/10/2015 $4,628, th Corporate Center Kent 45, Industrial Income Trust 08/10/2015 $5,729,593 S 200th Street DC Kent 58, Industrial Income Trust 07/28/2015 $12,250,000 Kent Corporate Park Kent 138, Terreno Realty Corporation 07/23/2015 $9,250,000 Pacific Power Product Bldg Kent 63, MRM Capital THE INFORMATION CONTAINED HEREIN HAS BEEN GIVEN TO US BY THE OWNER OF THE PROPERTY OR OTHER SOURCES WE DEEM RELIABLE, WE HAVE NO REASON TO DOUBT ITS ACCURACY, BUT WE DO NOT GUARANTEE IT. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO PURCHASE OR LEASE.

6 Construction Report Sumner, Washington - Construction E Valley Hwy E W yh le Val 7 wy 3 E

7 City Owner/Developer Property Name Status Auburn Year Built Building size Vacancy Map American Realty Advisors Northcreek In Planning Spec , ,533 Panattoni Development, Inc. Auburn West Valley Completed Spec ,235 - Dupont Griot s Garage NW Logistics - Phase I Completed Spec , ,000 Fife Kent Avenue 55 Ave 55 - Fife Development In Planning Spec ,000 50,000 DCT Industrial DCT Fife DC - Bldg A Under Construction Spec ,400 - DCT Fife DC - Bldg B Under Construction Spec ,895 39,805 Fife 45 - North Site Completed Spec ,284 18,346 Fife 45 - South Site Completed Spec ,550 - FedEx Benaroya - Fife Under Construction BTS ,000 - LBA/Davis Properties Portside Business Center Completed Spec , ,400 Panattoni Enterprise Center Fife Under Construction Spec , ,620 Prologis Prologis Port Property In Planning Spec , ,000 IDS Real Estate Group Stryker Business Center - 2 Completed BTS ,420 - Panattoni Development, Inc. 212th Under Construction Spec ,088 - Lakewood NW Building Corp Puyallup Lakewood Ind. Park - Bldg 27 Completed Spec ,300 99,100 Lakewood Ind. Park - Bldg 28 Under Construction Spec , ,300 Avenue 55 / Cabot Puyallup West Distribution Ctr. Under Construction Spec , ,592 International Airport Centers IAC Port A Under Construction Spec , ,753 IAC Port B Completed Spec , ,286 Renton Group Health Longacres - South Under Construction BTS ,000 - Seatac Sumner Panattoni / Metlife Des Moines Creek BP - 1A Under Construction Spec , ,010 Des Moines Creek BP - 1B Under Construction Spec ,154 41,250 Des Moines Creek BP - 1C Under Construction Spec , ,600 Avenue 55 Sumner West Under Construction Spec , ,900 8 Bob Stobie Riverside - Aaron Pckg Completed BTS ,000-7 DCT Industrial Panattoni Panattoni / LaSalle DCT Sumner South DC Completed Spec ,390-2 DCT White River - Bldg 2 In Planning Spec , ,000 DCT White River - Coho Completed Spec ,644 - DCT White River - Sockeye Completed Spec ,895 - Larsen Building Completed Spec ,212-9 Tamarack Building Completed Spec , Apollo Building Completed Spec ,652-6 Titan Building Completed Spec ,457-4 Panattoni / Metlife The Steele Building Completed Spec , , Principal Financial Group Sumner Golf Course In Planning Spec , ,000 1 Prudential / Michelson Knapp Tarragon Sumner CP - Cascade Under Construction Spec , ,000 Sumner CP - Glacier In Planning Spec ,000 53,000 Salmon Creek - Bldg A Completed Spec ,600 - Salmon Creek - Bldg B Under Construction Spec , ,100 SeaPort Logistics Under Construction Spec , ,180 Tukwila A&B Properties Interurban Development Completed Spec ,705 21,248 9,635,879 5,255, THE INFORMATION CONTAINED HEREIN HAS BEEN GIVEN TO US BY THE OWNER OF THE PROPERTY OR OTHER SOURCES WE DEEM RELIABLE, WE HAVE NO REASON TO DOUBT ITS ACCURACY, BUT WE DO NOT GUARANTEE IT. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO PURCHASE OR LEASE.

8 Arie Salomon, SIOR, CCIM Principal Jeff Forsberg, CCIM Principal Taylor Hoff, SIOR Partner Kent Channing Associate Vice President Al Robertson Senior Vice President Connor Powell Associate NAI Puget Sound Properties Commercial Real Estate Services th Avenue NE Suite 340 Bellevue, Washington USA nai-psp.com