Commercial Real Estate Market Trends and Transaction Analysis l SECOND QUARTER l. 2Q 15

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1 Commercia Rea Estate Market Trends and Transaction Anaysis SECOND QUARTER 2Q 15

2 Headine Line HEADLINE Quartery Market TRENDS 34% Tabe of CONTENTS acancy Rate CCIM Transaction Survey Highights. 4 Commercia Property Sector Anaysis. 5 Commercia Rea Estate Market Update. 9 Commercia Rea Estate Forecast. 13 CCIM Survey Regiona Trends. 14 U.S. Economic Overview. 18 U.S. Metropoitan Economic Outook. 23 Sponsors. 26 Contributors. 27 QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 3

3 Commercia Rea Estate Market UPDATE INVESTMENT SALES The Urban Land Institute reported a favorabe outook for commercia rea estate in its Apri 2015 Consensus Forecast. Foowing yeary saes of $424 miion in 2014, saes are projected to rise to $470 miion in 2015 and $500 miion in 2016 and The projections are consistent with the Nationa Association of Reators economic forecast. If the economy s performance increases beyond current projections, one might expect even higher saes. In perspective, saes over the 2003 to 2014 timeframe averaged $258 miion. Focusing on first quarter 2015, commercia saes voume for properties seing above $2.5 miion totaed $129 biion, a 45 percent year-overyear increase, according to Rea Capita Anaytics. Whie individua transactions remained the dominant force, portfoio and entity-eve deas gained market share, comprising amost 37 percent of tota. Office and apartment properties made up a itte over haf of a transactions, totaing $33.5 biion and $33.0 biion, respectivey. Industria property saes registered the strongest advance with a 95 percent yeary gain. Prices for commercia properties increased aong with saes voume advancing 13 percent year-overyear during the first quarter of this year, according to RCA. Hote pricing gained the most ground, with a noticeabe 36 percent increase, pacing hote prices within 4 percent of their prior peak in In absoute terms, CBD office and apartments reached vaues that exceeded prior peaks, rising 22 percent and 25 percent respectivey above 2007 eves. Pricing recovery for most assets is getting coser to the previous highs, but the pace varies. CRE VOLUME Biions $ Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 Source: Rea Capita Anaytics QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 9

4 Commercia Rea Estate Market UPDATE Suburban office buidings are the farthest away from their prior peaks at a negative 12.5 percent. Cap rates for commercia rea estate assets continued their decine during 1Q15. At the nationa eve, rates across a property types dropped 34 basis points compared with 1Q14. The argest decine came from suburban office transactions, which decined by 55 basis points. CBD office transactions posted the owest cap rates, at 5.7 percent, foowed by apartments, at 5.9 percent. In a comparison based on NAR s 1Q15 commercia market data generay for saes under $2.5 miion in contrast to the previousy mentioned nationa saes data the voume of saes transactions rose 11 percent on a yeary basis (compared to 45 percent for arger properties), an acceeration from the previous quarter s pace. Prices reported by Reators aso acceerated, rising 4 percent year-over-year (compared to 13 percent for arger properties). NAR commercia practitioners indicated that their markets were facing noticeabe shortages of inventory, beieved to be a major reason for upward price pressures. Cap rates decined, averaging 7.8 percent in the first quarter (compared to 6.6 percent for arger properties), a 45 basis point drop year-over-year. COMMERCIAL PROPERTY PRICE INDICES Apartment Industria Retai CBD Office Suburban Office Hote Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 Source: Rea Capita Anaytics NATIONAL CAP RATES Apartment Industria Retai CBD Office Suburban Office Hote 10% 9% 8% 7% 6% 5% 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 Source: Rea Capita Anaytics QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 10

5 Commercia Rea Estate Market UPDATE FUNDAMENTALS Commercia easing remained on an upward trend in 1Q15, but the pace moderated. Net absorption rose across core property types, nudging rents higher. With empoyment expected to continue rising through the remainder of 2015, demand for commercia space is expected to advance. U.S. OFFICE FUNDAMENTALS SQUARE FEET in MILLIONS COMPLETIONS NET ABSORPTION VAC % Sources: Nationa Association of Reators / Reis, Inc. U.S. INDUSTRIAL FUNDAMENTALS 150 COMPLETIONS NET ABSORPTION VAC % 14 OFFICE Office absorption is projected to tota 51.8 miion square feet in 2015, eading vacancy rates on a gradua decine to 15.5 percent by the end of the year. Office vacancies continue to be eevated due to empoyers extracting space-utiization efficiencies. Office rents are forecast to rise 3.4 percent in SQUARE FEET in MILLIONS Sources: Nationa Association of Reators / Reis, Inc INDUSTRIAL Operators of ports and intermoda distribution centers have been positioning for the forthcoming increased capacity of the Panama Cana, pouring investments into infrastructure and dredging. Competition for the expected increases in business is brisk and shoud have an upward impact on the demand for industria space. Industria demand is expected to tota miion square feet in With new suppy projected to reach 87.4 miion square feet, avaiabiity rates wi ikey decine to 8.2 percent by the fourth quarter. Industria rents shoud experience a 3.1 percent gain for the year. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 11

6 Commercia Rea Estate Market UPDATE RETAIL With rising consumer confidence and continued gains in empoyment and wages, the outook for retai markets is ooking up. Coasta markets remain top performers, dispaying ow vacancies and rising rents. Absorption is expected to reach 15.7 miion square feet nationay in 2015, owering vacancies to 9.5 percent by the fourth quarter. Rents are projected to rise 2.6 percent this year. ABSORPTION IS EXPECTED TO REACH 15.7 MILLION SQUARE FEET NATIONALLY IN 2015, LOWERING VACANCIES TO 9.5 PERCENT BY THE FOURTH QUARTER. U.S. RETAIL FUNDAMENTALS SQUARE FEET in MILLIONS COMPLETIONS NET ABSORPTION VAC % Sources: Nationa Association of Reators / Reis, Inc. U.S. APARTMENT FUNDAMENTALS UNITS 250, , , ,000 COMPLETIONS NET ABSORPTION VAC % MULTIFAMILY The demand for mutifamiy properties is expected to remain strong, benefitting from growing househod formation. However, this year s suppy of new space is projected to exceed demand. Apartment net absorption is estimated to reach a itte over 172,500 units in 2015, 50, Sources: Nationa Association of Reators / Reis, Inc. whie new apartment competions wi add 230,200 units on the market. In turn, apartment vacancies are expected to rise throughout the year, and cose the fourth quarter at 4.4 percent. Rent growth is projected to sow from above 4.0 percent over the past few years to 3.6 percent in QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 12

7 Commercia Rea Estate FORECAST Commercia Rea Estate / FORECAST Q II 2015 III 2015 IV 2016 I 2016 II 2016 III 2016 IV OFFICE Vacancy Rate 15.60% 15.60% 15.50% 15.60% 15.50% 15.50% 15.40% 15.60% 15.50% Net Absorption 11,080 13,050 14,220 15,565 12,850 15,133 16,490 51,772 60,039 ( 000 sq. ft.) Competions 10,257 8,762 9,311 12,185 12,614 11,908 12,319 37,713 49,026 ( 000 sq. ft.) Inventory 4,151 4,160 4,169 4,182 4,194 4,206 4,218 4,169 4,218 ( 000 sq. ft.) Rent Growth 0.80% 0.90% 0.90% 0.90% 0.90% 0.90% 1.00% 3.40% 3.70% INDUSTRIAL Vacancy Rate 8.40% 8.30% 8.20% 8.30% 8.10% 8.00% 8.00% 8.40% 8.10% Net Absorption 27,205 32,646 29,382 18,885 26,229 31,474 28, , ,915 ( 000 sq. ft.) Competions 27,099 25,350 16,609 15,397 22,728 21,262 13,930 87,415 73,317 ( 000 sq. ft.) Inventory 8,510 8,535 8,552 8,567 8,590 8,611 8,625 8,552 8,625 ( 000,000 sq. ft.) Rent Growth 0.80% 0.80% 0.90% 0.80% 0.70% 0.80% 0.80% 3.10% 3.10% RETAIL Vacancy Rate 9.60% 9.60% 9.50% 9.40% 9.20% 9.20% 9.10% 9.60% 9.20% Net Absorption 3,629 2,841 5,028 5,693 4,858 3,803 6,732 15,750 21,087 ( 000 sq. ft.) Competions 2,028 2,355 2,450 2,940 2,853 3,312 3,445 8,924 12,550 ( 000 sq. ft.) Inventory 2,054 2,057 2,059 2,062 2,065 2,068 2,072 2,059 2,072 ( 000,000 sq. ft.) Rent Growth 0.70% 0.70% 0.70% 0.60% 0.70% 0.90% 0.90% 2.60% 3.10% MULTIFAMILY Vacancy Rate 4.30% 4.30% 4.40% 4.40% 4.40% 4.60% 4.60% 4.30% 4.50% Net Absorption (Units) 40,147 37,248 50,673 39,616 35,778 33,195 45, , ,747 Competions (Units) 60,745 61,906 62,520 38,526 51,944 52,937 53, , ,889 Inventory (Units in miions) Rent Growth 0.90% 0.90% 0.80% 0.90% 0.80% 0.80% 0.80% 3.60% 3.30% Sources: Nationa Association of Reators / Reis, Inc. Copyright 2015 Nationa Association of Reators. Reproduction, reprinting or retransmission in any form is prohibited without written permission. For questions regarding this matter pease e-mai eresearch@reators.org. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 13

8 CCIM Survey REGIONAL TRENDS SURVEY DEMOGRAPHICS PROPERTY TYPE 29.8% Office 16.2% Mutifamiy 20.7% Industria 32.1% Retai 1.1% Hospitaity BUSINESS SPECIALTY Brokerage Investment Asset/Portfoio Management Deveopment Banking/Lending Property Management Corporate Rea Estate Vauation Financing/Lending Leasing Residentia Rea Estate Other (pease specify) % Sources: CCIM Institute / Nationa Association of Reators REGION POPULATION SIZE OF MARKET 30.3% West 15.7% Midwest 26.5% South 16.6% East 1.2% Canada & Mexico 9.6% Other Less than 25, ,000-49, ,000-99, , , , , , , Miion - 5 Miion 142 Greater than 5 Miion 34 % Source: CCIM Institute / Nationa Association of Reators. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 14

9 CCIM Survey REGIONAL TRENDS REGIONAL PRICE BREAKDOWN WEST MIDWEST SOUTH EAST CANADA OTHER & MEXICO Average Transaction Vaue $ 2,748,618 $ 8,533,549 $ 2,918,937 $ 1,547,559 $ 4,450,000 $ 1,943,333 Pricing: Office Cass A ($/SF) Pricing: Office Cass B/C ($/SF) Pricing: Industria Cass A ($/SF) Pricing: Industria Cass B/C ($/SF) Pricing: Retai Cass A ($/SF) Pricing: Retai Cass B/C ($/SF) Pricing: Apartment Cass A ($/Unit) 127,789 29,660 75, , ,000 61,603 Pricing: Apartment Cass B/C ($/Unit) 93,413 22,020 49,215 64, ,750 17, CCIM Institute, Nationa Association of Reators. REGIONAL LEASING TRENDS (%) WEST MIDWEST SOUTH EAST CANADA OTHER & MEXICO DID YOU CLOSE A LEASE AGREEMENT? % % % % % % Yes No Not appicabe CHANGE IN NET RENTAL INCOME (YOY) Rents are higher by more than 5% Rents are higher by 1% to 5% Rents are about the same as ast year Rents are ower by 1% to 5% Rents are ower by more than 5% Don t know because it is difficut to compare, there are no tenants, or had no transaction in specified time frame OUTLOOK (2-3 years) OF RENT GROWTH VS. PROPERTY PRICES Rent growth wi outpace price growth Rent growth wi ag behind price growth Both rent growth and price growth wi move roughy the same amount CCIM Institute, Nationa Association of Reators. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 15

10 CCIM Survey REGIONAL TRENDS REGIONAL TRANSACTION TRENDS (%) WEST MIDWEST SOUTH EAST CANADA OTHER & MEXICO PROPERTY TYPE % % % % % % Office Mutifamiy Industria Retai Hospitaity DEAL FLOW CHANGE (YOY) More deas than this time ast year About the same as this time ast year Fewer deas than this time ast year DID YOU COMPLETE A SALE THIS QUARTER? Yes No Not appicabe PRICING CHANGE (YOY) The property price was higher The property price was about the same The property price was ower Don t know because it is difficut to compare, or had no transaction in specified time frame CAP RATE CHANGE (YOY) Higher cap rate About the same cap rate Lower cap rate BUYER INTEREST CHANGE (YOY) More serious inquiries reated to buying Fewer serious inquiries reated to buying More serious inquiries reated to seing Fewer serious inquiries reated to seing About the same number of serious inquiries about buying or seing as ast year DID YOU NOTICE A GAP IN CAP RATE EXPECTATIONS BETWEEN BUYERS & SELLERS? Yes No Not appicabe IF YES, HOW DID CAP RATE GAP CHANGE (YOY)? The gap is narrowing with a better chance of competing a dea The gap is about the same The gap is widening with ess chance of competing a dea CCIM Institute, Nationa Association of Reators QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 16

11 CCIM Survey REGIONAL TRENDS REGIONAL FINANCING TRENDS (%) WEST MIDWEST SOUTH EAST CANADA OTHER & MEXICO CHANGE IN FINANCING CONDITIONS (YOY) % % % % % % Credit avaiabiity has meaningfuy improved from ast year Credit avaiabiity has ony marginay improved Credit avaiabiity is just as tight as ast year with no improvement Credit avaiabiity has turned for the worse EXPECTATIONS ABOUT FINANCING OVER NEXT 2-3 YEARS The current tight conditions wi be the new norma because of many new financia market reguation Credit wi be more readiy accessibe over time Credit wi become even more difficut to access over time OUTLOOK (2-3 years) REGARDING CAP RATES RELATIVE TO TREASURY YIELDS Treasury yieds wi quicky rise and thereby force cap rates upward by roughy the same magnitude Treasury yieds wi quicky rise, but it wi ony minimay impact cap rates because of the current wide buffer zone Treasury yieds wi remain about the same for an extended period and cap rates wi aso remain about the same as now Treasury yieds wi remain ow for an extended period and cap rates wi fa coser to historica spreads (from the current wide gap) Cap rates wi fa, independent of how Treasury yieds move Both Treasury yieds and cap rates wi fa CCIM Institute, Nationa Association of Reators. 34% ancy Rate QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 17

12 U.S. Economic OVERVIEW SLOW IMPROVEMENTS The economy continues its sow expansion six years after the end of the Great Recession. The outook for 2015 is an overa increase of 2.3 percent in rea gross domestic product based on a mediocre first haf of the year couped with an improving second haf. The projected 2.3 percent rea growth rate is consistent with economic performance over the past severa years as the U.S. economy continues to underperform reative to a 3 percent rea growth rate that one woud expect. The negative economic growth experienced in the first quarter does not appear to be a harbinger of recession. A number of ong run trends support the current athough sow economic expansion: Consumer baance sheets and consumer confidence have improved reative to a few years ago. INVESTMENT CONDITIONS Office 3.0 Mutifamiy 4.1 Industria 3.6 Retai 3.5 Hospitaity 3.4 Based on May 2015 CCIM transaction survey INVESTMENT VALUE VS. PRICE RATIO Office 3.0 Mutifamiy 3.0 Industria 3.2 Retai 3.0 Hospitaity 3.0 Based on May 2015 CCIM transaction survey REGIONAL ECONOMIC CLIMATE REGIONAL Average 3.8 NATIONAL Average Copyright 2015 The CCIM Institute, Nationa Association of Reators. Empoyment gains and GDP growth are starting to provide a base for wage gains. Given that the economy is based on a circuar fow of expenditures, wage gains subsequenty transate into increased consumer expenditures and subsequenty higher GDP. Concurrent with wage gains, decining oi prices have had a favorabe impact on consumer disposabe income. The recovery in rea estate continues to be sow but improving. Housing starts increased by approximatey 8 percent in 2014 and are projected to increase by 13 percent in New construction is essentiay 100 percent vaue added, providing impetus to the GDP eve. At a time when the focus is on job additions, it is usefu to note that new home construction can add two to three jobs per additiona house buit. Existing home saes are projected to be up 7 percent in 2015, with prices rising in the neighborhood of 6 percent. The sae of two existing homes generates economic activity equivaent to an additiona job. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 18

13 U.S. Economic OVERVIEW However, there are some risk factors and negative economic conditions tending to hod back the economic expansion; the negative factors have sowed down economic growth but are unikey to cause a recession: Major foreign economies continue to face chaenges. Depending on the country, Europe has been experiencing recessionary or sow growth conditions. As a resut, there has been a downward push on the U.S. economy as imports continue to rise and exports decine. In addition, the fight to quaity in internationa reserves has caused some appreciation of the U.S. doar. Appreciation of the doar aso has a negative impact on U.S. exports. Athough consumer confidence has increased reative to a few years ago, the Great Recession appears to have eft a coective economic apprehension in the pubic s memory. Therefore, any type of adverse athough transitory economic news seems to create significant rippes in equity markets and apprehensive chatter in the press. No new, major drivers of additiona economic activity appear to be on the horizon. For exampe, technoogica breakthroughs ikey to create waves of additiona EMPLOYMENT, HOUSING, AND GDP BEFORE AND AFTER GREAT RECESSION (GDP in 2009 Doars, 000,000,000) (Empoyment 0,000) (Housing 0.1 times number) investment have not been identified. The press is fied with reports of computer wizards creating biion doar companies; however, very itte additiona empoyment is apparenty generated. Major demographic changes appear unikey. Miennias are increasingy participating in the economy, but not to the extent of causing a dramatic increase in GDP. TRENDS IN THREE MAJOR INDICATORS 25,000 20,000 15,000 10,000 5,000 0 Monthy GDP Sources: Nationa Association of Reators / Reis, Inc. Changes in empoyment and Empoyment Housing Starts housing starts two major economic drivers are steady, but not spectacuar. Accordingy, on baance it appears that the economy is facing moderatey sow but improving economic growth, possiby reaching a 3 percent annua increase in rea GDP by However, even for that time frame housing starts are ikey to be in the 1.4 miion range rather than the 1.5 to 1.6 miion range one woud normay expect. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 19

14 U.S. Economic OVERVIEW WHY HAS THE ECONOMY BEEN SO SLOW? The U.S. economy has deveoped a GDP gap, a constant doar difference of more than $2 triion between current economic performance and what the economy woud have achieved without the Great Recession, based on trends in previous years. The impact of the Great Recession was substantia, with major negative impacts on empoyment, consumer confidence, househod weath, and incomes. As a resut of a variety of negative economic conditions, the subsequent recovery has been sower than woud have been expected: Rea GDP growth has been approximatey 2.2 percent in recent years, rather than the 3 percent or better rate one woud expect after a recession. Wage increases have been sow, and job growth was disappointing for an extended period of time, athough job growth now appears to be picking up. The economy has increasingy been characterized by the growth of a part-time work force, sow wage growth, deferred business investment, and ower than expected gains in productivity. A variety of factors has set the stage for substandard economic performance in the past few years: Home prices and stock prices that ACTUAL VS. TREND GDP 25,000 20,000 15,000 10,000 5, Sources: Nationa Association of Reators / Reis, Inc. A VARIETY OF NEGATIVE ECONOMIC FACTORS DURING THE GREAT RECESSION PUT A SUBSTANTIAL DENT IN THE ECONOMY. had decined significanty from their peaks had major negative impacts on consumer baance sheets. Based on annua data, from 2006 to 2011, the median price of a home fe from $222,000 to $166,000. The major asset for the midde cass is the vaue of the home, so the decine in home prices had an impact on consumer spending. GDP GDP Trend Reductions in government spending, business investment, and residentia and commercia construction further negativey impacted the economy during the Great Recession. The focus on financia engineering, short-term business/economic decision making, possiby unwise educationa choices with accompanying increases in student debt, and increasing financia reguation have aso been mentioned as having had a cumuative, negative impact on economic growth. In short, a variety of negative economic factors during the Great Recession put a substantia dent in the economy one that has required time to cure. TIME FOR CONTINUED EXPANSION? A variety of positive factors now appear to be in pace to provide QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 20

15 U.S. Economic OVERVIEW upscae potentia to the economy: reasonabe oi prices; the recovery and growth of househod weath; ower consumer debt eves; higher consumer confidence; the miennia generation reaching a point at which househod formation shoud increase; pent-up demands for housing based on under production in recent years; U.S. businesses with high profits, in a position to invest; pent-up demand for increase in infrastructure highways, bridges, transportation opportunities; and rising wages as the economy expands. The negative factors, however, incude wordwide economic and poitica uncertainties; the Federa Reserve s prospects for getting the economy off of an IV of Federa Reserve administered iquidity ; and wage, productivity, and empoyment issues. On baance, the positives appear to outweigh the negatives. Rea GDP growth in the neighborhood of 2.3 percent is forecast for 2015, rising to 3 percent in 2016: First quarter annuaized GDP growth appears to have been near a negative 1 percent: faing exports, rising imports, sower inventory growth, weak corporate spending, and agging spending on durabe goods. This generay appears to have been weather induced and, therefore, argey irreevant to onger run trends. CCIM NATIONAL AVERAGE CAP RATES (%) Apt/Mutifamiy Office CBD Office Suburban Industria Warehouse Industria Fex Retai Hote/Lodging Deveopment Land Source: CCIM Institute, Nationa Association of Reators. CAPITALIZATION RATES BY PROPERTY TYPE (%) WEST MIDWEST SOUTH EAST CANADA OTHER & MEXICO Office CBD Cap Rate Office Suburban Cap Rate Warehouse Cap Rate Fex Cap Rate Retai Cap Rate Apartment Cap Rate Hote Cap Rate Deveopment Cap Rate Land Cap Rate CCIM Institute, Nationa Association of Reators. For the second quarter, growth coud be in the neighborhood of 1 to 2 percent, rising to 3 percent or higher during the second haf of the year. Miennias and their actions may be a wid card. Up to this point, their famiy formation, home buying, and job prospects have been beow expectations. As the QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 21

16 U.S. Economic OVERVIEW expansion of the economy acceerates, miennias may provide somewhat higher than expected economic impetus. IMPACT ON REAL ESTATE MARKETS The impact of an expanding economy shoud be favorabe for both residentia and commercia rea estate markets. Residentia saes demand both for existing and new home saes shoud be favoraby affected by job growth and improved credit avaiabiity, expected even though accompanied by rising interest rates. Anticipated increases in interest rates shoud not, however, have a major negative impact on the demand for homes, for even within projected increase rates wi continue to be we within norma historica ranges. Home inventories are tight, and mutifamiy rents are expected to continue to increase. Currenty new home construction is running in the neighborhood of 1 miion units per year; however, the demand for homes to meet famiy formation, second homes demand, peope moving out of renta units, and home demoitions of the existing housing stock is approximatey 1.5 to 1.6 miion units per year. The U.S. has a housing shortage, for housing starts have been we under 1.5 miion units per year. There is a need for buiders to increase suppy to reach the needed additiona 1.5 OVERALL, THE OUTLOOK IS FAVORABLE FOR THE ECONOMY AND REAL ESTATE. miion units per year. Buiders are expected to continue to ramp up production, and an increase in home construction shoud provide additiona impetus to the economy. As a resut of an expanding economy, saes and construction of commercia rea estate shoud continue to increase, both in voumes and in price. Vacancy rates are projected to decrease aong with rent increases, depending on type of property. Industria properties warehouses and fex space shoud be heped by increases in freight shipments as the economy expands and by demands for fexibe and moderate cost office space. The miennia generation is expected to provide a continuing demand for the apartment markets; the generation is actuay arger than the baby boom generation but, in many cases, has not yet moved into an apartment or house due to previousy unfavorabe economic conditions. Accordingy, the miennia generation is expected to have a continuing impact on housing demand, which wi hep the economy. Finay, economic expansion and continued job additions shoud hep both retai and office space. Overa, the outook is favorabe for the economy and rea estate: The unempoyment rate is expected to continue to decine. Empoyment growth wi continue, athough the overa abor participation rate continues to be beow what it has traditionay been. Athough infation may pick up, infation and interest rates are projected to remain reativey ow, even though increasing. Therefore, the projection of 2.3 percent rea GDP growth in 2015 athough somewhat ower than woud be expected appears to be reasonabe, and coud be higher if some of the unexpected possibiities mentioned happen. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 22

17 U.S. Metropoitan ECONOMIC OUTLOOK The eading market index uses an array of factors to assess the reative heath of an individua market. The factors incude job creation, unempoyment caims, bankruptcy fiings, and permits for construction. The first two factors provide an indication of potentia business expansion/contraction as we as of abor market heath and a eading indicator of mutifamiy renta growth. Bankruptcy fiings aude to the heath of the business environment, whie the permits data point to business pans and have an indirect impact on inventories. The eading indicator is weighted based on both the current measure as we as its recent trend or agged measures. These weighted measures are then added to create a score. This score is then ranked reative to a fixed scae where a measure of 85 or better indicates a robust market, 75 to 85 a strong market, 65 to 75 an average market, and a score beow 65 coincides with a weak market. LEADING INDICATOR INDEX CITY STATE SCORE LEADING BANKRUPTCY UNEMPLOYMENT UNEMPLOYMENT EMPLOYMENT TOTAL INDICATOR FILINGS CLAIMS RATE as of (2014 vs. PERMITS (2014 vs. 2013)* (2014 vs. 2013)** NOV )** (2014 vs. 2013)** Phoenix AZ B % -9% 4.9% 2.8% 3% Tucson AZ B % -9% 5.1% 1.1% 4% Los Angees CA C % -13% 6.4% 2.8% 0% San Bernardino/Riverside CA B % -13% 6.2% 4.1% 57% Sacramento CA C % -13% 5.6% 2.4% 49% San Diego CA B % -13% 4.8% 3.1% -20% San Francisco CA A % -13% 4.0% 3.4% 4% San Jose CA A % -13% 4.0% 6.0% 20% Coorado Springs CO B % -11% 5.2% 2.1% -9% Denver CO A % -11% 4.2% 3.1% 4% Hartford CT C % -10% 5.8% 1.5% 9% Washington DC B % -15% 4.3% 2.1% -3% Jacksonvie FL B % -20% 5.1% 2.7% 1% Miami FL C % -20% 5.4% 3.4% -1% Orando FL B % -20% 4.9% 4.3% 20% Tampa-St. Petersburg FL B % -20% 5.0% 3.2% 9% Atanta GA B % -15% 5.6% 3.4% 10% Chicago IL C % -13% 5.9% 1.4% 11% Indianapois IN B % -19% 4.3% 2.9% 6% Lexington KY A % -18% 3.8% 1.7% -32% Louisvie KY B % -18% 4.4% 3.0% -12% * October 2013 through September 2014 vs. October 2012 through September 2013 **December 2013 through November 2014 vs December 2012 through November 2013 QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 23

18 U.S. Metropoitan ECONOMIC OUTLOOK LEADING INDICATOR INDEX CITY STATE SCORE LEADING BANKRUPTCY UNEMPLOYMENT UNEMPLOYMENT EMPLOYMENT TOTAL INDICATOR FILINGS CLAIMS RATE as of (2014 vs. PERMITS (2014 vs. 2013)* (2014 vs. 2013)** NOV )** (2014 vs. 2013)** New Oreans LA C % -2% 6.0% 0.0% 4% Boston MA B % -1% 3.5% 1.7% 1% Batimore MD B % -21% 5.2% 1.5% -1% Detroit MI B % -17% 5.1% 2.8% 9% Minneapois MN A % -10% 3.5% 1.8% -4% St. Louis MO B % -15% 5.3% 0.2% 1% Kansas City MO B % -15% 5.2% 1.6% 26% Greensboro/Winston-Saem NC C % -28% 5.3% 3.0% 2% Raeigh-Durham NC A % -28% 4.3% 3.0% 8% Charotte NC B % -28% 5.1% 3.4% 19% Omaha NE A % -14% 2.8% 1.4% -16% Abuquerque NM B % -10% 5.3% 1.9% -14% Las Vegas NV B % -2% 7.1% 3.1% 17% Buffao NY C % -8% 5.5% 1.4% 7% New York NY C % -8% 6.0% 1.5% 15% Ceveand OH B % -13% 5.3% 1.0% 0% Coumbus OH B % -13% 3.8% 1.5% -3% Cincinnati OH B % -13% 4.1% 1.9% 0% Okahoma City OK B % -6% 3.4% 2.5% 4% Tusa OK B % -6% 3.8% 1.8% 11% Portand OR A % -16% 4.9% 3.0% 19% Pittsburgh PA B % -10% 4.6% 1.3% -10% Phiadephia PA B % -10% 5.1% 1.1% 4% Providence RI B % -7% 5.5% 1.2% 9% Chareston SC B % -21% 5.2% 2.9% -8% Coumbia SC B % -21% 5.6% 1.6% 9% Greenvie SC B % -21% 5.5% 3.1% 47% Knoxvie TN B % -13% 4.9% 3.3% 32% Nashvie TN A % -13% 4.2% 2.7% 15% Chattanooga TN C % -13% 5.2% 2.5% -2% Memphis TN C % -13% 5.9% 0.7% -6% Austin TX A % -3% 3.0% 3.2% 20% * Apri 2014 through March 2015 vs. Apri 2013 through March 2014 **May 2014 through Apri 2015 vs. May 2013 through Apri 2014 QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 24

19 U.S. Metropoitan ECONOMIC OUTLOOK LEADING INDICATOR INDEX CITY STATE SCORE LEADING BANKRUPTCY UNEMPLOYMENT UNEMPLOYMENT EMPLOYMENT TOTAL INDICATOR FILINGS CLAIMS RATE as of (2014 vs. PERMITS (2014 vs. 2013)* (2014 vs. 2013)** NOV )** (2014 vs. 2013)** Daas TX A % -3% 3.7% 3.9% 1% Houston TX B % -3% 4.0% 2.4% 18% San Antonio TX A % -3% 3.4% 3.2% -8% Sat Lake City UT B % -14% 3.1% 3.9% -13% Richmond VA B % -20% 4.8% 1.0% 4% Seatte WA A % -12% 3.4% 3.9% 27% Miwaukee WI B % -13% 4.7% 1.4% 3% Birmingham AL B % -16% 4.8% 1.5% 1% Litte Rock AR B % -12% 4.8% 1.0% -19% New Haven CT C % -10% 5.8% 1.3% 45% Wichita KS B % -9% 4.8% 0.3% -18% Rochester NY C % -8% 5.2% 1.0% 32% Syracuse NY B % -8% 5.4% 0.5% 3% Dayton OH B % -13% 4.5% 1.4% -1% Ventura County CA B % -13% 5.1% 1.2% 8% Westchester NY B % -8% 4.4% 0.5% 22% Norfok/Hampton Roads VA C % -20% 5.1% 0.5% -11% Tacoma WA B % -12% 6.2% 3.6% 27% Orange County CA C % -13% 4.1% 1.7% -4% Pam Beach FL A % -20% 4.7% 3.6% -9% Fairfied County CT C % -10% 5.4% 2.6% 30% Fort Lauderdae FL B % -20% 4.8% 3.7% -1% Fort Worth TX B % -3% 3.8% 3.3% 1% Long Isand NY B % -8% 4.4% 0.6% 15% Northern New Jersey NJ C % -4% 5.9% 1.0% 5% Oakand-East Bay CA A % -13% 4.6% 2.1% 4% Suburban Maryand MD B % -21% 3.8% 2.3% -3% Suburban Virginia VA C % -20% 3.6% 1.7% -3% Durham NC B % -28% 4.4% 1.4% 11% Raeigh-Cary NC A % -28% 4.3% 3.0% 8% Centra New Jersey NJ C % -4% 5.8% 1.2% 36% * Apri 2014 through March 2015 vs. Apri 2013 through March 2014 **May 2014 through Apri 2015 vs. May 2013 through Apri 2014 QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 25

20 Headine Line HEADLINE Quartery Market TRENDS 4% ncy Rate Visit to earn more about CCIM s Quartery Market Trends report. QUARTERLY MARKET TRENDS u NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 29