CoStar Office Statistics. Y e a r - E n d Tucson Office Market

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1 CoStar Office Statistics Y e a r - E n d

2 Year-End 2016 Tucson 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 Under Construction Properties Select Top Deliveries Figures at a Glance Figures at a Glance by Class & Market Figures at a Glance by Class & 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 Central Market North Market South Market 2017 CoStar Group, Inc. CoStar Office Statistics A

3 Tucson Year-End 2016 Methodology The CoStar Office Statistics, unless specifically stated otherwise, calculates office statistics using CoStar Group s entire database of existing and under construction office buildings in each metropolitan area. Included are office, office condominium, office loft, office medical, all classes and all sizes, and both multi-tenant and single-tenant buildings, including owner-occupied buildings. CoStar Group's global database includes approximately 95.6 billion square feet of coverage in 4.4 million properties. All rental rates reported in the CoStar Office Report have been converted to a Full Service equivalent rental rate. For information on subscribing to CoStar s other products and services, please contact us at COSTAR, or visit our web site at Copyright 2017 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 CoStar Office Statistics 2017 CoStar Group, Inc.

4 Year-End 2016 Tucson 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 2017 CoStar Group, Inc. CoStar Office Statistics C

5 Tucson Year-End 2016 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. 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 CoStar Office Statistics 2017 CoStar Group, Inc.

6 Overview Year-End 2016 Tucson Tucson s Decreases to 11.0% Net Absorption Positive 124,704 SF in the Quarter The Tucson Office market ended the fourth quarter 2016 with a vacancy rate of 11.0%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 124,704 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, ending the quarter at 13,731 square feet. Rental rates ended the fourth quarter at $18.59, a decrease over the previous quarter. A total of one building delivered to the market in the quarter totaling 17,000 square feet, with 16,271 square feet still under construction at the end of the quarter. Absorption Net absorption for the overall Tucson office market was positive 124,704 square feet in the fourth quarter That compares to positive 73,022 square feet in the third quarter 2016, positive 9,513 square feet in the second quarter 2016, and positive 196,961 square feet in the first quarter The Class-A office market recorded net absorption of negative (18,469) square feet in the fourth quarter 2016, compared to positive 9,795 square feet in the third quarter 2016, positive 7,534 in the second quarter 2016, and positive 51,241 in the first quarter The Class-B office market recorded net absorption of positive 140,348 square feet in the fourth quarter 2016, compared to positive 52,671 square feet in the third quarter 2016, negative (11,969) in the second quarter 2016, and positive 116,492 in the first quarter The Class-C office market recorded net absorption of positive 2,825 square feet in the fourth quarter 2016 compared to positive 10,556 square feet in the third quarter 2016, positive 13,948 in the second quarter 2016, and positive 29,228 in the first quarter Rates by Class Net absorption for Tucson s central business district was positive 886 square feet in the fourth quarter That compares to positive 12,434 square feet in the third quarter 2016, negative (36,023) in the second quarter 2016, and positive 43,658 in the first quarter Net absorption for the suburban markets was positive 123,818 square feet in the fourth quarter That compares to positive 60,588 square feet in third quarter 2016, positive 45,536 in the second quarter 2016, and positive 153,303 in the first quarter The office vacancy rate in the Tucson market area decreased to 11.0% at the end of the fourth quarter The vacancy rate was 11.4% at the end of the third quarter 2016, 11.7% at the end of the second quarter 2016, and 11.8% at the end of the first quarter Class-A projects reported a vacancy rate of 10.2% at the end of the fourth quarter 2016, 9.6% at the end of the third quarter 2016, 9.9% at the end of the second quarter 2016, and 10.2% at the end of the first quarter Class-B projects reported a vacancy rate of 12.6% at the end of the fourth quarter 2016, 13.3% at the end of the third quarter 2016, 13.6% at the end of the second quarter 2016, and 13.5% at the end of the first quarter Class-C projects reported a vacancy rate of 6.1% at the end of the fourth quarter 2016, 6.1% at the end of third quarter 2016, 6.3% at the end of the second quarter 2016, and 6.6% at the end of the first quarter The overall vacancy rate in Tucson s central business district at the end of the fourth quarter 2016 remained at 7.0%. The vacancy rate was 7.0% at the end of the third quarter A B C Total Market 16% 14% 12% Rate 10% 8% 6% 4% 2% 0% q q q q q q q q q q q q 2017 CoStar Group, Inc. CoStar Office Statistics 1

7 Tucson Year-End 2016 Overview 2016, 7.2% at the end of the second quarter 2016, and 6.6% at the end of the first quarter The vacancy rate in the suburban markets decreased to 12.1% in the fourth quarter The vacancy rate was 12.6% at the end of the third quarter 2016, 12.9% at the end of the second quarter 2016, and 13.1% at the end of the first quarter Largest Lease Signings The largest lease signings occurring in 2016 included: the 35,001-square-foot lease signed by Caterpillar, Inc. at 97 E Congress St in the Central market; the 27,228-square-foot deal signed by Ascensus, Inc. at 9070 S Rita Rd - UA Tech Park in the South market; and the 26,791-square-foot lease signed by Cornerstone Behavioral Health at 1400 N Wilmot Rd - El Dorado Hospital in the Central market. Sublease The amount of vacant sublease space in the Tucson market decreased to 13,731 square feet by the end of the fourth quarter 2016, from 32,091 square feet at the end of the third quarter There was 28,763 square feet vacant at the end of the second quarter 2016 and 60,885 square feet at the end of the first quarter Tucson s Class-A projects reported vacant sublease space of 4,816 square feet at the end of fourth quarter 2016 and at the end of the third quarter There was no sublease space vacant at the end of the second quarter 2016 or at the end of the first quarter Class-B projects reported vacant sublease space of 8,915 square feet at the end of the fourth quarter 2016, down from the 27,275 square feet reported at the end of the third quarter At the end of the second quarter 2016 there were 27,883 square feet, and at the end of the first quarter 2016 there were 60,005 square feet vacant. Class-C projects reported no vacant sublease space from U.S. Comparison Past 10 Quarters Rate 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Tucson United States q q q q q the third quarter 2016 to the fourth quarter There were 880 square feet at the end of the second quarter 2016 and at the end of the first quarter Sublease vacancy in Tucson s central business district stood at 0 square feet at the end of the fourth quarter It had been at 2,573 square feet since the end of the first quarter Sublease vacancy in the suburban markets ended the fourth quarter 2016 at 13,731 square feet. At the end of the third quarter 2016 sublease vacancy was 29,518 square feet, was 26,190 square feet at the end of the second quarter 2016, and was 58,312 square feet at the end of the first quarter Rental Rates The average quoted asking rental rate for available office space, all classes, was $18.59 per square foot per year at the end of the fourth quarter 2016 in the Tucson market area. This represented a 0.5% decrease in quoted rental rates from the end of the third quarter 2016, when rents were reported at $18.68 per square foot. The average quoted rate within the Class-A sector was $23.49 at the end of the fourth quarter 2016, while Class-B rates stood at $18.07, and Class-C rates at $ At the end of the third quarter 2016, Class-A rates were $23.78 per square foot, Class-B rates were $18.27, and Class-C rates were $ The average quoted asking rental rate in Tucson s CBD was $19.28 at the end of the fourth quarter 2016, and $18.49 in the suburban markets. In the third quarter 2016, quoted rates were $19.53 in the CBD and $18.56 in the suburbs. Deliveries and Construction During the fourth quarter 2016, one building totaling 17,000 square feet was completed in the Tucson market area. This compares to one building totaling 1,955 square feet that was completed in the third quarter 2016, one building totaling 3,000 square feet completed in the second quarter 2016, and 108,950 square feet in five buildings completed in the first quarter There were 16,271 square feet of office space under construction at the end of the fourth quarter Some of the notable 2016 deliveries include: 440 W Paseo Redondo - Manning House, a 36,950-square-foot facility that delivered in first quarter 2016 and is now 100% occupied, and 1915 E Innovation Park Dr - Ventana Medical Systems, a 28,335- square-foot building that delivered in first quarter 2016 and is now 100% occupied. The largest projects underway at the end of fourth quarter 2016 were 4330 E Broadway Blvd - Girl Scouts of Southern Arizona, a 11,771-square-foot building with 100% of its space pre-leased, and 3935 E Fort Lowell Rd - Catalina Eye Care, a 4,500-square-foot facility that is 100% pre-leased. 2 CoStar Office Statistics 2017 CoStar Group, Inc.

8 Overview Year-End 2016 Tucson Inventory Total office inventory in the Tucson market area amounted to 25,681,368 square feet in 2,502 buildings as of the end of the fourth quarter The Class-A office sector consisted of 2,672,263 square feet in 21 projects. There were 1,270 Class-B buildings totaling 17,800,245 square feet, and the Class-C sector consisted of 5,208,860 square feet in 1,211 buildings. Within the Office market there were 101 owner-occupied buildings accounting for 2,385,265 square feet of office space. Sales Activity Tallying office building sales of 15,000 square feet or larger, Tucson office sales figures rose during the third quarter 2016 in terms of dollar volume compared to the second quarter of In the third quarter, six office transactions closed with a total volume of $40,805,000. The six buildings totaled 312,615 square feet and the average price per square foot equated to $ per square foot. That compares to two transactions totaling $2,900,000 in the second quarter The total square footage in the second quarter was 50,629 square feet for an average price per square foot of $ Total office building sales activity in 2016 was up compared to In the first nine months of 2016, the market saw 10 office sales transactions with a total volume of $51,405,000. The price per square foot averaged $ In the same first nine months of 2015, the market posted eight transactions with a total volume of $45,332,000. The price per square foot averaged $ Absorption & Deliveries Past 10 Quarters Millions SF (0.1) Net Absorption (0.02) Deliveries Cap rates have been lower in 2016, averaging 8.44% compared to the same period in 2015 when they averaged 8.61%. One of the largest transactions that has occurred within the last four quarters in the Tucson market is the sale of 1 S Church in Tucson. This 240,811-square-foot office building sold for $32,000,000, or $ per square foot. The property sold on 10/2/2015, at a 6.00% cap rate. Reports compiled by: Adam Jarrett, CoStar Senior Research Manager, and James Young, CoStar Research Associate q q q q q 2017 CoStar Group, Inc. CoStar Office Statistics 3

9 Tucson Year-End 2016 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 Central North South Submarkets Central Tucson Downtown Tucson East Tucson West Tucson Foothills North Tucson/Oro Valley Northwest Tucson Green Valley/South Tucson Southeast Tucson Southwest Tucson 4 CoStar Office Statistics 2017 CoStar Group, Inc.

10 Inventory & development Year-End 2016 Tucson Historical Deliveries Deliveries Average Delivered SF Millions of SF * Future deliveries based on current under construction buildings. Construction Activity Markets Ranked by Under Construction Square Footage Under Construction Inventory Average Bldg Size Market # Bldgs Total RBA Preleased SF Preleased % All Existing U/C Central 2 16,271 16, % 9,969 8,135 South % 10,067 0 North % 11,482 0 Totals 2 16,271 16, % 10,264 8,135 Recent Deliveries Leased & Un-Leased SF in Deliveries Since Leased Un-Leased Millions of SF CoStar Group, Inc. CoStar Office Statistics 5

11 Tucson Year-End 2016 Inventory & development Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction 0.5 Construction Starts 0.43 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 8 130, , % $ ,100 66,805 50,000 SF - 99,999 SF % $ ,000 SF - 249,999 SF % $ ,000 SF - 499,999 SF % $ >= 500,000 SF % $ Recent Development by Tenancy Existing Inventory Comparison Based on RBA Developed for Single & Multi Tenant Use Based on Total RBA 2016 Deliveries Currently Under Construction By Class By Space Type 49% 0% 20% 10% 30% 51% 100% 70% 70% Multi Single Multi Single Class A Class B Class C Multi Single 6 CoStar Office Statistics 2017 CoStar Group, Inc.

12 Inventory & development Year-End 2016 Tucson 2017 CoStar Group, Inc. CoStar Office Statistics 7

13 Tucson Year-End 2016 Figures at a Glance Class A Market Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central 19 2,500, , , % 21, $23.49 North 1 28, % 28,265 28,265 0 $0.00 South 1 143, % $0.00 Totals 21 2,672, , , % 50,101 28,265 0 $23.49 Class B Market Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central ,432,961 1,575,485 1,575, % 132,158 36,950 16,271 $17.62 North 388 4,730, , , % 180,187 65,690 0 $20.34 South 91 1,637, , , % (14,803) 0 0 $13.71 Totals 1,270 17,800,245 2,230,103 2,239, % 297, ,640 16,271 $18.07 Class C Market Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central 959 3,700, , , % 23, $15.20 North ,031 32,900 32, % 10, $16.91 South ,839 49,579 49, % 22, $13.92 Totals 1,211 5,208, , , % 56, $15.13 Total Office Market Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central 1,769 17,634,299 2,078,927 2,083, % 177,846 36,950 16,271 $18.60 North 472 5,419, , , % 218,552 93,955 0 $20.17 South 261 2,627, , , % 7, $13.77 Totals 2,502 25,681,368 2,816,024 2,829, % 404, ,905 16,271 $ CoStar Office Statistics 2017 CoStar Group, Inc.

14 Figures at a Glance Year-End 2016 Tucson Class A Submarket Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Tucson 12 1,543, , , % 15, $22.76 Downtown Tucson 6 814,219 80,801 80, % 7, $27.37 East Tucson % $0.00 Foothills % $0.00 Green Valley/South Tucson % $0.00 North Tucson/Oro Valley 1 28, % 28,265 28,265 0 $0.00 Northwest Tucson % $0.00 Southeast Tucson % $0.00 Southwest Tucson 1 143, % $0.00 West Tucson 1 142,148 16,695 16, % (837) 0 0 $0.00 Totals 21 2,672, , , % 50,101 28,265 0 $23.49 Class B Submarket Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Tucson 516 5,852, , , % 78, ,271 $18.04 Downtown Tucson 122 3,776, , , % 16,439 36,950 0 $17.30 East Tucson , , , % 26, $16.57 Foothills 91 1,341, , , % 125,517 10,900 0 $21.51 Green Valley/South Tucson ,721 29,568 29, % (5,802) 0 0 $17.00 North Tucson/Oro Valley 266 2,994, , , % 40,214 52,835 0 $19.85 Northwest Tucson ,310 46,823 46, % 14,456 1,955 0 $20.87 Southeast Tucson ,129 63,346 63, % (5,801) 0 0 $15.48 Southwest Tucson 49 1,013,254 57,691 57, % (3,200) 0 0 $8.37 West Tucson ,987 99,294 99, % 9, $15.57 Totals 1,270 17,800,245 2,230,103 2,239, % 297, ,640 16,271 $ CoStar Group, Inc. CoStar Office Statistics 9

15 Tucson Year-End 2016 Figures at a Glance Class C Submarket Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Tucson 565 2,218, , , % 42, $15.75 Downtown Tucson ,397 20,596 20, % (2,861) 0 0 $17.32 East Tucson ,182 22,239 22, % (2,716) 0 0 $16.35 Foothills 2 3, % $0.00 Green Valley/South Tucson ,282 19,034 19, % 6, $20.40 North Tucson/Oro Valley ,527 28,354 28, % 5, $16.90 Northwest Tucson 18 67,294 4,546 4, % 4, $17.05 Southeast Tucson 16 99, % $0.00 Southwest Tucson ,632 30,545 30, % 16, $10.77 West Tucson ,487 41,509 41, % (13,536) 0 0 $11.01 Totals 1,211 5,208, , , % 56, $15.13 Total Office Submarket Statistics Year-End 2016 Existing Inventory YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Tucson 1,093 9,615,695 1,314,827 1,319, % 137, ,271 $19.02 Downtown Tucson 324 5,324, , , % 20,955 36,950 0 $19.28 East Tucson 127 1,244, , , % 24, $16.56 Foothills 93 1,344, , , % 125,517 10,900 0 $21.51 Green Valley/South Tucson ,003 48,602 48, % $18.49 North Tucson/Oro Valley 330 3,613, , , % 74,008 81,100 0 $19.64 Northwest Tucson ,604 51,369 51, % 19,027 1,955 0 $20.81 Southeast Tucson ,054 63,346 63, % (5,801) 0 0 $15.48 Southwest Tucson 177 1,745,536 88,236 88, % 13, $9.54 West Tucson 225 1,449, , , % (4,495) 0 0 $13.35 Totals 2,502 25,681,368 2,816,024 2,829, % 404, ,905 16,271 $ CoStar Office Statistics 2017 CoStar Group, Inc.

16 Figures at a Glance Year-End 2016 Tucson 2017 CoStar Group, Inc. CoStar Office Statistics 11

17 Tucson Year-End 2016 Leasing Activity Historical Rental Rates Based on Full-Service Equivalent Rental Rates A B C Total Market $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $ q q q q q q by Available Space Type by Class Percent of All Vacant Space in Direct vs. Sublet Percent of All Vacant Space by Class Tucson United States Tucson United States 0% 4% 11% 10% 14% 47% 39% 100% 96% 79% Direct Sublet Direct Sublet Class A Class B Class C Class A Class B Class C U.S. Rental Rate Comparison Based on Full-Service Equivalent Rental Rates Future Space Available Space Scheduled to be Available for Occupancy* $30.00 Tucson United States $ $20.00 $15.00 $ $5.00 $ q q q q q q 0.00 * Includes Under Construction Spaces 12 CoStar Office Statistics 2017 CoStar Group, Inc.

18 Leasing Activity Year-End 2016 Tucson Select Top O ce Leases Based on Leased Square Footage For Deals Signed in 2016 Building Submarket SF Qtr Tenant Name Tenant Rep Company Landlord Rep Company 1 97 E Congress St Downtown Tucson 35,001 1st Caterpillar, Inc. N/A Mark Irvin Commercial Real Estate S Rita Rd Southeast Tucson 27,228 4th Ascensus, Inc Cushman & Wake eld PICOR Cushman & Wake eld PICOR N Wilmot Rd Central Tucson 26,791 3rd Cornerstone Behavioral Health N/A CBRE E Broadway Blvd* Central Tucson 23,810 1st Arizona Community Physicians CBRE N/A E Fort Lowell Rd West Tucson 21,760 4th CODAC Health, Recovery & Wellness Cushman & Wake eld PICOR Cushman & Wake eld PICOR E Williams Cir Central Tucson 16,299 4th Centene Management Co. Cushman & Wake eld PICOR The Colton Company E Speedway Blvd Central Tucson 13,000 3rd Tenet Healthcare N/A CBRE S Plumer Ave Southwest Tucson 13,000 4th Aerovation, Inc. N/A N/A E Williams Blvd* Central Tucson 12,239 3rd Centene Management Co. Cushman & Wake eld PICOR N/A S Tucson Blvd Central Tucson 11,175 3rd Tucson Tech N/A CBRE W Ina Rd* Northwest Tucson 11,092 3rd Richmond American Homes N/A Oxford Realty Advisors E Broadway Blvd Downtown Tucson 10,675 3rd Diocese of Tucson N/A Peach Properties E Grant Rd Central Tucson 9,703 1st Broadpath, Inc. Mark Irvin Commercial Real Estate Cushman & Wake eld PICOR E Skyline Dr Foothills 9,305 3rd Sunstreet Mortgage LLC N/A DESCO Southwest E Broadway Blvd* Central Tucson 8,200 2nd Goldblatt Systems LLC N/A Rein & Grossoehme LLC E Erickson Dr* Central Tucson 7,747 4th Quality Of Life N/A N/A E River Rd North Tucson/Oro Valley 7,477 4th Engineering & Environmental Consultants Cushman & Wake eld PICOR CBRE W Saint Marys Rd Downtown Tucson 7,437 3rd Community Health Associates CBRE CBRE W River Rd North Tucson/Oro Valley 7,228 3rd Curriculum Associates CBRE Gillette Commercial, Inc N 1st Ave* Foothills 7,152 4th Pain Institute of Southern Arizona N/A N/A E Grant Rd Central Tucson 6,720 2nd Pain Institute of Southern Arizona Mark Irvin Commercial Real Estate Cushman & Wake eld PICOR E Tanque Verde Rd Central Tucson 6,074 1st NH Learning Group N/A Cushman & Wake eld PICOR 23 2 E Congress St Downtown Tucson 5,990 1st The Planning Center N/A CBRE N Campbell Ave Central Tucson 5,970 1st Regency Senior Club LLC Oxford Realty Advisors CBRE W Broadway Blvd Downtown Tucson 5,918 3rd Tucson Roadrunners Hockey Team Direct Deal Direct Deal E Grant Rd Central Tucson 5,861 1st Muscular Dystrophy Association Cushman & Wake eld PICOR Cushman & Wake eld PICOR E Erickson Dr* Central Tucson 5,254 4th Desert Star Family Health N/A N/A N Swan Rd Central Tucson 5,184 3rd QuickMed N/A N/A E Broadway Blvd* Central Tucson 5,075 4th AXA Advisors N/A Cushman & Wake eld PICOR E Grant Rd Central Tucson 4,910 4th Mutterperl Medical Diagnostics Clinic N/A Larsen Baker W Ina Rd North Tucson/Oro Valley 4,810 2nd Lasik Vision Institute N/A Romano Real Estate W Ina Rd Northwest Tucson 4,803 4th National Mentor Healthcare LLC N/A Oxford Realty Advisors E Tanque Verde Rd Central Tucson 4,790 1st Gerinet Palliative Care LLC Cushman & Wake eld PICOR Cushman & Wake eld PICOR E Erickson Dr Central Tucson 4,789 2nd Tender Loving Care Health Services N/A Cushman & Wake eld PICOR S Tucson Blvd* Central Tucson 4,661 3rd Allstate Imaging N/A CBRE E Sunrise Dr Foothills 4,520 2nd First Financial Equity Corp. CBRE CBRE N Stone Ave Downtown Tucson 4,395 2nd Kaneen Advertising & Public Relations Cushman & Wake eld PICOR CBRE E Pima St Central Tucson 4,369 3rd Liberty Star Uranium & Metals Corp. N/A VAST Commercial Real Estate N La Canada Dr Green Valley/South Tucson 4,021 3rd DR Amman N/A Cushman & Wake eld PICOR W Saint Marys Rd Downtown Tucson 3,994 2nd Eclipse Clinical Research LLC N/A CBRE * Renewal 2017 CoStar Group, Inc. CoStar Office Statistics 13

19 Tucson Year-End 2016 Sales Activity The Optimist Sales Index Average of Two Highest Price/SF's and Two Lowest Cap Rates Per Quarter 11.0% Cap Rate Price/SF $ % Cap Rate Percentage 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% $230 $180 $130 $80 Dollars/SF 2.0% q q q $30 Source: CoStar COMPS Sales Volume & Price Sales Analysis by Building Size Based on Office Building Sales of 15,000 SF and Larger Based on Office Building Sales From Oct Sept $90 Sales Volume Price/SF $350 Bldg Size # RBA $ Volume Price/SF Cap Rate Millions of Sales Volume Dollars $80 $70 $60 $50 $40 $30 $20 $300 $250 $200 $150 $100 Price/SF < 50,000 SF ,362 $48,184,883 $ % 50K-249K SF 250K-499K SF 8 776,134 $115,289,345 $ % $ - - $10 $50 $0 $0 >500K SF $ q q q q Source: CoStar COMPS Source: CoStar COMPS U.S. Price/SF Comparison Based on Office Building Sales of 15,000 SF and Larger U.S. Cap Rate Comparison Based on Office Building Sales of 15,000 SF and Larger $340 Tucson US 11.0% Tucson US $ % Dollars per SF $240 $190 $140 Cap Rate Percentage 9.0% 8.0% 7.0% 6.0% 5.0% $90 4.0% 3.0% $40 2.0% q q q q q q q q Source: CoStar COMPS Source: CoStar COMPS 14 CoStar Office Statistics 2017 CoStar Group, Inc.

20 Year-End 2016 Tucson 2017 CoStar Group, Inc. CoStar Office Statistics 15 Sales Activity

21 Tucson Year-End 2016 Deliveries, Absorption & C e n t r a l M a r k e t Market Highlights Class A, B & C Historical Analysis, All Classes Millions SF (0.100) Delivered SF Absorption SF 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Percent Vacant (0.200) q q q q q q q q q q q q q q q q 0.0% Vacant Space Historical Analysis, All Classes Quoted Rental Rates Historical Analysis, All Classes 2.30 Direct SF Sublet SF $19.00 Millions SF Dollars/SF/Year $18.80 $18.60 $18.40 $18.20 $ $ $ q q q q $ q q q q Existing Inventory Net Delivered Inventory UC Inventory Quoted Period # Bldgs Total RBA Vacant SF % Absorption # Bldgs Total RBA # Bldgs Total RBA Rates q 1,769 17,634,299 2,083, % 6, ,271 $ q 1,769 17,634,299 2,090, % 74, ,271 $ q 1,769 17,634,299 2,165, % 7, $ q 1,769 17,634,299 2,172, % 88, , $ q 1,769 17,603,947 2,231, % 213, , ,950 $ q 1,768 17,392,795 2,233, % 36, ,102 $ q 1,769 17,399,645 2,276, % 5, , ,152 $ q 1,768 17,397,645 2,280, % 13, ,152 $ q 1,769 17,403,099 2,298, % 437, , ,152 $ q 1,768 17,083,029 2,416, % 17, , ,222 $ q 1,766 17,022,247 2,373, % 84, , ,852 $ q 1,766 17,011,927 2,446, % 2, , ,992 $ q 1,765 16,944,277 2,381, % 33, ,642 $ q 1,765 16,944,277 2,414, % (63,797) ,342 $ q 1,765 16,944,277 2,351, % (88,729) ,720 $ q 1,765 16,944,277 2,262, % 45, ,650 $ CoStar Office Statistics 2017 CoStar Group, Inc.

22 Deliveries, Absorption & N o r t h M a r k e t Market Highlights Class A, B & C Historical Analysis, All Classes Year-End 2016 Tucson Delivered SF Absorption SF 14.0% Millions SF (0.050) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Percent Vacant (0.100) q q q q q q q q q q q q q q q q 0.0% Vacant Space Historical Analysis, All Classes Quoted Rental Rates Historical Analysis, All Classes 0.80 Direct SF Sublet SF $ $20.80 Millions SF Dollars/SF/Year $20.60 $20.40 $20.20 $20.00 $ q q q q $ q q q q Existing Inventory Net Delivered Inventory UC Inventory Quoted Period # Bldgs Total RBA Vacant SF % Absorption # Bldgs Total RBA # Bldgs Total RBA Rates q 472 5,419, , % 111, , $ q 471 5,402, , % (11,274) 1 1, ,000 $ q 470 5,400, , % 10, , ,955 $ q 469 5,397, , % 107, , ,955 $ q 465 5,325, , % (17,488) 1 6, ,000 $ q 464 5,319, , % 9, ,946 $ q 464 5,319, , % (18,509) 1 19, ,711 $ q 463 5,299, , % 23, , ,472 $ q 460 5,262, , % 7, , ,651 $ q 459 5,251, , % 45, , ,091 $ q 458 5,243, , % (77,072) ,341 $ q 458 5,243, , % 5, ,640 $ q 458 5,243, , % 1, , ,640 $ q 458 5,252, , % (19,546) ,689 $ q 458 5,252, , % 1, ,689 $ q 458 5,252, , % 10, ,689 $ CoStar Group, Inc. CoStar Office Statistics 17

23 Tucson Year-End 2016 Deliveries, Absorption & S o u t h M a r k e t Market Highlights Class A, B & C Historical Analysis, All Classes Delivered SF Absorption SF 10.0% Millions SF (0.020) 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% q q q q q q q q q q q q q q q q Percent Vacant Vacant Space Historical Analysis, All Classes Quoted Rental Rates Historical Analysis, All Classes 0.22 Direct SF Sublet SF $20.00 $ $16.00 Millions SF Dollars/SF/Year $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $ q q q q $ q q q q Existing Inventory Net Delivered Inventory UC Inventory Quoted Period # Bldgs Total RBA Vacant SF % Absorption # Bldgs Total RBA # Bldgs Total RBA Rates q 261 2,627, , % 6, $ q 261 2,627, , % 9, $ q 261 2,627, , % (8,626) $ q 261 2,627, , % $ q 261 2,627, , % (11,740) $ q 261 2,627, , % 14, $ q 261 2,627, , % (4,064) $ q 261 2,627, , % $ q 261 2,627, , % 92, , $ q 260 2,530, , % (6,328) ,085 $ q 260 2,530, , % 9, ,085 $ q 260 2,530, , % 33, ,085 $ q 260 2,530, , % 6, , $ q 259 2,520, , % (10,290) ,132 $ q 259 2,520, , % (4,710) ,132 $ q 259 2,520, , % (10,440) ,132 $ CoStar Office Statistics 2017 CoStar Group, Inc.