The CoStar Office Report. F i r s t Q u a r t e r Phoenix Office Market

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1 The CoStar Office Report F i r s t Q u a r t e r

2 First Quarter 2016 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 Class & Market Figures at a Glance by Class & Submarket Figures at a Glance Grouped by CBD vs Suburban 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 Area Market Central Corridor Market East Phoenix Market East Valley Market North Phoenix Market Northwest Phoenix Market Scottsdale Market West Phoenix Market 2016 CoStar Group, Inc. The CoStar Office Report A

3 Phoenix First Quarter 2016 Methodology The CoStar Office Report, 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 national database includes approximately 80.7 billion square feet of coverage in 3.5 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 2016 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 Office Report 2016 CoStar Group, Inc.

4 First Quarter 2016 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. : 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 2016 CoStar Group, Inc. The CoStar Office Report C

5 Phoenix First Quarter 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 The CoStar Office Report 2016 CoStar Group, Inc.

6 Overview First Quarter 2016 Phoenix Phoenix s Stays at 16.4% Net Absorption Positive 677,361 SF in the Quarter The Phoenix Office market ended the first quarter 2016 with a vacancy rate of 16.4%. The vacancy rate was unchanged over the previous quarter, with net absorption totaling positive 677,361 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 841,444 square feet. Rental rates ended the first quarter at $22.48, an increase over the previous quarter. A total of seven buildings delivered to the market in the quarter totaling 978,919 square feet, with 1,995,114 square feet still under construction at the end of the quarter. Absorption Net absorption for the overall Phoenix office market was positive 677,361 square feet in the first quarter That compares to positive 2,252,971 square feet in the fourth quarter 2015, positive 1,080,399 square feet in the third quarter 2015, and positive 508,348 square feet in the second quarter The Class-A office market recorded net absorption of positive 76,253 square feet in the first quarter 2016, compared to positive 1,582,283 square feet in the fourth quarter 2015, positive 489,705 in the third quarter 2015, and positive 370,797 in the second quarter The Class-B office market recorded net absorption of positive 510,229 square feet in the first quarter 2016, compared to positive 576,383 square feet in the fourth quarter 2015, positive 478,200 in the third quarter 2015, and positive 165,650 in the second quarter The Class-C office market recorded net absorption of positive 90,879 square feet in the first quarter 2016 compared to positive 94,305 square feet in the fourth quarter 2015, positive 112,494 in the third quarter 2015, and negative (28,099) in the second quarter Net absorption for Phoenix s central business district was positive 36,363 square feet in the first quarter That compares to positive 328,485 square feet in the fourth quarter 2015, positive 46,540 in the third quarter 2015, and positive 118,922 in the second quarter Net absorption for the suburban markets was positive 640,998 square feet in the first quarter That compares to positive 1,924,486 square feet in fourth quarter 2015, positive 1,033,859 in the third quarter 2015, and positive 389,426 in the second quarter The office vacancy rate in the Phoenix market area remained at 16.4% at the end of the first quarter The vacancy rate was 16.4% at the end of the fourth quarter 2015, 17.0% at the end of the third quarter 2015, and 17.4% at the end of the second quarter Class-A projects reported a vacancy rate of 16.4% at the end of the first quarter 2016, 15.0% at the end of the fourth quarter 2015, 16.1% at the end of the third quarter 2015, and 16.6% at the end of the second quarter Class-B projects reported a vacancy rate of 17.4% at the end of the first quarter 2016, 17.8% at the end of the fourth quarter 2015, 18.2% at the end of the third quarter 2015, and 18.6% at the end of the second quarter Class-C projects reported a vacancy rate of 12.4% at the Rates by Class A B C Total Market 30% 25% Rate 20% 15% 10% 5% 0% q q q q q q q q q q q q q q q q q CoStar Group, Inc. The CoStar Office Report 1

7 Phoenix First Quarter 2016 Overview end of the first quarter 2016, 12.8% at the end of fourth quarter 2015, 13.2% at the end of the third quarter 2015, and 13.7% at the end of the second quarter The overall vacancy rate in Phoenix s central business district at the end of the first quarter 2016 decreased to 17.2%. The vacancy rate was 17.5% at the end of the fourth quarter 2015, 18.9% at the end of the third quarter 2015, and 19.1% at the end of the second quarter The vacancy rate in the suburban markets increased to 16.3% in the first quarter The vacancy rate was 16.2% at the end of the fourth quarter 2015, 16.6% at the end of the third quarter 2015, and 17.1% at the end of the second quarter Largest Lease Signings The largest lease signings occurring in 2016 included: the 55,000-square-foot lease signed by HealthPort at N Black Canyon Fwy - Metro North Business Park - Bldg A in the Northwest Phoenix market; the 45,919-square-foot deal signed by Carlisle Companies, Inc. at N Scottsdale Rd - Kierland One in the Scottsdale market; and the 40,400-square-foot lease signed by Peckham, Inc. at N Black Canyon Hwy in the Northwest Phoenix market. U.S. Comparison Past 7 Quarters Rate 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Phoenix United States q q q q Sublease The amount of vacant sublease space in the Phoenix market increased to 841,444 square feet by the end of the first quarter 2016, from 685,277 square feet at the end of the fourth quarter There was 654,496 square feet vacant at the end of the third quarter 2015 and 816,245 square feet at the end of the second quarter Phoenix s Class-A projects reported vacant sublease space of 391,316 square feet at the end of first quarter 2016, up from the 300,940 square feet reported at the end of the fourth quarter There were 302,708 square feet of sublease space vacant at the end of the third quarter 2015, and 330,648 square feet at the end of the second quarter Class-B projects reported vacant sublease space of 404,341 square feet at the end of the first quarter 2016, up from the 349,447 square feet reported at the end of the fourth quarter At the end of the third quarter 2015 there were 338,828 square feet, and at the end of the second quarter 2015 there were 478,490 square feet vacant. Class-C projects reported increased vacant sublease space from the fourth quarter 2015 to the first quarter Sublease vacancy went from 34,890 square feet to 45,787 square feet during that time. There were 12,960 square feet at the end of the third quarter 2015, and 7,107 square feet at the end of the second quarter Sublease vacancy in Phoenix s central business district stood at 187,860 square feet at the end of the first quarter It was 161,314 square feet at the end of the fourth quarter 2015, 150,865 square feet at the end of the third quarter 2015, and 165,961 square feet at the end of the second quarter Sublease vacancy in the suburban markets ended the first quarter 2016 at 653,584 square feet. At the end of the fourth quarter 2015 sublease vacancy was 523,963 square feet, was 503,631 square feet at the end of the third quarter 2015, and was 650,284 square feet at the end of the second quarter Rental Rates The average quoted asking rental rate for available office space, all classes, was $22.48 per square foot per year at the end of the first quarter 2016 in the Phoenix market area. This represented a 1.8% increase in quoted rental rates from the end of the fourth quarter 2015, when rents were reported at $22.08 per square foot. The average quoted rate within the Class-A sector was $27.18 at the end of the first quarter 2016, while Class-B rates stood at $21.19, and Class-C rates at $ At the end of the fourth quarter 2015, Class-A rates were $26.64 per square foot, Class-B rates were $20.81, and Class-C rates were $ The average quoted asking rental rate in Phoenix s CBD was $22.26 at the end of the first quarter 2016, and $22.51 in the suburban markets. In the fourth quarter 2015, quoted rates were $22.19 in the CBD and $22.06 in the suburbs. Deliveries and Construction During the first quarter 2016, seven buildings totaling 978,919 square feet were completed in the Phoenix market area. This compares to 13 buildings totaling 1,559,392 square feet that were completed in the fourth quarter 2015, 10 buildings totaling 478,647 square feet completed in the third quarter 2015, and 625,335 square feet in five buildings completed in the second quarter The CoStar Office Report 2016 CoStar Group, Inc.

8 Overview First Quarter 2016 Phoenix There were 1,995,114 square feet of office space under construction at the end of the first quarter Some of the notable 2016 deliveries include: 4000 E Rio Salado Pky - Marina Heights - Bldg B, a 620,000-squarefoot facility that delivered in first quarter 2016 and is now 100% occupied, and 2222 E Yeager Dr - Mach One - Bldg A, a 105,000-square-foot building that delivered in first quarter 2016 and is now 0% occupied. The largest projects underway at the end of first quarter 2016 were 600 E Rio Salado Pky - Marina Heights - Bldg E, a 443,000-square-foot building with 100% of its space preleased, and 300 E Rio Salado Pky - Marina Heights - Bldg A, a 370,000-square-foot facility that is 98% pre-leased. Absorption & Deliveries Past 7 Quarters Net Absorption Deliveries Inventory Total office inventory in the Phoenix market area amounted to 166,659,655 square feet in 8,197 buildings as of the end of the first quarter The Class-A office sector consisted of 45,554,101 square feet in 284 projects. There were 4,520 Class- B buildings totaling 98,392,894 square feet, and the Class-C sector consisted of 22,712,660 square feet in 3,393 buildings. Within the Office market there were 897 owner-occupied buildings accounting for 15,772,921 square feet of office space. Sales Activity Tallying office building sales of 15,000 square feet or larger, Phoenix office sales figures fell during the fourth quarter 2015 in terms of dollar volume compared to the third quarter of In the fourth quarter, 38 office transactions closed with a total volume of $301,116,252. The 38 buildings totaled 2,658,215 square feet and the average price per square foot equated to $ per square foot. That compares to 29 transactions totaling $728,449,012 in the third quarter The total square footage in the third quarter was 3,554,889 square feet for an average price per square foot of $ (0.5) (0.21) q q q q Total office building sales activity in 2015 was up compared to In the twelve months of 2015, the market saw 127 office sales transactions with a total volume of $2,270,730,842. The price per square foot averaged $ In the same twelve months of 2014, the market posted 114 transactions with a total volume of $1,379,943,394. The price per square foot averaged $ Cap rates have been lower in 2015, averaging 7.37% compared to the same period in 2014 when they averaged 7.48%. One of the largest transactions that has occurred within the last four quarters in the Phoenix market is the sale of S Riverpoint Pky - University of Phoenix HQ in Phoenix. This three-building, 599,664-square-foot office park sold for $183,000,000, or $ per square foot. The property sold on 2/24/2015, at a 7.10% cap rate. Reports compiled by: Adam Jarrett, CoStar Senior Research Manager CoStar Group, Inc. The CoStar Office Report 3

9 Phoenix First Quarter 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 Airport Area Central Corridor East Phoenix East Valley North Phoenix Northwest Phoenix Scottsdale West Phoenix Submarkets Airport Area South Tempe/Ahwatukee Downtown* Midtown* 44th Street Corridor Camelback Corridor Midtown*/Central Phoenix Chandler Gateway Airport/Loop 202 Mesa Downtown* Mesa East Superstition Corridor Tempe N Phoenix/Cave Creek Paradise Valley Piestewa Peak Corridor Arrowhead Deer Valley/Airport North I-17 Northwest Phoenix Central Scottsdale N Scottsdale/Carefree Scottsdale Airpark Scottsdale South Glendale Loop 303/Surprise Southwest Phoenix West I-10 * Submarkets comprising the CBD. For statistics reference the CBD vs Suburban Figures at a Glance Page. 4 The CoStar Office Report 2016 CoStar Group, Inc.

10 Inventory & development First Quarter 2016 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 Square Footage Under Construction Inventory Average Bldg Size Market # Bldgs Total RBA Preleased SF Preleased % All Existing U/C East Valley 10 1,549,955 1,156, % 15, ,995 Scottsdale 2 184,750 26, % 20,416 92,375 Northwest Phoenix 1 149, % 17, ,209 West Phoenix 2 86, % 14,822 43,000 East Phoenix 1 25,200 25, % 21,632 25,200 Airport Area % 34,848 0 North Phoenix % 17,516 0 Central Corridor % 39,954 0 Totals 16 1,995,114 1,208, % 20, ,695 Recent Deliveries Leased & Un-Leased SF in Deliveries Since 2012 Future Deliveries Preleased & Un-Leased SF in Properties Scheduled to Deliver 3.5 Leased Un-Leased 700 Preleased Un-Leased Millions of SF Thousands of SF T q q 2016 CoStar Group, Inc. The CoStar Office Report 5

11 Phoenix First Quarter 2016 Inventory & development Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction 2.5 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 2 29,024 5, % $ , ,000 SF - 99,999 SF 2 119,895 93, % $ ,000 59, ,000 SF - 249,999 SF 2 210, % $ , ,000 SF - 499,999 SF % $ >= 500,000 SF 1 620, , % $ ,000 0 Recent Development by Tenancy Comparison Based on RBA Developed for Single & Multi Tenant Use Based on Total RBA 2016 Deliveries Currently Under Construction By Class By Space Type 14% 26% 72% 28% 56% 44% 59% 27% 74% Multi Single Multi Single Class A Class B Class C Multi Single 6 The CoStar Office Report 2016 CoStar Group, Inc.

12 Inventory & development First Quarter 2016 Phoenix 2016 CoStar Group, Inc. The CoStar Office Report 7

13 Phoenix First Quarter 2016 Inventory & development 8 The CoStar Office Report 2016 CoStar Group, Inc.

14 Figures at a Glance First Quarter 2016 Phoenix Class A Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Area 18 2,453, , , % (11,923) 0 0 $25.76 Central Corridor 26 9,642,195 1,743,670 1,886, % (4,480) 0 0 $24.85 East Phoenix 39 6,467,925 1,182,892 1,242, % (69,416) 0 0 $30.39 East Valley 47 7,744,969 1,202,028 1,202, % 211, ,000 1,297,055 $28.41 North Phoenix 17 1,940, , , % 8, $25.87 Northwest Phoenix 33 5,102, , , % 14, ,209 $24.11 Scottsdale 94 10,923,261 1,747,134 1,864, % (74,548) 0 184,750 $27.42 West Phoenix 10 1,278, , , % 2, $24.31 Totals ,554,101 7,091,620 7,482, % 76, ,000 1,631,014 $27.18 Class B Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Area ,983,185 2,467,145 2,555, % (49,398) 0 0 $22.15 Central Corridor ,072,314 1,639,283 1,683, % 44, $20.42 East Phoenix 287 8,725,915 1,268,457 1,333, % 37, ,200 $20.71 East Valley 1,353 20,797,336 3,440,042 3,514, % 249,767 23, ,900 $21.43 North Phoenix 242 4,912, , , % 41, $19.32 Northwest Phoenix ,068,547 3,617,874 3,660, % 196,563 65,165 0 $20.18 Scottsdale ,434,222 2,389,314 2,451, % (67,607) 0 0 $21.98 West Phoenix 385 6,398,703 1,017,690 1,023, % 56,705 59,895 86,000 $22.86 Totals 4,520 98,392,894 16,696,192 17,100, % 510, , ,100 $21.19 Class C Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Area 90 1,161, , , % 2, $17.31 Central Corridor 356 2,939, , , % (3,966) 0 0 $16.82 East Phoenix 525 3,215, , , % (10,126) 0 0 $14.02 East Valley 753 4,793, , , % 58, $15.61 North Phoenix 216 1,466, , , % 6, $16.17 Northwest Phoenix 740 4,780, , , % 10, $13.97 Scottsdale 467 2,532, , , % 15, $18.11 West Phoenix 246 1,823, , , % 10, $15.24 Totals 3,393 22,712,660 2,761,401 2,807, % 90, $15.43 Total Office Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Airport Area ,598,281 2,930,721 3,018, % (58,615) 0 0 $22.33 Central Corridor ,654,009 3,710,352 3,898, % 36, $22.26 East Phoenix ,409,214 2,805,220 2,963, % (41,795) 0 25,200 $24.91 East Valley 2,153 33,335,904 5,201,173 5,282, % 520, ,859 1,549,955 $22.47 North Phoenix 475 8,320,293 1,239,232 1,318, % 56, $20.61 Northwest Phoenix 1,541 26,951,130 4,793,808 4,854, % 221,568 65, ,209 $19.83 Scottsdale 1,464 29,889,717 4,386,254 4,565, % (126,458) 0 184,750 $24.23 West Phoenix 641 9,501,107 1,482,453 1,488, % 69,182 59,895 86,000 $22.23 Totals 8, ,659,655 26,549,213 27,390, % 677, ,919 1,995,114 $ CoStar Group, Inc. The CoStar Office Report 9

15 Phoenix First Quarter 2016 Figures at a Glance Class A Submarket Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 44th Street Corridor 13 1,713, , , % (31,194) 0 0 $26.15 Airport Area 12 1,677, , , % (17,128) 0 0 $25.83 Arrowhead 1 80, % $26.88 Camelback Corridor 26 4,754, ,246 1,014, % (38,222) 0 0 $32.09 Central Scottsdale 23 2,386, , , % 21, $25.06 Chandler 19 2,514, , , % (34,539) 210,000 0 $28.13 Deer Valley/Airport 22 3,722, , , % (7,929) 0 149,209 $25.97 Downtown 12 5,059, , , % 13, $27.26 Gateway Airport/Loop. 1 46,732 12,394 12, % $27.36 Glendale 5 521,061 71,043 71, % 2, $28.00 Loop 303/Surprise % $0.00 Mesa Downtown % $0.00 Mesa East % $0.00 Midtown 14 4,583,107 1,065,431 1,086, % (17,959) 0 0 $23.54 Midtown/Central Phoe % $0.00 N Phoenix/Cave Creek % $0.00 N Scottsdale/Carefre % $0.00 North I % $0.00 Northwest Phoenix 10 1,299, , , % 22, $21.91 Paradise Valley 14 1,531, , , % 8, $25.95 Piestewa Peak Corrid ,370 16,136 16, % $24.51 Scottsdale Airpark 56 6,549,779 1,261,182 1,323, % (35,861) 0 39,750 $27.60 Scottsdale South 15 1,987, , , % (59,878) 0 145,000 $29.47 South Tempe/Ahwatuke ,323 98,225 98, % 5, $24.99 Southwest Phoenix 5 757, , , % $23.00 Superstition Corrido , , , % 5, $23.25 Tempe 22 4,513, , , % 241, ,000 1,297,055 $29.94 West I % $0.00 Totals ,554,101 7,091,620 7,482, % 76, ,000 1,631,014 $ The CoStar Office Report 2016 CoStar Group, Inc.

16 Figures at a Glance First Quarter 2016 Phoenix Class B Submarket Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 44th Street Corridor 51 1,678, , , % (12,531) 0 25,200 $18.72 Airport Area 149 8,180,017 1,564,559 1,603, % 51, $22.57 Arrowhead 296 3,511, , , % 78,737 65,165 0 $23.03 Camelback Corridor 108 3,937, , , % 31, $22.00 Central Scottsdale 289 5,729, , , % 2, $21.74 Chandler 371 6,508,753 1,339,763 1,361, % 17,270 23,859 97,386 $22.20 Deer Valley/Airport 206 7,486,751 1,596,841 1,629, % 2, $21.65 Downtown 58 3,347, , , % (662) 0 0 $23.37 Gateway Airport/Loop ,259, , , % 22, ,514 $24.00 Glendale 98 1,883, , , % 54,194 59,895 86,000 $21.98 Loop 303/Surprise 126 1,799, , , % (2,541) 0 0 $23.51 Mesa Downtown ,228 37,956 37, % $16.45 Mesa East 217 2,130, , , % 12, $18.32 Midtown 127 6,724,578 1,326,287 1,366, % 45, $19.79 Midtown/Central Phoe ,109, , , % 18, $19.55 N Phoenix/Cave Creek ,421 18,835 18, % 3, $20.95 N Scottsdale/Carefre ,675, , , % (4,358) 0 0 $20.83 North I , , , % (1,585) 0 0 $22.78 Northwest Phoenix 210 5,329,419 1,350,786 1,352, % 116, $17.61 Paradise Valley 150 2,462, , , % 23, $20.41 Piestewa Peak Corrid. 80 2,346, , , % 14, $18.57 Scottsdale Airpark 306 6,086, , , % (8,194) 0 0 $22.22 Scottsdale South 153 2,942, , , % (57,377) 0 0 $23.41 South Tempe/Ahwatuke ,803, , , % (101,107) 0 0 $21.45 Southwest Phoenix 54 1,141,432 57,504 57, % 7, $19.94 Superstition Corrido ,779, , , % 168, $19.14 Tempe 157 4,388, , , % 28, ,000 $22.93 West I ,574, , , % (2,518) 0 0 $24.23 Totals 4,520 98,392,894 16,696,192 17,100, % 510, , ,100 $ CoStar Group, Inc. The CoStar Office Report 11

17 Phoenix First Quarter 2016 Figures at a Glance Class C Submarket Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 44th Street Corridor ,376 35,228 58, % 5, $14.59 Airport Area ,178 63,628 63, % 10, $14.70 Arrowhead ,085 96,784 96, % $18.45 Camelback Corridor ,339 83,563 83, % (2,637) 0 0 $15.76 Central Scottsdale ,075 35,252 35, % 7, $19.69 Chandler ,790 43,484 43, % $17.31 Deer Valley/Airport ,226 86,737 86, % (1,975) 0 0 $17.70 Downtown 99 1,079, , , % $18.70 Gateway Airport/Loop ,307 8,266 8, % 3, $15.29 Glendale ,550 68,328 68, % 2, $17.35 Loop 303/Surprise ,974 7,581 7, % 8, $19.36 Mesa Downtown , , , % 14, $14.32 Mesa East 201 1,273, , , % 11, $15.40 Midtown 257 1,860, , , % (3,966) 0 0 $16.05 Midtown/Central Phoe ,990, , , % (12,916) 0 0 $13.51 N Phoenix/Cave Creek 5 20, % $0.00 N Scottsdale/Carefre ,160 23,025 23, % $16.10 North I , % $0.00 Northwest Phoenix 615 3,811, , , % 11, $12.78 Paradise Valley ,266 92,450 92, % 5, $15.33 Piestewa Peak Corrid ,344 29,887 29, % $18.08 Scottsdale Airpark ,474 16,198 16, % 1, $14.24 Scottsdale South 338 1,682, , , % 5, $18.53 South Tempe/Ahwatuke ,188 39,205 39, % (8,040) 0 0 $20.74 Southwest Phoenix ,348 89,748 89, % $14.21 Superstition Corrido , , , % $14.06 Tempe 211 1,564, , , % 26, $16.54 West I ,662 33,564 33, % (1,105) 0 0 $13.67 Totals 3,393 22,712,660 2,761,401 2,807, % 90, $ The CoStar Office Report 2016 CoStar Group, Inc.

18 Figures at a Glance First Quarter 2016 Phoenix Total Office Submarket Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 44th Street Corridor 140 3,940, , , % (38,298) 0 25,200 $23.11 Airport Area ,523,602 1,890,705 1,929, % 45, $22.78 Arrowhead 370 4,142, , , % 79,637 65,165 0 $22.33 Camelback Corridor 227 9,368,333 1,763,470 1,843, % (9,265) 0 0 $28.04 Central Scottsdale 388 8,536,218 1,170,601 1,215, % 31, $22.59 Chandler 466 9,488,276 1,864,782 1,886, % (16,480) 233,859 97,386 $23.64 Deer Valley/Airport ,625,044 1,870,291 1,917, % (7,288) 0 149,209 $22.42 Downtown 169 9,486,090 1,122,606 1,247, % 12, $25.41 Gateway Airport/Loop ,379, , , % 25, ,514 $23.85 Glendale 185 3,074, , , % 58,840 59,895 86,000 $22.65 Loop 303/Surprise 147 1,960, , , % 6, $23.30 Mesa Downtown 207 1,495, , , % 15, $14.86 Mesa East 418 3,404, , , % 24, $17.18 Midtown ,167,919 2,587,746 2,650, % 23, $21.09 Midtown/Central Phoe ,100, , , % 5, $17.46 N Phoenix/Cave Creek ,458 18,835 18, % 3, $20.95 N Scottsdale/Carefre ,886, , , % (3,382) 0 0 $20.55 North I , , , % (1,585) 0 0 $22.78 Northwest Phoenix ,440,465 2,156,486 2,161, % 150, $17.05 Paradise Valley 259 4,727, , , % 38, $22.10 Piestewa Peak Corrid ,469, , , % 15, $18.71 Scottsdale Airpark ,854,802 1,991,051 2,055, % (43,030) 0 39,750 $25.57 Scottsdale South 506 6,612, , , % (111,327) 0 145,000 $24.97 South Tempe/Ahwatuke ,074,679 1,040,016 1,089, % (103,942) 0 0 $21.49 Southwest Phoenix 168 2,658, , , % 7, $20.15 Superstition Corrido ,101, ,319 1,039, % 174, $19.41 Tempe ,466,374 1,430,402 1,430, % 296, ,000 1,447,055 $24.82 West I ,807, , , % (3,623) 0 0 $22.93 Totals 8, ,659,655 26,549,213 27,390, % 677, ,919 1,995,114 $ CoStar Group, Inc. The CoStar Office Report 13

19 Phoenix First Quarter 2016 Figures at a Glance Class A Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 26 9,642,195 1,743,670 1,886, % (4,480) 0 0 $24.85 Suburban ,911,906 5,347,950 5,596, % 80, ,000 1,631,014 $27.78 Totals ,554,101 7,091,620 7,482, % 76, ,000 1,631,014 $27.18 Class B Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,072,314 1,639,283 1,683, % 44, $20.42 Suburban 4,335 88,320,580 15,056,909 15,417, % 465, , ,100 $21.27 Totals 4,520 98,392,894 16,696,192 17,100, % 510, , ,100 $21.19 Class C Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 356 2,939, , , % (3,966) 0 0 $16.82 Suburban 3,037 19,773,160 2,434,002 2,478, % 94, $15.25 Totals 3,393 22,712,660 2,761,401 2,807, % 90, $15.43 Class A & B Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,714,509 3,382,953 3,569, % 40, $22.72 Suburban 4, ,232,486 20,404,859 21,013, % 546, ,919 1,995,114 $23.21 Totals 4, ,946,995 23,787,812 24,583, % 586, ,919 1,995,114 $23.15 Total Office Market Statistics First Quarter 2016 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,654,009 3,710,352 3,898, % 36, $22.26 Suburban 7, ,005,646 22,838,861 23,492, % 640, ,919 1,995,114 $22.51 Totals 8, ,659,655 26,549,213 27,390, % 677, ,919 1,995,114 $ The CoStar Office Report 2016 CoStar Group, Inc.

20 Figures at a Glance First Quarter 2016 Phoenix 2016 CoStar Group, Inc. The CoStar Office Report 15

21 Phoenix First Quarter 2016 Leasing Activity Historical Rental Rates Based on Full-Service Equivalent Rental Rates A B C Total Market $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $ q q q 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 Phoenix United States Phoenix United States 3% 4% 10% 15% 63% 27% 49% 36% 97% 96% 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* $25.00 Phoenix United States $ $15.00 $10.00 $5.00 $ q q q q q * Includes Under Construction Spaces 16 The CoStar Office Report 2016 CoStar Group, Inc.

22 Leasing Activity First Quarter 2016 Phoenix Select Top Oce Leases Based on Leased Square Footage For Deals Signed in 2016 Building Submarket SF Qtr Tenant Name Tenant Rep Company Landlord Rep Company N 44th St 44th Street Corridor 138,240 1st N/A N/A CBRE N Black Canyon Fwy Deer Valley/Airport 55,000 1st HealthPort Lee & Associates Cashen Realty Advisors N Scottsdale Rd Scottsdale Airpark 45,919 1st Carlisle Companies, Inc. CBRE Cushman & Wakeeld N Black Canyon Hwy* Deer Valley/Airport 40,400 1st Peckham, Inc. N/A Cashen Realty Advisors W Geronimo Pl Chandler 22,067 1st Venture Employment Services KW Commercial - East Valley JLL N 87th St* Scottsdale Airpark 21,009 1st JDA Software Group, Inc. N/A CBRE E Rivulon Blvd Chandler 18,906 1st Merril Lynch JLL Lee & Associates N 19th Ave Deer Valley/Airport 17,087 1st D.R. Horton, Inc. CBRE; Corporate Realty Advisors CBRE W Ray Rd Chandler 13,275 1st ARM, Inc. Cushman & Wakeeld Newmark Grubb Knight Frank W Frye Rd Chandler 12,168 1st Cardinal Financial Direct Deal Cushman & Wakeeld E Highland Ave* Camelback Corridor 10,709 1st AFS Technologies, Inc. Lee & Associates McCarthy Cook & Co N Scottsdale* Scottsdale Airpark 9,972 1st AXA Advisors LLC N/A CBRE N Scottsdale Rd Scottsdale Airpark 9,768 1st Proactive Training Solutions N/A Dakota Property Management E Indian School Rd Scottsdale South 9,254 1st Katerra, Inc. NAI Horizon JLL W Chandler Blvd South Tempe/Ahwatukee 9,198 1st Automatic Data Processing, Inc. N/A JLL E Rivulon Blvd Chandler 9,000 1st Finance Of America N/A Lee & Associates S Alma School Rd Superstition Corridor 8,255 1st Invidasys N/A Cushman & Wakeeld E High St Paradise Valley 7,542 1st Deskhub N/A JLL E Rivulon Blvd Chandler 6,533 1st Thomas Title & Escrow N/A Lee & Associates N Hayden Rd Central Scottsdale 6,373 1st Arizona Partners N/A Arizona Partners Retail Investment S McClintock Dr Tempe 5,913 1st Legacy Heart Care of Phoenix LLC N/A NAI Horizon E McKellips Rd Mesa East 5,347 1st Valley Hospice of Arizona COBE Real Estate COBE Real Estate E Princess Dr Scottsdale Airpark 5,228 1st Futurity First Insurance Group, Inc. NAI Horizon Commercial Properties, Inc S River Pky* South Tempe/Ahwatukee 5,094 1st Quantenna Colliers International Direct Deal E Van Buren St Tempe 4,802 1st American Homes 4 Rent N/A CBRE W Sack Dr Arrowhead 4,506 1st Glendale Urology, PC Direct Deal The Plaza Companies E Baseline Superstition Corridor 4,150 1st Practice Management Direct Deal SVN Desert Commercial Advisors N 32nd St Paradise Valley 4,019 1st Prepare The Way International Shell Commercial Shell Commercial N Perimeter Dr Scottsdale Airpark 3,804 1st Sindeo Mortgage Shell Commercial Shell Commercial N Hayden Rd Scottsdale Airpark 3,264 1st Billre, Inc. N/A Shell Commercial * Renewal 2016 CoStar Group, Inc. The CoStar Office Report 17

23 Phoenix First Quarter 2016 Sales Activity The Optimist Sales Index Average of Two Highest Price/SF's and Two Lowest Cap Rates Per Quarter 8.0% Cap Rate Price/SF $480 Cap Rate Percentage 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% $430 $380 $330 $280 $230 Dollars/SF 0.0% q q q $180 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 Jan Dec $800 Sales Volume Price/SF $250 Bldg Size # RBA $ Volume Price/SF Cap Rate Millions of Sales Volume Dollars $700 $600 $500 $400 $300 $200 $200 $150 $100 $50 Price/SF < 50,000 SF 253 3,256,238 $426,667,186 $ % 50K-249K SF 250K-499K SF 49 6,041,108 $946,714,887 $ % 12 3,618,053 $676,439,500 $ % $100 $0 $0 >500K SF 3 1,748,027 $437,600,000 $ % 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 $300 Phoenix US 9.0% Phoenix US Dollars per SF $250 $200 $150 Cap Rate Percentage 8.0% 7.0% 6.0% 5.0% 4.0% $ % $50 2.0% q q q q q q q q Source: CoStar COMPS Source: CoStar COMPS 18 The CoStar Office Report 2016 CoStar Group, Inc.

24 First Quarter 2016 Phoenix 2016 CoStar Group, Inc. The CoStar Office Report 19 Sales Activity