Industrial Report. Sacramento Industrial Insights Volume 4 4th Quarter Accelerating success.

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1 Industrial Report Sacramento Industrial Insights Volume th Quarter 01 Accelerating success.

2 Q 01 INDUSTRIAL GREATER SACRAMENTO RESEARCH & FORECAST REPORT Sacramento Industrial Insights Volume 1 nd Quarter 01 KEY INDUSTRIAL METRICS - Q 01* TOTAL MARKET ADJUSTED Warehouse Vacancy 11.7% 1.7% Net Absorption 16,1 SF 6,977 SF Deliveries 0 SF 0 SF Under Construction,0 SF,0 SF Average Direct Rate $0.0 / SF $0.0 / SF *Statistics in the Total Market column include all flex & industrial buildings in the Sacramento MSA. Statistics in the Adjusted column does not include owner-occupied & government buildings. Q HIGHLIGHTS OVERALL WAREHOUSE VACANCY remained steady at 11.7%, the third straight quarter of unchanged vacancy. This is 1.7% below the market s high of 1.% in 1st quarter 011. Warehouse vacancy is expected to resume its decline in 01, reaching 11.1%. Overall flex vacancy has continued to decline for the fifth straight quarter, hitting 17.7% by the end of 01. This is the lowest Flex vacancy has been since 008. TOTAL ABSORPTION of Flex and Warehouse space remained positive in the th quarter of 01 at 16,1 SF. This brings total net absorption for the year to 1,8,9 SF, more than twice what was absorbed in 01 and the third straight year of positive net absorption. LEASE RATES (NNN) remained at $0./SF through the th quarter of 01. Asking rates continue to bump up and down by a penny quarter to quarter and estimates show that this will continue through 01. Flex asking lease rates have fluctuated slightly more frequently than warehouse, but continue to only change by a few cents quarter to quarter. Current asking rates reached $0.7/SF which is above the ending asking rates in 01 at $0.70/SF. Fourth Quarter 01 General Market How well did the market perform in 01? The real estate market was fairly strong in 01. We still don t have a lot of new growth and demand, but we are showing positive absorption. We are seeing more buyers taking advantage of the low cost of real estate and many optimistic investors coming to the market. Colliers Sacramento has increased revenues over 70% from 01. This is largely due to the improved market conditions, successful recruiting and increased production of our brokers. The percentage of investment sales was significant in comparison to leasing transaction volume. I expect this to continue in 01, and there is no doubt that 01 will be better than 01. At 6 years since the start of the recession, has the market recovered more quickly or slowly than you expected? Randy Dixon Managing Director TOTAL INVENTORY BREAKDOWN 11.6% 88.% The major markets like the Bay Area, L.A., Seattle, and Phoenix have recovered a lot more quickly than we expected. Sacramento however has not seen that same quick recovery. It was slower than I expected and the future looks to be just as slow. However, we are seeing benefits of the activity in the Bay Area and Los Angeles. Our investment pool in Sacramento includes many buyers from those markets who are looking for better cap rate deals. In terms of business recovery, our demand continues to primarily be around education and medical uses. The lending and mortgage industries have done well and see more employment growth. Overall the market will have nominal levels of business growth. From a market activity perspective, this nominal change is likely to be the new standard. We won t see huge spikes and declines in our metrics. We are at the bottom in terms of rates and we have slowly improving vacancy across the board. There is still a lot of room for improvement and we should expect things to get better. Many of our public companies are having huge profit returns year-over-year and this gives a clear indication of health. The companies that have tightened their belts and survived the recession are showing more profit and that should have a positive effect on our real estate market. This doesn t mean that our demand will spike, but it should continue to grow. Flex Total Inventory 17,1,168 SF Warehouse

3 VACANCY AND ABSORPTION The overall industrial vacancy (Flex and Warehouse combined) declined by 10 basis points over the last quarter from 1.% to 1.%. While this is not the strongest improvement the industrial market has had, it is consistent with the average rate of change quarter to quarter. Warehouse vacancy has leveled off for the last three quarters remaining at 11.7%. Warehouse absorption was erratic through the year, but remained positive ending the year with 7,7 SF. 01 started out with negative absorption totaling -,97 SF, but was quickly reversed in the nd quarter with 1,0,719 SF of positive absorption. The second half of the year remained close to net zero and the th quarter only totaled 7 SF. This nominal net positive absorption is expected to continue in 01 and vacancy is forecast to decline by 60 basis points over the year to reach 11.1%. Employment in Thousands Employment in Thousands METRO EMPLOYMENT AND INDUSTRIAL VACANCY 1,100 1,00 1, # Employed Warehouse Vacancy Flex Vacancy Forecast Period 1Q 011 Q 011 Q 011 Q 011 1Q 01 Q 01 Q 01 Q 01 1Q 01 Q 01 Q 01 Q 01 1Q 01 Q 01 Q 01 Q 01.0%.0% 0.0% 18.0% 16.0% 1.0% 1.0% 10.0% 8.0% 6.0%.0%.0% 0.0% Flex vacancy has been considerably higher on a percentage basis than Warehouse since the start of the recession. Flex reached an all-time high of 1.% at the end of 010 and has declined by 10 to 80 basis point quarter to quarter. Most recently in 01, vacancy declined by.1% over the course of the year to 17.6%. Flex absorption trends were not erratic like Warehouse, instead smaller but consistent quarters of positive absorption totaled 8, SF. Due to current limited demand for flex space, this trend is unlikely to improve and is expected to plateau similarly to Warehouse. By the end of 01, Flex vacancy is anticipated to reach 17.%. Overall absorption for both Flex and Warehouse space has been positive over the last three years. While there was a significant improvement between 01 and 01, broker opinion indicates that 01, while still improving, is not going to outperform 01 to the same degree. Overall net absorption is anticipated to reach nearly 1. million square feet over the course of the year. Square Feet,000,000,000,000 1,000,000 0 (1,000,000) (,000,000) (,000,000) NET ABSORPTION Forecast Period Forecast LEASE RATES Asking lease rates have continued to fluctuate slightly quarter to quarter by very small increments, rarely more than 1 to cents in either direction. On an annual basis, 01 asking lease rates remained flat at $0.0/SF, the same as 01 and 011. Warehouse asking lease rates have declined annually since 010 by small increments ranging from $0./SF to $0.8/SF. 01 ended, at the low end of this range, averaging $0./SF. This very nominal annual rise and fall of asking lease rates continues to show that the market has bottomed and broker sentiment indicates that a significant increase in rates is not expected during 01. As the chart indicates, Warehouse asking lease rates are expected to stay flat for the next four quarters and end the year at $0.6/SF. Flex asking lease rates appear to be following the same trend as Warehouse due to the struggle of continued soft demand. Asking $1. $1.00 $0.7 $0.0 $0. $0.00 LEASE RATES DIRECT AVERAGE ASKING RATE NNN FLEX OFFICE rates dropped the most at the end of 010 from $0.77/SF to $0.71/ SF in 011. Since then, asking rates fluctuated by just a couple of cents year to year. 01 ended with an average of $0.71/SF and is also expected to maintain this slight fluctuation in 01. t $1. $1.00 $0.7 $0.0 $0. $0.00 P. COLLIERS INTERNATIONAL

4 CONSTRUCTION SUMMARY / INVESTMENT CLIMATE With limited demand and vacancy remaining high in both Flex and Warehouse, construction has been limited to build to suit developments. The most recent deliveries came in the first and second quarters of the year and included 0 Mulvany Place, occupied by Saladino s, and 970 Ramco Street, the new headquarters, manufacturing, and distribution center for Nihon Shokken. There is 80,96 SF of build to suit inventory currently under construction and expected to be completed in 01 and an additional,091 SF slated for January 01 1 Property Location 87 Embarcadero Drive SF Under Construction Submarket 60,000 West Sacramento 801 Foothills Blvd 19,000 Roseville/Rocklin 66 Golden Foothill Parkway 66 Golden Foothill Parkway 1,61 1,61 Folsom/ Ed Dorado Folsom/ Ed Dorado 00 Mulvany Place 0,000 West Sacramento BROKER PERSPECTIVE What were your expectations for the end of 01? I believe 01 turned out mostly as I thought it would. Net absorption was limited. The discrepancy between effective lease rates and the asking rates continued to be significant with landlords offering considerable concessions to attract tenants. One positive trend that I witnessed towards the end of the year was increased interest in building ownership from current financially stable tenants. In the smaller size ranges I recommended to both buyers and sellers that this is a good time to consider acquiring property. In my opinion interest rates will begin rising this year which will reduce the number of qualified buyers in the market. Many sellers are or will be faced with the prospect of refinancing their properties over the next year or two and could be hard pressed to meet loan to value ratios that the finance industry is demanding. In terms of recovery, how well do you think the industrial market is doing in Sacramento? Unfortunately I believe the Sacramento Industrial Market will continue to bounce along the bottom in 01 but show minor growth over 01. California and Sacramento face some significant headwinds in regard to attracting new business and industry. Our being ranked #0 when it concerns Business Climate and #9 when considering our tax environment speaks volumes. We continue to have more large tenants leaving the Sacramento Region than locating here. Another obstacle we are facing in both the short and long term is our water supply. We are currently experiencing what many climatologists are labeling a one in 00 year drought event. Although this...interest rates will begin rising this year which will reduce the number of qualified buyers in the market Trent Thomason Vice President Trent Thomason Vice President has no immediate impact, it does raise the issue of water storage capacity which California has done little to address over the last 0 years. Agriculture remains the largest industry in the Northern Sacramento Valley Region and many farmers and ranchers are being faced with leaving crops unplanted due to the shortage. A significant segment of industrial users are ancillary to this industry and will be affected to some degree. In general, Landlords are still faced with lease rate stagnation and have little opportunity to push rents up. Do you expect 01 to maintain the same level of growth/improvement as 01 or do you see more potential for 01? I am hopeful we might see some modest improvement but we won t be moving the needle too far. One trend that looks positive for the country in general is the expectation that manufacturers will begin to re-shore operations from overseas. This is being fueled by wage inflation in China and the U.S. developing their energy resources and being able to provide some of the cheapest energy on the planet. Sadly, California went the other direction in 01 adding increasing excise taxes on fuel which erodes some of the benefit of the lower cost. COLLIERS INTERNATIONAL P.

5 SACRAMENTO INDUSTRIAL MARKET FEATURED DEALS SALE COMPARABLES Map # Property Location Rentable SF Sale Price Price/SF Submarket Buyer Seller 1 9 Seaport Blvd. 1,88 $9,67,000 $71.0 West Sacramento Libitzky Property Companies Port View Investors LLC 8170 Elder Creek Road 69,8 $,7,00 $.0 Power Inn Ethan Conrad Northwood Properties LLC 8801 Washington Blvd. 11,000 $6,0,000 $.00 Roseville/Rocklin PowerON Services, Inc. Westcore Properties 00 Hanson Way 96,000 $1,90,000 $0.8 Woodland Lotus Pacific Investments DCT Industrial Trust Inc. 161 Main Avenue 117,600 $,80,600 $7. Natomas/ Northgate Starwest Botanicals, Inc Balboa Funds For further comparable information, feel free to contact one of our brokerage professionals. LEASE TRANSACTIONS Map # Property Location Leased SF Class Tenant Submarket Type 1 60 Industrial Blvd. 0,9 B Young's Market Company West Sacramento Warehouse 1000 Vine Street 0,000 C La Superior Super Marcado Richards Warehouse 90 Ramco Street,181 B Pack-Rat West Sacramento Warehouse Enterprise Blvd.,98 B GoKart Racer West Sacramento Warehouse 160 West National Drive 61,60 A Chipman Corporation Natomas/Northgate Warehouse 9 Seaport Blvd. 60 Industrial Blvd. P. COLLIERS INTERNATIONAL

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7 SUBMARKET ANALYSIS Q 01 SUBMARKET RENTABLE BUILDING AREA TOTAL VACANT SF OVERALL VACANCY RATE NET ABSORPTION SF YTD NET ABSORPTION SF UNDER CONSTRUCTION SF DIRECT FS AVERAGE ASKING RATE $/SF/MO Auburn / Lincoln Warehouse,619,19 1,7.% 17,6 7,00 0 $0.6 Flex 0,61 1, 9.8% 0 16,70 0 $0.71 Davis / Woodland Warehouse 16,977,6,8,9 1.8% (7,81),861 0 $0. Flex 78,899 1,8 1.0% (11,) (,60) 0 $1.00 Downtown / Midtown Warehouse,1,9 16,.6% 18,1 6,6 0 $1.0 Flex 9,66 8,6 6.9% 9,000 9,000 0 $0.9 East Sacramento Warehouse 777,16 6,9 8.% (6,000) 8,800 0 $0.6 Flex 11,61, % $1. Elk Grove / Laguna Warehouse,66,69,10 9.6% 7,66 16,119 0 $0.7 Flex 9,919 77, % 1,76 (1,8) 0 $0.8 Folsom / El Dorado Warehouse,,90 17,60.9%,89 11,7 0 $0.71 Flex 1,97,08 161,0 8.% 79,06, $0.8 Marysville / Yuba City Warehouse 6,1, 81,8 7.%,0 (8,86) 0 $0. Flex 19,00,89 1.9%,980 (7,0) 0 - McClellan / North Highlands Warehouse 1,90,917,71,8 18.%,60 8,86 0 $0.1 Flex,0,800 77,07.% 9,87 8,098 0 $0.6 Northeast Warehouse,97,09 0, % 7,1 6,8 0 $0.1 Flex 1,0, 10,67 9.8% 0,11 77,9 0 $0.86 Northgate / Natomas Warehouse 11,8, 1,7,901 1.%,71 78,66 0 $0.8 Flex,0,0 76,716.7% 9,8,61 0 $0.67 Power Inn Warehouse,970,901,68, %,017 10,171 0 $0. Flex 1,0,0 1, % (1,) 1,966 0 $0. Richards Warehouse,0,07,77 8.0% (68,696) (16,707) 0 $0. Flex 09,8,807 1.%,09 8,7 0 $0.9 Roseville / Rocklin Warehouse 17,61,780,71,1 1.6% 1,608 01,78 19,000 $0.7 Flex,1,7 60, %,0 91,80 0 $0.96 South Sacramento Warehouse,6,7 1,9,76.1% (6,01) (1,8,6) 0 $0. Flex 0,7 8,9 0.7% 7,161 (9,01) 0 - Sunrise / Highway 0 Warehouse 1,7,78 1,, % 108, ,77 0 $0.0 Flex,6,888 81,8.9%,7 11,119 0 $0. West Sacramento Warehouse 16,9,19 1,6, % (,78) 89,609 60,000 $0. Flex 1,99,7 0, % (18,99) (1,710) 0 $0.6 Overall Warehouse 1,88,06 18,18,1 11.7% 7 1,1,7,000 $0. Flex 0,8,66,60,8 17.7% 161,878 8,, $0.7 Overall Market 17,1,168 1,76,6 1.% 16,1 1,8,9 80, $0.0 P. 7 COLLIERS INTERNATIONAL

8 YOUR EXPERTS Industrial Specialists Bud Applegate Steve Cippa steve.cippa@colliers.com Jim Dennis Associate Vice President jim.dennis@colliers.com Trent Thomason Vice President trent.thomason@colliers.com Tom Tyer SIOR tom.tyer@colliers.com Investment Specialists John Banchero john.banchero@colliers.com Gretchen Becker Sr. Analyst & Transaction Mgr. gretchen.becker@colliers.com Steve Chamberlain steve.chamberlain@colliers.com Heath Charamuga heath.charamuga@colliers.com John Jackson Vice President john.jackson@colliers.com Appraisal Specialist Colliers Management Ben Prater Investment Advisor ben.prater@colliers.com Marty Shearer Sr. Services Director marty.shearer@colliers.com Valuations Services Randy Dixon Managing Director randy.dixon@colliers.com Logan Dunnaway Research Director logan.dunnaway@colliers.com COLLIERS INTERNATIONAL P. 8