MARKET REPORT PHOENIX METRO OFFICE

Q3 2018 MARKET REPORT PHOENIX METRO OFFICE

Q3 Phoenix Office Market Overiew Key Takeaways * Compared To Last Quarter Total Vacancy 17.25% Q3 Net Absorption 999,900 SF Absorption/Vacancy 2008-2018 Average Asking Rents $25.44 PSF Under Construction 2,785,849 SF Sublease Space 1,841,636 SF The Phoenix office sector posted another solid quarter as Q3 continued to see cap rates and vacancy rates decline. While net absorption came close to one million square feet in the third quarter compared to Q2 s number of 732,248 square feet. 2.7 million square feet of new office space is still currently under construction. That number is down by just a fraction compared to last quarter because of the delivery of One Chandler, a 117,176 square foot spec office building. With the addition of I.D.E.A. Tempe Phase I, (185,833 square feet), Tempe now leads the Phoenix office market in construction at 1,022,314 square feet followed by Chandler s submarket at 968,052 square feet. Vacancy rates continued to fall in the Valley at 17.25%, more than one percent lower than Q2 s number of 18.61%. Average asking rates continue to hover around the $25.00 PSF range, just $0.22 higher than the previous quarter s number of $25.22 PSF. Class A office space holds the lowest vacancy rate in Phoenix at 15.8%, almost a full percent down from Q2. The Camelback Corridor takes the title for Buyer Type Q3 2018 Sales highest asking rate of the quarter, $32.16 PSF, followed by the South Scottsdale submarket. Q3 cap rates remain at a steady number of 6.61% just under Q2 s cap rate of 6.70%. Private investors dominate the buyer category of the quarter at 58% followed by Institutional and REIT/Public investors, both at 14%. Norterra West was the largest sale of the third quarter at $48 million. The Class A office building, 149,208 square feet, cost JDM Partners $321.70 PSF. The largest building that sold, The Scottsdale Forum, a 213,501 square foot Class A office building, was purchased by CapRidge Partners for $40,750,000. The top office lease of Q3 came from Vet s First Choice, who took just over 100,000 square feet in the Deer Valley submarket. The Valley s office market had very little change coming off a great second quarter. Rental rates remain strong, vacancy rates continue to decline, and opportunities around Phoenix continue to present themselves. If the first three quarters of the year tell a story, it is that Q4 could finish on a very high note. Rental Rates Per Month, 2007-2018 3.000 30.0% 2.500 2.000 1.500 21.1% 23.7% 25.3% 22% 20.0% 25.0% 20.0% 17.3% $30.00 $28.00 $26.00 $25.72 $25.44 1.000 0.500 0.000-0.500-1.000 08 09 10 11 12 13 14 15 16 17 YTD 18 Absorption Vacancy 15.0% 10.0% 5.0% 0.0% $24.00 $22.00 $20.00 $18.00 $20.24 $22.82 $19.72 $21.12 $23.86 07 08 09 10 11 12 13 14 15 16 17 18 YTD Full Service Asking Rental Rates Sales by the Numbers: Q3 2018 No. of Transactions 212 Q2 2018: 150 Total Sales $622M Q2 2018: $665M Average PSF $172.57 Q2 2018: $165.57 Average Cap Rate 6.61% Q2 2018: 6.70% Q3 2018 Top Office Leases Tenant Name Property Name Address Class Submarket SF Type Vet's First Choice Blackhawk Corporate Center 1 20401 N. 29th Ave. B Deer Valley 100,222 New McKesson Corporation State Farm Building 2 2900 S. Sunland Dr. B Tempe 98,632 Sublease McKesson Corporation State Farm Building 3 2800 S. Sunland Dr. B Tempe 79,007 Sublease P.F. Changs Perimeter Parkview Corporate Center 8377 E. Hartford Dr. A Scottsdale 53,559 New Cognizant WayPoint 4 1130 N. Alma School Rd. B Tempe 51,270 Expansion Q3 2018 Top Office Sales Property Address Buyer Seller Class Sales Price SF PSF 25700 N. Norterra Pky. JDM Partners USAA Real Estate Company A $48,000,000 149,208 $321.70 6263 N. Scottsdale Rd. CapRidge Partners Iowa Public Employees Retirement System A $40,750,000 213,501 $190.87 17500 N. Black Canyon Hwy. BPM Real Estate Group Walton Street Capital, LLC A $39,250,000 163,607 $239.90 2290 E. Yeager Dr. Sentinel Real Estate Corporation Prudential Financial, Inc. A $28,500,000 102,121 $279.08 1661 E. Camelback Rd. IPF 1661 LLC Merced Capital B $25,300,000 178,792 $141.51

Sky Harbor PRIEST DR. RURA L RD. Q3 2018 Phoenix Office Market Statistics Building Class Inventory Vacancy Rate Net Absorption Sublease Available Under Asking Total Direct SF Percent Sublease SF Percent Total SF Percent Q3 2018 YTD 2018 Vacant SF Total SF Percent Construction FS Rents Class A 40,319,358 5,912,372 14.7% 464,475 1.2% 6,376,847 15.8% 130,290 1,184,134 464,475 1,128,913 2.8% - $29.28 Class B 53,748,099 9,407,668 17.5% 489,592 0.9% 9,897,260 20.3% 988,005 1,463,290 489,592 704,123 1.3% - $22.92 Class C 5,869,773 959,271 16.3% 2,600 0.0% 961,871 16.4% (118,395) 78,172 2,600 8,600 0.1% - $17.28 Building Type Total 99,937,230 16,279,311 16.3% 956,667 1.0% 17,235,978 17.25% 999,900 2,725,596 956,667 1,841,636 1.8% - $25.44 Office Submarket Inventory Vacancy Rate Net Absorption Sublease Available Under Asking Total Direct SF Percent Sublease SF Percent Total SF Percent Q3 2018 YTD 2018 Vacant SF Total SF Percent Construction FS Rents 1. Downtown Phoenix 6,943,812 780,640 11.2% 88,451 1.3% 869,091 12.5% 98,559 335,683 88,451 98,687 1.4% - $30.24 2. Midtown Phoenix 9,372,456 2,271,632 24.2% 39,247 0.4% 2,310,879 24.7% 52,876 240,993 39,247 119,269 1.3% 0 $22.68 3. Midtown/Central Phoenix 1,944,403 265,315 13.6% 5,761 0.3% 271,076 13.9% (46,340) (12,295) 5,761 15,051 0.8% $18.00 4. 44th St. Corridor 2,633,928 426,076 16.2% 1,700 0.1% 427,776 16.2% (38,802) 27,920 1,700 12,084 0.5% $27.12 5. Camelback Corridor 7,285,784 1,191,600 16.4% 105,231 1.4% 1,296,831 17.8% (39,121) (62,703) 105,231 201,118 2.7% $32.16 6. Piestewa Corridor 2,228,389 402,655 18.1% 43,007 1.9% 445,662 20.0% 43,055 (107,333) 43,007 43,847 2.0% $20.64 7. Northwest Phoenix 6,182,227 1,486,181 24.0% 26,629 0.4% 1,512,810 24.5% 17,313 (34,533) 26,629 26,629 0.4% $19.20 8. Southwest Phoenix 1,377,451 232,182 16.9% - 0.0% 232,182 16.9% 14,058 55,540 - - 0.0% $26.64 9. Sky Harbor Airport 8,866,037 1,720,310 19.4% 253,847 2.9% 1,974,157 22.3% 597,195 906,933 253,847 268,475 3.0% $23.52 10. S. Tempe/Ahwatukee 5,282,734 918,270 17.4% 41,777 0.8% 960,047 18.2% 80,008 (27,918) 41,777 164,092 3.1% $22.44 11. Tempe 6,502,759 548,262 8.4% 9,666 0.1% 557,928 8.6% (32,921) 495,188 9,666 123,764 1.9% $30.00 12. Scottsdale South 4,920,533 643,979 13.1% 49,097 1.0% 693,076 14.1% 56,621 (3,156) 49,097 119,900 2.4% $31.44 13. Central Scottsdale 5,166,236 517,463 10.0% 73,667 1.4% 591,130 11.4% 85,488 33,841 73,667 142,556 2.8% $25.92 14. Paradise Valley 2,074,917 342,699 16.5% 47,085 2.3% 389,784 16.5% (46,038) (52,846) 47,085 48,285 2.3% $25.68 15. Deer Valley Airport 5,612,194 1,002,327 17.9% 13,694 0.2% 1,016,021 18.1% 20,009 516,124 13,694 6,280 0.1% $23.52 16. Arrowhead 1,014,384 114,763 11.3% 8,060 0.8% 122,823 12.6% (1,458) 6,016 8,060 8,060 0.8% $25.44 17. Glendale 1,662,004 235,958 14.2% - 0.0% 235,958 14.2% (7,553) 40,234 - - 0.0% $23.40 18. Chandler 5,879,222 1,082,570 18.4% - 0.0% 1,082,570 18.4% 238,856 417,782-70,304 0.0% $24.72 19. Gateway/Loop 202 330,315 22,006 6.7% 38,064 11.5% 60,070 19.7% (22,392) (7,071) 38,064 43,164 13.1% $23.04 20. Superstition Corridor 2,503,898 309,112 12.3% 7,022 0.3% 316,134 17.1% 5,901 4,209 7,022 18,424 0.7% $20.04 21. Mesa Downtown 637,135 41,746 6.6% - 0.0% 41,746 6.6% 2,825 838-8,832 1.4% $14.88 22. Mesa East 516,076 54,116 10.5% - 0.0% 54,116 10.5% 8,935 26,765 - - 0.0% $16.56 23. Scottsdale Airpark 8,887,144 1,236,903 13.9% 104,662 1.2% 1,341,565 14.5% (127,497) (92,305) 104,662 302,815 3.4% $27.96 24. N. Scottsdale/Carefree 674,728 141,515 21.0% - 0.0% 141,515 21.0% 2,828 (26,929) - - 0.0% $22.08 25. N. Phoenix/Cave Creek 13,607-0.0% - 0.0% - 0.0% - - - - 0.0% $12.00 26. North I-17 277,665 82,060 29.6% - 0.0% 82,060 29.6% 663 1,594 - - 0.0% $24.36 27. Loop 303/Surprise 354,816 39,927 11.3% - 0.0% 39,927 11.3% 29,359 39,665 - - 0.0% $21.60 28. West I-10 792,376 169,044 21.3% - 0.0% 169,044 21.3% 7,473 3,360 - - 0.0% $23.04 Phoenix Metro Total 99,937,230 16,279,311 16.3% 956,667 1.0% 17,235,978 17.25% 999,900 2,725,596 956,667 1,841,636 1.8% 0 $25.44 * When innaccurate or newly updated information is discovered, it is incorporated into current reporting which may negate comparison to previously published market reports. * Net absorption is calculated by the net change in physically occupied space between the current period and the previous period based on our competitive building inventory. Phoenix Office Submarket Map 1. Downtown Phoenix 15. Deer Valley Airport 2. Midtown Phoenix 16. Arrowhead 3. Midtown/Central Phoenix 17. Glendale 4. 44th St. Corridor 18. Chandler 5. Camelback Corridor 19. Gateway/Loop 202 6. Piestewa Corridor 20. Superstition Corridor 7. Northwest Phoenix 21. Mesa Downtown 8. Southwest Phoenix 22. Mesa East 9. Sky Harbor Airport 23. Scottsdale Airpark 10. S. Tempe/Ahwatukee 24. N. Scottsdale/Carefree 11. Tempe 25. N. Phoenix/Cave Creek 12. Scottsdale South 26. North I-17 13. Central Scottsdale 27. Loop 303/Surprise 14. Paradise Valley 28. West I-10 enix dyear ort EL MIRAGE OLIVE AVE. NORTHERN AVE. GLENDALE AVE. CAMELBACK RD. MCDOWEL L RD. JACKRABBIT TR. DYEAR YUMA RD. COT TON LN. 303 SURPRISE WADDEL L RD. ESTRELLA FWY. REEMS RD. Luke AFB LITCHFIELD RD. SUN CITY WEST 27 28 EL MIRAGE RD. BROADWAY RD. 303 BEL L RD. SUN CITY PEORI A 101 AGUA FRIA FWY. 16 W. DEER VALLEY RD. Gila River N. LAKE PLEASANT PKWY. THUNDERBIRD RD. GLENDALE GLENDALE AVE. CAMELBACK RD. 83RD AVE. TOLLESON LOWER BUCKEYE RD. Salt River W. HAPPY VALLEY RD. W. HAPPY VALLEY RD. OLIVE AVE. 17 59TH AVE. MCDOWELL RD. GRAND AVE. NORTH E. PINNACLE PEAK RD. 43RD AVE. PAPAGO FWY. BUCKEYE RD. E. CAREFREE HWY. PHOENIX SONORAN DESERT RESERVE Phoenix W. DEER VALLEY RD. Deer Valley Airport 101 CENTRA L AVE. 7TH ST. PHOENIX South Mountain Fwy. LINCOLN DR. Int'l Airport SHEA BLVD. MCDONALD DR. PIMA FWY. RED MOUNTAIN FWY. CHANDLER ARIZON A AVE. McQUEEN RD. COOPER RD.. 87 Falcon MCDOWEL L RD. Field BROADWAY RD. 85 60 SUPERSTITION FWY. BASELINE RD. 202 15 7 BLACK CANYON FWY. 1 26 2 7TH AVE. BEL L RD. CAVE CREEK RD. 51 24TH S T. PIESTEWA FWY. CAVE CREEK RD. E. PINNACLE PEAK RD. 32ND ST. 25 GREENWAY RD. 14 PARADISE VALLEY SCOTTSDALE 44TH S T. MARICOPA FWY. 143 8 6 5 3 9 4 MILL AVE. HAYDEN RD. MCDOWEL L RD. 202 TEMPE N. PIMA RD. Scottsdale Municipal Airport INDIAN BEND RD. 11 10 101 PRICE FWY. BEL L RD. 23 DOBSON RD. 18 13 12 24 BEELINE HWY. UNIVERSITY DR. 21 20 MESA GUADALUPE RD. ELLIO T RD. WARNER Rd. RAY RD. VAL VIS TA DR. CHANDLER B LVD. 202 19 GERMANN RD. FOUNTAIN HILLS GREENFIELD DR. 22. GILBERT SANTAN FWY. POWER RD. Phoenix Gateway Airport

About This Report The information contained herein has been obtained from third-party sources believed to be reliable; however, Lee & Associates Arizona has not independently verified its accuracy. Lee & Associates makes no representations, guarantees, or express or implied warranties of any kind regarding the accuracy or completeness of the information and details provided herein, including but not limited to the implied warranty of suitability and fitness for a particular purpose. Interested parties should perform their own due diligence regarding the accuracy of the information. The information provided herein, including any sale or lease terms, is being provided subject to errors, omissions, changes of price or conditions, prior sale or lease, and withdrawal without notice by third-party data source providers. The Phoenix Office Market Report compiles relevant market data by using a third-party database for the proprietary analysis of specific office properties above 10,000 SF in the Phoenix Metropolitan Area. Copyright 2018 Lee & Associates Arizona. All rights reserved. Market report analysis by: Lee & Associates Arizona Q3 2018 About Lee & Associates Now in our 27th year, Lee & Associates Arizona specializes in providing exceptional commercial brokerage services to the industrial, office, land and investment sectors of the Phoenix commercial real estate market. The Phoenix office was established in 1991 and is now recognized as one of the most successful brokerage firms in the state. Each of our 57 nationwide Lee & Associates offices has a strong local ownership combined with a powerful platform from the national Lee & Associates network. 3200 East Camelback Road, Suite 100 Phoenix, Arizona 85018 602.956.7777 www.leearizona.com Follow us on:

SkySong 5 The Offices at Chandler Viridian Rivulon Under Construction Building Name Class Building Address Type Submarket Total SF Leased SF Delivery The Grand, Phase II A 1127 N. Papago Dr., Tempe Spec Tempe 352,481 Q2 2019 The Watermark, Phase I A 410 N. Scottsdale Rd., Tempe Spec Tempe 284,000 Q3 2019 Allred Park Place - Bldgs. 15 & 16 A 1650-1700 S. Price Rd., Chandler Spec Chandler 270,000 Q2 2019 The Offices at Chandler Viridian A 3133 W. Frye Rd., Chandler Spec Chandler 250,000 56,750 Q3 2018 Block 23 at Cityscape A 101 E. Washington St., Phoenix Spec Downtown Phoenix 205,000 Q2 2019 Discovery Business Campus B 2190 E. Elliot Rd., Tempe BTS S. Tempe/Ahwatukee 200,000 200,000 Q2 2019 I.D.E.A. Tempe Phase I A 850 W. Rio Salado Pky., Tempe Spec Tempe 185,833 Q1 2020 Aetna Cotton Center B 4755 S. 44th Pl., Phoenix BTS Airport Area 160,910 160,910 Q3 2018 Chandler Freeway Crossing II B 2625 W. Geronimo Pl., Chandler Spec Chandler 153,370 Q4 2018 SkySong Innovation Center 5 A 1465 N. Scottsdale Rd. Scottsdale Spec South Scottsdale 151,318 21,535 Q3 2019 Chaparral Commerce Center III A 5801 N. Pima Rd., Scottsdale Spec Central Scottsdale 123,020 61,510 Q1 2019 Camelback Collective A 2801 E. Camelback Rd., Phoenix Spec Camelback Corridor 118,500 Q3 2018 The Commons at Rivulon - Bldg A A SEC Pecos Rd. & Gilbert Rd., Gilbert Spec Chandler 102,434 Q4 2018 The Commons at Rivulon - Bldg A A SEC Pecos Rd. & Gilbert Rd., Gilbert Spec Chandler 97,248 Q4 2018 3200 East Camelback Road, Suite 100 Phoenix, Arizona 85018 602.956.7777 www.leearizona.com Follow us on:

Under Construction (Continued) Building Name Class Building Address Type Submarket Total SF Leased SF Delivery The Reserve at San Tan, Phase 1 A 343 E. Germann Rd., Gilbert Spec Chandler 75,000 8,025 Q4 2018 Chauncey Lane A SEC Scottsdale Rd. & Chauncey Ln. Spec Scottsdale Airpark 36,735 3,746 Q3 2019 Overstreet A 101 N. Arizona Ave., Chandler Spec Chandler 20,000 7,800 Q3 2018 Total 2,785,849 520,276 Deliveries Building Name Class Building Address Type Submarket Total SF Leased SF Delivery One Chandler A 350 N. McClintock Dr., Chandler Spec Chandler 117,176 Q3 2018 Total 117,176 3200 East Camelback Road, Suite 100 Phoenix, Arizona 85018 602.956.7777 www.leearizona.com Follow us on: