Research & Forecast Report

GREATER PHOENIX | OFFICE1Q 2017

Vacancy Inches Higher, Despite Continued Absorption Key Takeaways > Improving conditions in the Greater Phoenix office market took a pause in the first quarter of 2017. Although net absorption was positive—totaling 831,000 square feet—vacancy ticked up slightly in response to heightened development activity.

> Vacancy in the Greater Phoenix office market ended the first quarter at 16.5 percent, 30 basis points higher than at the end of 2016. This marked the first quarterly vacancy increase in more than a year. Despite the recent uptick, vacancy in Greater Phoenix is 70 basis points lower than one year ago.

> Rental rates are rising at a consistent pace, reaching $23.76 per square foot in the first quarter. Rents have ticked higher in each of the past four years. Rates are growing at a modest rate, gaining 4.5 percent from one year earlier.

> The investment sales market slowed modestly in the first quarter of the year. The median price per square foot dipped, but cap rates were essentially unchanged, suggesting that the fall in prices was largely the result of properties changing hands, rather than a change in market sentiment.

Greater Phoenix Office Market

The Greater Phoenix office market got off to a slower start to 2017 than it has in recent years. Vacancy inched higher in the first quarter, marking only the fifth time in the past 20 quarters where the rate has increased. This is likely a short-term disruption in the market’s improvement cycle and not a change of direction of the market as a whole. Employers continue to add workers and businesses continue to set up new operations in Greater Phoenix, supporting tenant demand for office space. Net absorption was positive, even as the vacancy rate inched higher.

While tenant demand for space was healthy, the delivery of new supply accelerated in the first quarter. Additions to inventory

Summary Statistics Phoenix Market

Phoenix Class A

PhoenixClass B

Vacancy Rate 16.5% 14.8% 17.7%

Change from 1Q 2016 (bps) -70 -190 0

Net Absorption (thousands SF) 831 737 53

New Construction (thousands SF) 547 281 266

Under Construction (thousands SF) 715 446 269

Asking Rents Per Square Foot Per Year

$23.76 $28.12 $22.09

Change from 1Q 2016 4.5% 3.8% 5.1%

Market IndicatorsRelative to prior period

MarketQ1 2017

Market Q1 2016

Vacancy

Net Absorption

Construction

Rental Rate First Quarter Employment Trends*

Total Nonfarm Phoenix Metro

Office-Using Phoenix Metro

Total Nonfarm United States

Office-Using United States *Source: Bureau of Labor Statistics

2 Greater Phoenix Research & Forecast Report | 1Q 2017 | Office | Colliers International2

topped 1.2 million square feet in the first few months of the year, highlighted by the delivery of the final building of State Farm’s 2.1-million square foot region headquarters in Tempe. The Tempe submarket, which has featured one of the lowest vacancy rates in the Greater Phoenix region for the past several years, is leading the way in new development. More than 300,000 square feet of new spec office space was delivered in Tempe in the first quarter and additional projects are likely to begin construction before year end.

Consistency was the prevailing theme in the investment market in 2016, and that trend continued in the first few months of this year. The median price dipped slightly in the first quarter, but cap rates were largely unchanged in the mid- to high-7 percent range. The change in prices largely was more a reflection of the mix of assets changing hands. With vacancy likely to tighten and rents forecast to continue to push higher, property prices could easily trend higher for the fifth consecutive year.

OFFICE SALE ACTIVITY

Property Address Submarket Sale Date Sale Price Size SF Sale Price SF Class

3101 & 3111 N Central Ave., Phoenix Downtown North 2/21 $26,000,000 282,693 $92 B

2777 E Camelback Rd., Phoenix Camelback Corridor 3/2 $24,560,000 104,531 $235 A

Recent Transactions in the Market

OFFICE LEASE ACTIVITY

Building Name/Address Submarket Lease Type Tenant Size SF Class

1500 N Priest Dr., Tempe Tempe Move in Endurance International Group 71,618 A

2600 N Central Ave., Phoenix Downtown North Move in CMOC International 16,299 B

0%

3%

6%

9%

12%

15%

18%

21%

24%

(3,000,000)

(1,500,000)

-

1,500,000

3,000,000

4,500,000

6,000,000

7,500,000

VacancySqua

re Fe

et

Net Absorption Deliveries Vacancy* Forecast

Historical Absorption, Deliveries and Vacancy Rates

Greater Phoenix Office Market (continued)

UPDATE!

3 Greater Phoenix Research & Forecast Report | 1Q 2017 | Office | Colliers International

Vacancy: > Vacancy in the Greater Phoenix office market ended the first quarter at 16.5 percent, a 30 basis point uptick from the figure at the close of 2016. Even after the vacancy rise at the start of 2017, the rate is still 70 basis points lower than one year ago.

> Vacancy in the South Scottsdale submarket rose substantially in the first quarter of 2017. The rates ticked up to 16.8 percent, which is 490 basis points higher than vacancy rates one year earlier.

> The Tempe submarket has experienced a very healthy decline in vacancy, finishing the first quarter at 9.3 percent, 500 basis points lower than the first quarter of last year. Vacancy rates in this submarket are still significantly below the five-year average vacancy rate of 11.5 percent.

> Forecast: Vacancy is forecast to end 2017 at 15.2 percent, down 100 basis points for the year. In 2016, vacancy fell 90 basis points and the rate has been declining since peaking in 2010.

Absorption and Leasing Activity: > Net absorption in the Greater Phoenix office market totaled approximately 830,000 square feet for the first quarter of 2017. This is a continuation of recent trends, as net absorption averaged approximately 800,000 square feet per quarter in 2016. This is the eighth quarter in a row that there has been positive net absorption.

> A few submarkets accounted for the bulk of the net absorption in the first quarter. The Airport Area submarket experienced a positive net absorption of 198,000 square feet. Nearly 70 percent of that total is made up of two large leases that were signed in spec projects.

> Leasing activity slowed during the first quarter, particularly in transactions over 20,000 square feet. Transaction activity was very consistent from quarter-to-quarter in 2016.

> Forecast: Net absorption will total approximately 3 million square feet in 2017, closely tracking annual totals from 2014-2016. Steady employment growth will fuel net absorption.

Rental Rates: > Asking rents are rising at a modest rate, reaching an average asking price of $23.76 per square foot in the first quarter. This is the sixteenth consecutive quarter where rents have advanced in the Greater Phoenix office market. Rents rose 4.5 percent from the first quarter of last year.

> Asking rental rates increased across all property classes. Asking rents in Class A buildings reached $28.12 per square foot, an uptick of 3.8 percent from the previous year. Class B buildings also saw growth in rental rates, with Class B rates averaging $22.09, about a 5 percent increase from 2016.

Vacancy by Property Class

10%

12%

14%

16%

18%

20%

22%

24%

26%

Vacancy

Class A Class B Class C

Asking Rent Trends

$18

$19

$20

$21

$22

$23

$24

$25

$26

$27

$28

$29

1Q2014

3Q2014

1Q2015

3Q2015

1Q2016

3Q2016

1Q2017

Aver

age

Aski

ng R

ent (

per S

F)

Class A Market Average

Vacancy Among Major Submarkets

0%

5%

10%

15%

20%

25%

30%

Vacancy

1Q 2017 1Q 2016

44 Greater Phoenix Research & Forecast Report | 1Q 2017 | Office | Colliers International

> The Scottsdale Airpark submarket is recording strong rental growth throughout all segments. The average asking rent in this submarket is up to $27.17 per square foot, a year over year increase of 5.4 percent. Within this submarket, Class A buildings experienced the most robust rent growth. Class A buildings in the Scottsdale Airpark are averaging $29.15 a square foot, a 5.6 percent increase from a year ago.

> Forecast: Rents will continue to trend higher, particularly as vacancy tightens. Asking rents are forecast to gain approximately 5 percent in 2017, building on an increase of 6 percent in 2016.

Construction: > Office construction was active to start 2017, with more than 1.2 million square feet of new space coming online in the first quarter. This more than doubled the additions to inventory from the fourth quarter of last year.

> Currently, approximately 920,000 square feet of office space is under construction. There are several projects that are in the development pipeline that are not yet under construction. These projects could break ground in the coming quarters if minimum pre-leasing thresholds are met.

> Build-to-suit projects have accounted for the bulk of the new development to this point in the cycle. Prominent projects that delivered in the first quarter included the 443,000-square foot final building of State Farm’s Marina Heights campus and a 150,000-square foot project for Farmer’s Insurance. A 135,500-square foot project for McKesson is under way and scheduled for delivery in early 2018.

> Forecast: After a surge of development activity in the past two years, construction will slow in 2017. Projects totaling approximately 2 million square feet will be delivered this year, down from more than 2.3 million square feet in 2016.

Investment Trends: > Sales of office buildings slowed in the first quarter of 2017, dipping approximately 10 percent from the fourth quarter of last year. Transaction activity in the first quarter was down 23 percent from one year earlier.

> Prices retreated a bit in the first quarter, following healthy gains from 2013-2016. The median price reached $136 per square foot, 9 percent lower than the median price in the fourth quarter of last year. This figure is only 4 percent lower than the overall 2016 median price.

> Cap rates averaged in the mid- to high-7 percent range in the first quarter. This is slightly up from the fourth quarter cap rate, and in-line with the 2016 average cap rate. The Federal Reserve raised interest rates during the first quarter, which could put some upward pressure on cap rates in the coming quarters.

Rental Rates (continued): Employment Overview

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2010 2011 2012 2013 2014 2015 2016 2017

Year

-ove

r-Yea

r Em

ploy

men

t Cha

nge

Total Employment Office-Using Employment

4%

5%

6%

7%

8%

9%

10%

$0

$25

$50

$75

$100

$125

$150

$175

2009 2010 2011 2012 2013 2014 2015 2016 YTD 17

Average Cap Rate

Med

ian

Price

per

SF

Sales Price Cap Rate

Investment Trends

Construction Trends by Submarket

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

Airport Area Chandler Deer Valley Airport Scottsdale South Tempe

Squa

re Fe

et

Completions Since 2016 Under Construction

5 Greater Phoenix Research & Forecast Report | 1Q 2017 | Office | Colliers International

Office MarketEXISTING PROPERTIES DIRECT VACANCY SUBLEASE VACANCY TOTAL VACANCY NET ABSORPTION - SF NEW SUPPLY - SF UNDER CONSTR AVG. RENT

CLASS BLDGS. TOTAL INVENTORY SF SF RATE SF RATE SF Q1-17 Q1-16 CURRENT

PERIOD YTD CURRENT PERIOD YTD SF RATE (FS)

CENTRAL BUSINESS DISTRICT

Downtown North

A 14 4,575,999 1,077,716 23.6% 39,031 0.9% 1,116,747 24.4% 23.3% (70,674) (70,674) - - $24.47

B 91 6,486,714 1,420,829 21.9% 20,523 0.3% 1,441,352 22.2% 20.6% (22,889) (22,889) - - 26,174 $20.04

C 45 966,741 166,604 17.7% 1,292 0.1% 167,896 17.8% 19.1% 5,354 5,354 - - $16.18

Total 150 12,029,454 2,665,149 22.2% 60,846 0.5% 2,725,995 22.7% 21.5% (88,209) (88,209) - - 26,174 $21.66

Downtown South

A 11 4,891,088 654,202 13.4% 109,754 2.2% 763,956 15.6% 16.3% (2,218) (2,218) - - $30.02

B 28 3,244,062 412,280 14.4% - 0.0% 412,280 12.7% 9.9% 48,693 48,693 - - $27.98

C 24 978,315 132,585 13.6% - 0.0% 132,585 13.6% 14.8% 3,350 3,350 - - $13.76

Total 63 9,113,465 1,199,067 13.8% 109,754 1.2% 1,308,821 15.0% 13.9% 49,825 49,825 - - - $28.73

SUBURBAN

44th St. Corridor

A 13 1,715,228 360,705 21.0% - 0.0% 360,705 21.0% 13.3% (29,777) (29,777) - - - $26.44

B 36 1,625,833 182,889 11.2% - 0.0% 182,889 11.2% 12.6% 13,034 13,034 - - - $22.96

C 15 346,241 17,152 5.0% - 0.0% 17,152 5.0% 6.5% (500) (500) - - - $13.61

Total 64 3,687,302 560,746 15.2% - 0.0% 560,746 15.2% 12.3% (17,243) (17,243) - - - $24.74

Airport Area

A 15 2,032,740 460,393 22.6% - 0.0% 460,393 22.6% 23.5% 157,094 157,094 - - 235,000 $25.77

B 128 8,189,580 1,363,221 16.6% 374,790 4.6% 1,738,011 21.2% 18.3% 36,475 36,475 - - 89,889 $22.96

C 20 513,592 51,540 10.0% - 0.0% 51,540 9.8% 11.0% 4,798 4,798 - - - $13.99

Total 163 10,735,912 1,875,154 17.5% 374,790 3.5% 2,249,944 20.9% 18.9% 198,367 198,367 - - 324,889 $23.39

Arrowhead

A 1 80,849 - 0.0% 1,500 1.9% 1,500 1.9% 0.0% (1,500) (1,500) - - 106,503 $26.88

B 95 2,369,452 316,970 13.4% 1,970 0.1% 318,940 13.5% 14.3% (42,826) (42,826) 10,500 10,500 - $24.57

C 13 252,314 64,468 25.6% - 0.0% 64,468 25.6% 19.8% (1,844) (1,844) - - - $21.35

Total 109 2,702,615 381,438 14.1% 3,470 0.1% 384,908 14.2% 14.4% (46,170) (46,170) 10,500 10,500 106,503 $24.04

Camelback Corridor

A 25 4,652,258 900,273 19.4% 54,160 1.2% 954,433 20.5% 21.3% (21,367) (21,367) - - - $33.30

B 77 3,406,179 578,370 17.0% 24,554 0.7% 602,924 17.7% 17.9% (33,454) (33,454) - - - $23.16

C 21 372,735 25,195 6.8% - 0.0% 25,195 6.8% 16.8% (2,958) (2,958) - - - $15.40

Total 123 8,431,172 1,503,838 17.8% 78,714 0.9% 1,582,552 18.8% 19.8% (57,779) (57,779) - - - $29.43

Chandler

A 19 2,509,210 274,715 10.9% 2,999 0.1% 277,714 11.1% 19.0% 93,479 93,479 - - 32,242 $27.05

B 137 5,581,519 1,331,603 23.9% 60,693 1.1% 1,392,296 24.9% 22.6% 5,902 5,902 290,785 290,785 - $23.80

C 13 214,374 31,468 14.7% - 0.0% 31,468 14.7% 14.9% (366) (366) - - - $16.49

Total 169 8,305,103 1,637,786 19.7% 63,692 0.8% 1,701,478 20.5% 21.2% 99,015 99,015 290,785 290,785 32,242 $24.33

Deer Valley Airport

A 24 4,022,067 262,312 6.5% - 0.0% 262,312 6.5% 5.4% 192,909 192,909 150,000 150,000 - $25.92

B 107 6,895,664 1,456,574 21.1% 5,713 0.1% 1,462,287 21.1% 22.2% (51,388) (51,388) - - $21.69

C 10 187,400 38,843 20.7% - 0.0% 38,843 20.7% 16.1% 685 685 - - - $18.92

Total 141 11,105,131 1,757,729 15.8% 5,713 0.1% 1,763,442 15.9% 16.3% 142,206 142,206 150,000 150,000 - $22.76

Gateway Airport/Loop 202

A 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - 43,231 $-

B 46 1,222,549 176,247 14.4% 2,099 0.2% 178,346 14.6% 16.9% 17,884 17,884 - - - $23.75

C 2 33,232 - 0.0% - 0.0% - 0.0% 12.7% - - - - - $19.20

Total 48 1,255,781 176,247 16.8% 2,099 0.4% 178,346 14.2% 16.8% 17,884 17,884 - - 43,231 $23.66

6 Greater Phoenix Research & Forecast Report | 1Q 2017 | Office | Colliers International

Office MarketEXISTING PROPERTIES DIRECT VACANCY SUBLEASE VACANCY TOTAL VACANCY NET ABSORPTION - SF NEW SUPPLY - SF UNDER CONSTR AVG. RENT

CLASS BLDGS. TOTAL INVENTORY SF SF RATE SF RATE SF Q1-17 Q1-16 CURRENT

PERIOD YTD CURRENT PERIOD YTD SF RATE (FS)

SUBURBAN

Glendale

A 5 521,061 72,370 13.9% - 0.0% 72,370 13.9% 13.6% (34,176) (34,176) - - - $27.47

B 33 1,589,663 366,573 23.1% 17,106 1.1% 383,679 24.1% 26.6% 51,288 51,288 16,000 16,000 - $23.13

C 14 424,158 40,661 9.6% - 0.0% 40,661 9.6% 9.7% - - - - - $16.67

Total 52 2,534,882 479,604 18.9% 17,106 0.7% 496,710 19.6% 20.9% 17,112 17,112 16,000 16,000 - $23.95

Loop 303/Surprise

A 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - $-

B 41 1,278,612 242,153 18.9% 10,333 0.8% 252,486 19.7% 19.2% (18,077) (18,077) - - - $23.97

C 4 57,399 4,965 8.6% - 0.0% 4,965 8.6% 3.3% (3,327) (3,327) - - - $18.90

Total 45 1,336,011 247,118 18.5% 10,333 0.8% 257,451 19.3% 18.5% (21,404) (21,404) - - - $23.87

Mesa Downtown

A 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - $-

B 19 675,900 26,589 3.9% - 0.0% 26,589 3.9% 4.4% - - - - - $15.92

C 16 255,328 48,173 18.9% - 0.0% 48,173 18.9% 20.3% (2,195) (2,195) - - - $15.18

Total 35 931,228 74,762 8.0% - 0.0% 74,762 8.0% 8.8% (2,195) (2,195) - - - $15.51

Mesa East

A 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - $-

B 42 1,293,176 126,596 9.8% - 0.0% 126,596 9.8% 9.6% (14,248) (14,248) - - - $17.70

C 32 677,431 120,596 17.8% - 0.0% 120,596 17.8% 18.8% (27) (27) - - - $15.36

Total 74 1,970,607 247,192 12.5% - 0.0% 247,192 12.5% 12.8% (14,275) (14,275) - - - $16.68

Midtown/Central Phoenix

A 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - $-

B 79 2,861,101 335,364 11.7% 31,657 1.1% 367,021 12.8% 11.9% (2,961) (2,961) - - - $19.50

C 53 962,929 104,884 10.9% - 0.0% 104,884 10.9% 16.6% (1,705) (1,705) - - - $15.34

Total 132 3,824,030 440,248 11.5% 31,657 0.8% 471,905 12.3% 13.1% (4,666) (4,666) - - - $18.82

Northwest Phoenix

A 10 1,295,416 319,850 24.7% - 0.0% 319,850 24.7% 11.0% (36,587) (36,587) - - - $21.75

B 116 4,968,185 1,447,268 29.1% 1,211 0.1% 1,448,479 29.2% 26.0% (60,962) (60,962) - - - $17.88

C 102 2,169,374 390,661 18.0% - 0.0% 390,661 18.0% 20.7% 48,659 48,659 - - - $12.57

Total 228 8,432,975 2,157,779 25.6% 1,211 0.1% 2,158,990 25.6% 22.3% (48,890) (48,890) - - - $17.74

Paradise Valley

A 14 1,572,279 264,172 16.8% 10,805 0.7% 274,977 17.5% 19.2% (39,803) (39,803) - - - $26.90

B 57 1,900,196 187,362 9.9% 14,063 0.7% 201,425 10.6% 12.5% 10,307 10,307 - - - $21.37

C 21 320,658 60,357 18.8% - 0.0% 60,357 18.8% 21.0% 3,493 3,493 - - - $17.79

Total 92 3,793,133 511,891 13.0% 24,868 0.9% 536,759 13.9% 17.2% (26,003) (26,003) - - - $24.17

Piestewa Peak Corridor

A 3 409,370 12,891 3.1% 10,747 2.6% 23,638 5.8% 4.1% 1,536 1,536 - - - $26.46

B 44 2,172,729 455,306 21.0% - 0.0% 455,306 21.0% 24.4% 20,522 20,522 - - - $19.60

C 21 332,657 16,871 5.1% 1,498 0.5% 18,369 5.5% 5.3% 1,491 1,491 - - - $19.32

Total 68 2,914,756 485,068 16.7% 12,245 0.4% 497,313 17.1% 19.4% 23,549 23,549 - - - $20.36

Scottsdale Airpark

A 57 6,597,943 806,075 12.2% 13,241 0.2% 819,316 12.4% 19.9% 41,070 41,070 - - - $29.15

B 193 5,289,183 496,860 9.4% 53,963 1.0% 550,823 10.4% 12.9% 51,768 51,768 - - - $23.70

C 8 124,960 8,599 6.9% - 0.0% 8,599 6.9% 12.6% 4,180 4,180 - - - $14.07

Total 258 12,012,086 1,311,534 10.9% 67,204 0.6% 1,378,738 11.5% 16.7% 97,018 97,018 - - - $27.17

7 Greater Phoenix Research & Forecast Report | 1Q 2017 | Office | Colliers International

Office MarketEXISTING PROPERTIES DIRECT VACANCY SUBLEASE VACANCY TOTAL VACANCY NET ABSORPTION - SF NEW SUPPLY - SF UNDER CONSTR AVG. RENT

CLASS BLDGS. TOTAL INVENTORY SF SF RATE SF RATE SF Q1-17 Q1-16 CURRENT

PERIOD YTD CURRENT PERIOD YTD SF RATE (FS)

SUBURBAN

Scottsdale Central

A 27 2,576,725 256,205 9.9% 39,082 1.5% 295,287 11.5% 13.9% (6,576) (6,576) - - - $26.88

B 128 4,734,146 743,800 15.7% 14,076 0.3% 757,876 16.0% 17.4% (37,940) (37,940) - - - $23.57

C 9 124,738 982 0.8% - 0.0% 982 0.8% 5.8% - - - - - $17.44

Total 164 7,435,609 1,000,987 13.5% 53,158 0.7% 1,054,145 14.2% 16.0% (44,516) (44,516) - - - $24.70

Scottsdale South

A 16 2,131,764 267,410 12.5% 98,987 4.6% 366,397 17.2% 9.5% (53,053) (53,053) - - 235,000 $30.25

B 76 2,672,198 391,149 14.6% 30,690 1.1% 421,839 15.8% 12.0% (45,270) (45,270) - - - $27.16

C 35 585,233 117,837 20.1% 1,000 0.2% 118,837 20.3% 19.5% 7,817 7,817 - - - $21.50

Total 127 5,389,195 776,396 14.4% 130,677 2.4% 907,073 16.8% 11.9% (90,506) (90,506) - - - $28.51

South Tempe/Ahwatukee

A 6 776,034 20,099 2.6% - 0.0% 20,099 2.6% 12.7% 394 394 - - - $25.53

B 119 5,264,492 783,983 14.9% 46,899 0.9% 830,882 15.8% 17.4% 14,117 14,117 - - - $22.81

C 11 380,322 34,756 9.1% - 0.0% 34,756 9.1% 9.5% 1,282 1,282 - - - $24.63

Total 136 6,420,848 838,838 13.1% 46,899 0.7% 885,737 13.8% 16.3% 15,793 15,793 - - - $23.09

Southwest Phoenix

A 4 623,984 141,670 22.7% - 0.0% 141,670 22.7% 31.2% 8,701 8,701 - - - $24.85

B 23 946,467 33,397 3.5% - 0.0% 33,397 3.5% 6.7% - - - - - $19.40

C 17 413,446 58,882 14.2% - 0.0% 58,882 14.2% 19.7% 23,707 23,707 - - - $14.56

Total 44 1,983,897 233,949 11.8% - 0.0% 233,949 11.8% 17.1% 32,408 32,408 - - - $21.14

Superstition Corridor

A 5 664,441 147,772 22.2% - 0.0% 147,772 22.2% 26.1% (1,374) (1,374) - - - $23.52

B 121 3,677,164 516,055 14.0% 29,397 0.8% 545,452 14.8% 16.8% 56,660 56,660 - - - $18.72

C 26 468,145 57,129 12.2% - 0.0% 57,129 12.2% 15.3% (925) (925) - - - $14.33

Total 152 4,809,750 720,956 15.0% 29,397 0.6% 750,353 15.6% 17.9% 54,361 54,361 - - - $19.67

Tempe

A 26 5,815,839 319,802 5.5% 37,862 0.7% 357,664 6.1% 11.8% 539,221 539,221 656,055 656,055 - $32.56

B 96 4,243,172 536,800 12.7% 29,357 0.7% 566,157 13.3% 17.7% 54,701 54,701 99,988 99,988 152,540 $23.21

C 35 843,291 94,992 11.3% - 0.0% 94,992 11.3% 10.3% (5,350) (5,350) - - - $17.15

Total 157 10,902,302 951,594 8.7% 67,219 0.6% 1,018,813 9.3% 14.3% 588,572 588,572 756,043 756,043 152,540 $26.67

West I-10

A 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - $-

B 41 1,202,141 110,946 9.2% 3,260 0.3% 114,206 9.5% 11.1% 1,569 1,569 - - - $25.13

C 13 263,029 73,166 27.8% - 0.0% 73,166 27.8% 20.1% (44,619) (44,619) - - - $16.97

Total 54 1,465,170 184,112 12.6% 3,260 0.2% 187,372 12.8% 12.7% (43,050) (43,050) - - - $20.70

GRAND TOTAL

A 295 47,464,295 6,618,632 13.9% 418,168 0.9% 7,036,800 14.8% 16.7% 737,299 737,299 806,055 806,055 651,976 $28.12

B 1,973 83,790,077 14,039,184 16.8% 772,354 0.9% 14,811,538 17.7% 17.7% 52,905 52,905 417,273 417,273 268,603 $22.09

C 580 12,268,042 1,761,366 14.4% 3,790 0.0% 1,765,156 14.4% 16.1% 41,000 41,000 0 0 0 $16.70

Total 2,848 143,522,414 15.6% 1,194,312 0.8% 23,613,494 16.5% 17.2% 831,204 831,204 1,223,328 1,223,328 920,579 $23.76

QUARTERLY TOTALS

2017 1Q 2,848 143,522,414 22,419,182 15.6% 1,194,312 0.8% 23,613,494 16.5% 831,204 831,204 1,223,328 1,223,328 920,579 $23.76

2016 4Q 2,840 142,275,578 21,901,229 15.4% 1,192,497 0.8% 23,093,726 16.2% 759,386 - 518,073 - - $23.50

2016 3Q 2,833 141,757,505 22,333,419 15.8% 1,001,620 0.7% 23,335,039 16.5% 908,953 476,714 2,673,729 $23.44

2016 2Q 2,829 141,280,791 22,813,620 16.1% 953,658 0.7% 23,767,278 16.8% 968,699 485,950 3,149,124 $23.12

2016 1Q 2,825 140,794,841 23,364,043 16.6% 885,984 0.6% 24,250,027 17.2% 587,244 884,477 2,976,395 $22.74

As new, corrected or updated information is obtained, it is incorporated in both current and historical data, which may invalidate comparison to previously issued reports.

8 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

Copyright © 2017 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International | Greater Phoenix2390 E. Camelback Road, Suite 100 Phoenix, AZ 85016+1 602 222 5000colliers.com/greaterphoenix

FOR MORE INFORMATIONBob MulhernSenior Managing Director | Greater Phoenix+1 602 222 5038 Bob.Mulhern@colliers.com

Jim Keeley SIOR

Founding Partner | Scottsdale Office+1 480 655 3300 Jim.Keeley@colliers.com

Pete O’NeilResearch Director | Greater Phoenix+1 602 222 5029Pete.ONeil@colliers.com

Outlook: The Greater Phoenix office market remains in an improvement cycle, and further gains are likely in the year ahead. The market is in the later stages of the recovery cycle, however, which could lead to a few quarters of softer conditions over the next 18-24 months. The first quarter of this year proved to be one of those periods where new supply outpaced net absorption causing the local vacancy rate to tick higher and the pace of rent growth to slow.

Population-serving sectors will likely drive growth in the coming periods. After local population growth slowed considerably from 2008-2013, the pace has picked up in recent years. In 2016, the Greater Phoenix population expanded by more than 93,000 and Maricopa County posted the most robust population gain of any county in the United States. Looking ahead, the population in Greater Phoenix is forecast to grow by more than 100,000

residents annually for the next few years. Industries that will outperform in these expansion conditions include housing, education and healthcare, financial and other professional services.

The local investment market is expected to remain healthy in the months ahead. To this point in the cycle, the modest increases in interest rates have been offset by strengthening property cash flows. The market is anticipating additional interest rate increases before the end of the year, which will likely spill over into the lending environment. While borrowing costs could inch higher in the coming quarters, the primary driver of investment performance in the office market will be the operating fundamentals of the office properties, which will continue to strengthen going forward.