Summary Statistics

Q4 2016 Reno MarketPreviousQuarter

CurrentQuarter

Vacancy Rate 13.7% 13.7%

Asking Rent (PSF, FS*) $1.44 $1.44

Net Absorption (SF) 28,258 6,912

New Completions (SF) – –

Historical Vacancy Rates and Asking Lease Rates

Overall vacancy and asking rental rates held steady from the previous quarter, and while the market observed an insignificant change, we anticipate vacancy will continue to drop and rental rates will rise in 2017.

Overall Asking RentsPer Square Foot (FS*) Previous Quarter Current Quarter

Class A $1.62 $1.62

Class B $1.45 $1.45

Class C $1.27 $1.25

*Full Service (FS)

Market IndicatorsRelative to prior period Q4 2016 Q1 2017*

Vacancy

Net Absorption

Completions

Rental Rate

*Projected

2016 Year End Report

As 2016 drew to a close, the Reno Office Market’s improvement stalled and ended the year on a somewhat flat note. The absorption

for the quarter was 10,097 square feet, which had little impact on

vacancy, which in the fourth quarter remained consistent from the

third quarter at 13.7 percent. The average asking full service rental

rate also remained at $1.44 per square foot per month. While this

quarter’s absorption was modest, the year-end total was 65,823

square feet which is respectable but still less than 100,000 square

feet which is typical for a market of our size. Although this quarter

was mostly unchanged from the third quarter we saw improvement

from the beginning of 2016 when vacancy was 14.4 percent and the

average asking rental rate per month was $1.36 full service.

Market IndicatorsNational Consumer

Confidence

5.2 %2.37 113.7

10-Year Nominal Interest Rate

Unemployment RateNevada

Research & Forecast Report

RENO | OFFICEQ4 2016

> Vacancy remains level from the previous quarter at 13.7%

> Average asking rental rates unchanged from previous quarter at $1.44 per square foot per month, full service

> Absorption in the fourth quarter was a modest 10,097 square feet

Leasing Rates by Submarket

Historical Net Absorption vs. Completions

Net Absorption New Completions

Total Vacancy vs Direct and Sublease Vacancy

Direct Vacancy Sublease Vacancy Total Vacancy

2 Reno Research & Forecast Report | Q4 2016 | Office | Colliers International

Leasing/Absorption ActivityWhile looking back at 2016, there were a number of large transactions that brought new companies to Northern Nevada; decreasing the vacancy rate to 14.7 percent, where it landed at year-end. Firms such as CAEK, Inc. with an 11,834 square foot lease at 100 N Arlington and Everi Games Holding Inc with a 17,138 square foot lease at 887 Trademark, played an important role in adding jobs to our region and filling vacant space. In addition, existing tenants continued to expand, including ITS Logistics expanding to 8,598 square feet at 50 W Liberty and Washoe County School District expanding to 9,792 square feet at 5450 Riggins Court, while some of the region’s largest tenants found it more advantageous to renew in place. Microsoft renewed 43,298 square feet at the NV Energy Building and Bally Gaming/Scientific Games renewed 42,129 square feet on Sandhill Road.

Fortunately, the amount of space returned to the market was, for the most part, limited to those tenants who relocated to other buildings. This included the relocation of Video Games Technology (VGT) who relocated from 18,000 square feet in Nev Dex in the Meadowood submarket to 26,871 square feet at 887 Trademark in South Meadows. We saw very few offices completely shut down; however, those that did seemed to be relegated to the Meadowood submarket, negatively impacting that submarket’s statistics throughout the year. Wimmer Solutions shut down their 10,000 square foot operation at 6160 Plumas and Gold Corp at the US Bank Centre at 5190 Neil Road announced it was shutting down earlier this year. Luckily, Gold Corp was able to sublease a good portion of their 10,000 square foot office to Premier Gold this quarter. Unfortunately in the fourth quarter, Charles Schwab announced they will vacate their 10,000 square foot office at the US Bank Centre, which will impact our market statistics in the first quarter of 2017. Their bank branch will remain open and Charles Schwab is rumored to be relocating the branch to Rancharrah. Furthermore, Blue Cross Blue Shield downsized at 5250 South Virginia, Corporate Pointe, giving back approximately 12,000 square feet on the first floor. This brings the total vacancy to nearly 30,000 square feet. The property has been undergoing a major remodel which should assist in the leasing.

As mentioned, the majority of the large spaces being returned to the market have been in the Meadowood submarket, increasing the vacancy from 10.5 percent in the first quarter to 12.3 percent at year-end. In addition, the Class A vacancy was 7.7 percent in the first quarter and is now at 10.1 percent, marking the first time it has been over 10.0 percent in 2016. Prior to the fourth quarter, there has been relatively low vacancy, indicating that construction may be needed. While 10.1 percent is not far off we will be keeping an eye on the vacancy rate, as will developers, to determine if construction is warranted.

VacancyDespite the weak statistics in the Meadowood submarket for the quarter, Downtown and South Meadows had a positive quarter and year. Downtown’s vacancy is holding steady at 12.7 percent and they posted an absorption of 33,949 square feet this quarter with a year-end absorption of 49,836 square feet. One East Liberty was able to secure the law firm of Lewis Roca Rothgerber and Christie who is relocating from 50 W Liberty. LRRC will occupy the entire third floor, 12,855 square feet, at their new building. The most improved award

3 Reno Research & Forecast Report | Q4 2016 | Office | Colliers International

445 South Virginia Street 17,355 sf - $4,550,000 $262.17 p/sf - Office Investment

6144-6160 Mae Ann Avenue16,846 sf - $4,100,000$243.38 p/sf - Office Investment

639 Isbell Road38,456 sf - $4,250,000CAP Rate: 5.23%$110.51 p/sf - Office Investment

goes to South Meadows who registered a positive 19,177 square feet for the fourth quarter and 24,095 square feet for the year, pushing vacancy in this submarket down to 12.1 percent from 20.7 percent in the first quarter of 2016.

Sublease VacancyThe amount of sublease space market-wide did slightly increase from 57,622 square feet in the third quarter to 65,833 square feet in the fourth quarter, registering at 0.8 percent and 0.9 percent, respectively. The increase in sublease space available did affect the total vacancy rate, which includes direct and sublease space, moving it from 14.5 percent in the third quarter to 14.7 percent at year-end.

Rental RatesRental rates remained steady for the quarter and ended the year at $1.44 per square foot per month full service. We continue to be perplexed that despite a decreasing vacancy rate, the average rents have not increased. However, it has been an improvement over the start of 2016 when rates were $1.36 per square foot full service.

Sales Office sales continued to take place in the fourth quarter with the most notable sale being 639 Isbell Road, a 38,456 square foot office building that sold for $4,250,000 and was 83 percent occupied at the time of the sale. As with many of the sales that have taken place this year, Isbell was purchased by a buyer coming out of a 1031 exchange. We continue to see cap rates remain low which is making it a great time for sellers. In addition, the improved market statistics are making buyers confident in the local market and most buildings are performing. The most notable user sale was at 9650 Gateway, in which Gateway Realty Holdings LLC purchased the 30,536 square foot property. The building is set up for a multi-tenant scenario and had approximately 13,000 square feet vacant at the time of the sale. The buyer plans to occupy the available space.

The SBA 504 rate continues to remain historically low despite the slight increase from last quarter to 4.59 percent in January 2017. With the commitment of the Federal Reserve System to increase rates, we continue to keep a lookout for how it will impact rates this year.

Construction McKenzie properties has confirmed it will start the dirt work for their new speculative office building. The 40,000 square foot, four-story office building at the Kietzke Lane roundabout is expected to be delivered by fall of 2017. Interest from tenants continues and the building could be nearly half pre-leased before it is actually constructed. We also anticipate Charles Schwab will start construction on their recently purchased property at Rancharrah. They purchased a 3.841 acre lot north of First Independent Bank on Kietzke Lane. As mentioned previously, despite shutting down their administrative office at 5190 Neil Road, they are rumored to be constructing a new bank branch. Since the parcel they purchased is larger, we anticipate they will build a larger building or an office park. This project will mark the first of the commercial construction at the highly anticipated Rancharrah development. The developer, Reno Land Inc, is in discussions with others and we anticipate those will be announced soon, hopefully in time for the residential portion to be constructed.

WESTRENO

DOWNTOWN

SPARKS

MEADOWOOD

CENTRAL/AIRPORT

SOUTH RENO

80

80

395

395

639 Isbell RoadReno, NV

38,456 SF - $4,250,000

$110.51 PSF

9650 Gateway DriveReno, NV

30,536 SF - $3,425,000

$112.16 PSF

6144-6160 Mae Ann AvenueReno, NV

16,846 SF - $4,100,000

$243.38 PSF

950 Industrial Way Reno, NV

15,606 SF - $3,490,000

$223.63 PSF

445 South Virginia StreetReno, NV17,355 SF - $4,550,000

$262.17 PSF

Significant SaleActivity

4 Reno Research & Forecast Report | Q4 2016 | Office | Colliers International

Significant Lease ActivityPROPERTY ADDRESS SIZE TENANT TYPE

961 Matley Lane, Suite 110 24,290 Paradox Holdings Inc Sublease

5440 Reno Corporate Drive 17,315 Online Tech Stores New

1 East Liberty Street -US Bank Center 12,855 Lewis & Roca LLP New

100 West Liberty Street 11,808 Whittier Trust Co Of Nevada Renewal

9850 Double R Boulevard 11,637 HP Enterprise Services LLC Renewal

401 Ryland Street 8,171 Reno Fire Dept New

10509 Professional Circle, Suite 202 6,874 Evegreen Bank Group Renewal

809 Ryland Street 6,618 Fricke Frederick J Jr New

Market Comparisons - Reno

Office Market

CLASS BLDGS TOTALRBA

DIRECTVACANT SF

DIRECTVACANCY

RATE

SUBLEASE VACANT SF

SUBLEASE VACANCY

RATE

TOTALVACANT

SF

TOTAL VACANCY

RATE

TOTAL VACANCY

RATE PRIOR QUARTER

NET ABSORPTION

CURRENT QTR SF

NET ABSORPTION

YTD SF

COMPLETIONSCURRENTQTR SF

UNDER CONSTRUCTION

SF

AVG ASKING RENTAL

RATE

DOWNTOWN

A 4 559,770 72,663 13.0% 5,985 1.1% 78,648 14.1% 11.1% -2,828 6,672 - - $1.94 B 16 515,801 94,540 18.3% 5,182 1.0% 99,722 19.3% 23.9% 24,671 14,888 - - $1.75 C 15 302,176 7,984 2.6% 5,631 1.9% 13,615 4.5% 7.3% 12,106 19,276 - - $1.40

Total 35 1,377,747 175,187 12.7% 16,798 1.2% 191,985 13.9% 15.0% 33,949 40,836 - - $1.70

SOUTH MEADOWS SUBMARKET

A 33 1,166,855 169,530 14.5% 6,298 0.5% 175,828 15.1% 16.9% 27,634 28,255 - - $1.73 B 10 288,437 12,119 4.2% - 0.0% 12,119 4.2% 1.3% -8,457 -6,291 - - $1.70 C - - - - - 0.0% 0 2,131 - -

Total 43 1,502,986 181,649 12.1% 6,298 0.4% 187,947 12.5% 13.4% 19,177 24,095 - - $1.71

MEADOWOOD SUBMARKET

A 36 1,794,558 180,806 10.1% 18,251 1.0% 199,057 11.1% 9.3% -18,760 (28,277) - - $1.80 B 19 445,743 94,147 21.1% 15,564 3.5% 109,711 24.6% 24.9% 1,080 (1,818) - - $1.43 C - - - - - 0.0% 0 - - - $0.00

Total 55 2,240,301 274,953 12.3% 33,815 1.5% 308,768 13.8% 12.4% -17,680 (30,095) - - $1.61

CENTRAL/AIRPORT SUBMARKET

A 3 79,597 8,223 10.3% - 0.0% 8,223 10.3% 10.3% 0 8,541 - - $1.45 B 28 915,354 157,298 17.2% 8,202 0.9% 165,500 18.1% 16.7% -18,859 -3,680 - - $1.27 C 40 751,326 132,201 17.6% 720 0.1% 132,921 17.7% 17.8% -812 5,976 - - $1.10

Total 70 1,746,277 297,722 17.0% 8,922 0.5% 306,644 17.6% 16.9% -19,671 10,837 - - $1.27

SPARKS SUBMARKET

A - - - 0.0% - - 0.0% 0.0% 0 - - - $0.00 B 2 32,919 - 0.0% - 0.0% - 0.0% 9.0% 2,965 2,965 - - $1.35 C 1 14,432 4,718 32.7% - 0.0% 4,718 32.7% 22.4% -1,479 5,053 - - $0.85

Total 3 47,351 4,718 10.0% - 0.0% 4,718 10.0% 13.1% 1,486 8,018 - - $1.10

WEST RENO SUBMARKET

A 1 17,728 2,000 11.3% - 0.0% 2,000 11.3% 11.3% 0 5,500 - - $1.54 B 3 43,102 - 0.0% - 0.0% - 0.0% 0.0% 0 190 - - - C 6 98,364 28,609 29.1% - 0.0% 28,609 29.1% 29.1% 0 (11,010) - - $1.35

Total 10 159,194 30,609 19.2% - 0.0% 30,609 19.2% 19.2% 0 (5,320) - - $0.96

DOWNTOWN SUBMARKET

A 4 559,770 72,663 13.0% 5,985 1.1% 78,648 14.1% 11.1% -2,828 6,672 - - $1.94 B 16 515,801 94,540 18.3% 5,182 1.0% 99,722 19.3% 23.9% 24,671 14,888 - - $1.75 C 15 302,176 7,984 2.6% 5,631 1.9% 13,615 4.5% 7.3% 12,106 19,276 - - $1.40

Total 35 1,377,747 175,187 12.7% 16,798 1.2% 191,985 13.9% 15.0% 33,949 40,836 - - $1.70

SUBURBAN TOTAL

A 73 3,058,738 360,559 11.8% 24,549 0.8% 385,108 12.6% 12.2% -7,623 (1,502) - - $1.30 B 62 1,725,555 263,564 15.3% 23,766 1.4% 287,330 16.7% 15.6% -17,430 49,315 - - $1.15 C 47 864,122 165,528 19.2% 720 0.1% 166,248 19.2% 19.2% -1,984 4,540 - - $1.10

Total 182 5,648,415 789,651 14.0% 49,035 0.9% 838,686 14.8% 14.3% -27,037 52,353 - - $1.18

MARKET TOTAL

A 73 3,618,508 433,222 12.0% 30,534 0.8% 463,756 12.8% 12.0% -10,451 7,998 - - $1.62 B 66 2,241,356 358,104 16.0% 28,948 1.3% 387,052 17.3% 17.5% 7,241 39,532 - - $1.45 C 63 1,166,298 173,512 14.9% 6,351 0.5% 179,863 15.4% 16.1% 10,122 11,710 - - $1.25

Total 197 7,026,162 964,838 13.7% 65,833 0.9% 1,030,671 14.7% 14.5% 10,097 69,337 - - $1.44

QUARTERLY COMPARISON AND TOTALS

Q4-16 197 7,026,162 964,838 13.7% 65,833 0.9% 1,030,671 14.7% 14.5% 10,097 69,337 - - $1.44

Q3-16 197 7,026,162 959,072 13.7% 57,622 0.8% 1,016,694 14.5% 15.2% 28,258 59,240 - - $1.45

Q2-16 197 6,967,994 990,192 14.2% 71,143 1.0% 1,061,335 15.2% 15.9% 8,372 30,982 - - $1.44

Q1-16 197 6,932,905 998,564 14.4% 103,519 1.5% 1,102,083 15.9% 16.1% 22,610 22,610 - - $1.42

Q4-15 198 7,078,032 1,021,174 14.4% 116,883 1.7% 1,138,057 16.1% 16.0% 34,442 127,682 - - $1.42

Q3-15 198 7,078,032 1,055,616 14.9% 78,502 1.1% 1,134,118 16.0% 16.0% 42,876 93,240 - - $1.41

Q2-15 198 7,078,032 1,096,729 15.5% 65,273 0.9% 1,135,010 16.0% 17.0% 38,779 50,364 - - $1.42

5 Reno Research & Forecast Report | Q4 2016 | Office | Colliers International5

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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.

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MARKET CONTACTS:Melissa Molyneaux, SIOR, CCIMExecutive Managing Director & Senior Vice President | Reno+1 775 823 4674melissa.molyneaux@colliers.com

Fay O’NeilResearch Analyst+1 775 823 4671fay.oneil@colliers.com