Phoenix Q2 Regional ProfileMulti-Model Access to Key Western Markets From PHXUnion Pacific Rail Accessible and 1-10 Accessible

Trucking Times & Distance

Union Pacific Train Routes

Reno

Bay AreaSalt Lake City

Denver

Albuquerque Oklahoma City

Las Vegas

Los AngelesLong Beach

Tucson Dallas

FT. Worth

Houston

Phoenix

El Paso

635 miles11.00 hours

DenDenenDenDenenveververveverververerrvererr920 miles12.25 hours

475 miles6.25 hours

440 miles6.00 hours

1,185 miles17.50 hours

1,120 miles15.50 hours

285 miles5.25 hours

350 miles4.75 hours

750 miles12.00 hours

San Antonio

Colton

HH11

INDUSTRIAL MARKET OVERVIEWJeff Hays commented on the PHX Industrial sector. “In general, the industrial market continues to improve in deal velocity, especially in the 25,000-100,000/sf range.”

Hays has accumulated over 30 years of experience in Industrial sales, leasing and investments. In addition to office, warehouse and manufacturing listings, Jeff also handles specialized transportation properties, such as cross-dock, truckload and vehicle maintenance. Hays adds, “cross-dock facilities are more suitable for LTL (less than truckload), final mile delivery, and 3PL type uses, and are quoted for lease on a per door basis. Truckload properties typically require larger parcels of land (5-10 acres), and contain an office structure and/or maintenance building for the company’s trailer and tractor repairs. While the LTL operator serves locals businesses in metro Phoenix and Arizona in general, truckload carriers are interstate operators which travel longer distances between destinations.”

There have been several new cross-dock and maintenance facilities recently constructed in the Southwest Submarket, including Old Dominion Freight Line at 79th Ave & Van Buren, and R+L Carriers at 43rd Ave & Gibson Ln. The Phoenix leasing market ranges from $350-$500/door, depending on the age, size (# of doors/site), and general condition of the terminal.

OFFICE MARKET OVERVIEWEric Butler, VP of Sales & Leasing, in CPI’s Scottsdale Office Group commented on the second quarter office activity for Phoenix. “Demand for office space continues to improve, which has provided some lift, resulting in higher rental rates in most segments. We are observing increased competition between tenants. Landlords are receiving multiple bids on suites and offering less free rent up front compared to last quarter.”

“Outside broker commissions in some areas are starting to return to pre-recession levels, helping Landlords with their bottom line profitability. Location and quality space continues to be the priority for users;

and the Pacific Northwest where prices have skyrocketed, making Phoenix prices appear more affordable. A final influence in the current retail market is the re-emergence of investors completing IRS Section 1031 exchanges, which had diminished greatly in the downturn.”

LAND MARKET OVERVIEWDonn Kinzle, Vice President of CPI’s Land Group, commented on the PHX land sector for second quarter. “By projecting out the current demographic trends in Arizona over the next ten years, the data shows that land will be a very strong investment for the future. The primary driving force for all land sales in the second quarter of this year was the sale of single-family land parcels. Strengthening home prices and increased permitting continues to add a strong foothold for the local land markets. One interesting side note to the current Arizona land market is the addition of water rights. We are seeing investment groups that are investing in farm properties for water rights and certificates.”

Donn possesses extensive experience within the commercial real estate land market. His rich and varied background spans over 25 years in Arizona and California.

however, there are fewer choices for those types of space, which is driving up competition for nicer properties.” Eric’s carefully chosen team continues to be highly successful; they have implemented an innovative listing program designed to maximize exposure for listings, while incorporating an exclusive Buyer/Tenant assistance process to ensure a satisfying experience for Buyers and Tenants alike.

RETAIL MARKET OVERVIEW Thomas K. Semancik has been actively involved in the sale of commercial real estate in Arizona since 1993. Semancik commented on the PHX Q2 Retail sector activity. “The greater Phoenix Retail Investment Market in the second quarter is experiencing higher prices as vacancy drops. “B” and “C” properties are finally filling up after the great recession. Overall capitalization rates have risen slightly reflecting the sale of these “B” and “C” properties to late comers to the marketplace.” “This trend is coupled with a divergent trend toward quality at the top; investors are aggressively paying for retail properties that meet all the right criteria for location, age and tenant mix. Many of these buyers are coming from California

[Office Market Cont.]

PHOENIX METRO2ND QTR. 2016

TRANSACTIONS

Commercial Properties Incorporated (CPI) completed 277 Industrial transactions for a total of 1.136 million square feet at the end of second quarter 2016. The top CPI Industrial transactions for the quarter were, a 68,733 SF portfolio sale of 2805 W Frye Rd & 315 S Bracken Ln, for $5.6 million in Chandler, AZ, and a 30,277 SF portfolio sale of 1440 W Drivers Way & 1444 W Auto Dr, for $3.9 million in Tempe, AZ.

VACANCY RATE & ABSORPTION

The Phoenix Industrial market ended second quarter 2016 with a vacancy rate of 10.4%. This is 0.952% decrease from the 10.5% vacancy rate reported last quarter. Net absorption ended up at a positive 970,884 square feet at the end of second quarter 2016. Absorption was down compared to last quarter’s net absorption previously reported at positive 1,907,945 square feet. The vacant sublease space in the Phoenix market ended the second quarter 2016 at 1,313,308 square feet. This is a decrease from last quarter which was previously reported at 1,492,261 square feet of vacant sublease space. The figures above include buildings that are owner occupied as well, which affects the actual vacancy numbers. Check with your CPI broker for an accurate representation of the vacancy rates in the submarket around your properties.

RENTAL RATES

The Industrial rental rates for second quarter 2016 averaged out at $6.80, which is an increase of 0.741% from the $6.75 average previously quoted for first quarter 2015. The Flex rental rate average was $12.35 with the average Warehouse rental rates at $6.02 at the end of second quarter 2016. Last quarter, the average rates were $12.12 for Flex and $5.96 for Warehouse.

CONSTRUCTION

2,949,799 SF were reported as still being under construction at the end of second quarter 2016 in the Industrial Sector. This is down compared to 2,988,677 SF under construction last quarter. Some of the biggest projects still under construction were 3333 N 7th St - Opus Airport Industrial, a 393,292 SF building which is 0% pre-leased, and 8787 W Buckeye Rd - Medine Distribution Center, a 650,000 SF property which is 100% pre-leased.

INVENTORY

At the end of second quarter, there was a total of 315,32,799 SF of industrial inventory for Phoenix. This square footage is broken out into 10,031 buildings that make up the sector. This is an increase from the 314,332,250 SF of total Industrial inventory reported at the end of last quarter.

To view our available properties,please visit our Property Searchpage online:

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VACANCYDOWN to 10.4%NET ABSORPTION

POSITIVE 970,884 SF

CAP RATES DOWN - Averaging 7.09%

Compared to 7.18% last yr.

RENTAL RATES UP - Averaging $6.80

Compared to $6.75 last Qtr.

TRANSACTIONS

Industrial Market ReportIndustrial Market Report

PHOENIX METRO 2ND QTR. 2016

TRANSACTIONS Commercial Properties Incorporated (CPI) completed 106 office transactions for a total of 477,637 square feet in second quarter 2016. The top CPI Office transactions for the quarter were, a 108,040 SF sale of Corporate Center at Kierland - 14635 N Kierland Blvd., for $24.35 million in Scottsdale, AZ, and a 19,132 SF sale of 13845 N Northsight Blvd., for $3.8 million in Scottsdale, AZ.

VACANCY RATE & ABSORPTION

The Phoenix Office market ended second quarter 2016 with a vacancy rate of 15.7%. This is a 4.268% decrease from the 16.4% vacancy rate reported last quarter. The second quarter net absorption came in at a positive 1,371,493 SF. This is up compared to last quarter when the net absorption was 677,361 SF. Vacant sublease space in the Phoenix market ended second quarter 2016 at 903,880 SF. Sublease space is up compared to the end of last quarter which was reported at 841,444 SF of vacant sublease space. The figures above include buildings that are owner occupied as well, which affects the actual vacancy numbers. Check with your CPI broker for an accurate representation of the vacancy rates in the submarket around your properties.

RENTAL RATES

The average Office rental rates ended second quarter 2016 at $22.76. This is an increase of 1.246% from the $22.48 per square foot average rental rates quoted last quarter. Class-A average rental rates at the end of second quarter were up to $27.65, while the Class-B average rates were up as well at $21.38. Class-C average rates were also up at $16.19.

CONSTRUCTION

1,791,033 SF were reported as still under construction at the end of second quarter 2016 in the Office Sector. This is down from last quarter’s 1,995,114 SF under construction figures. The largest projects still under construction at the end of second quarter were the 443,000 SF building at 600 E Rio Salado Pkwy, Bldg. E, that is 100% pre-leased, and the 370,000 SF building at 300 E Rio Salado Pky - Marina Heights - Bldg A, that is also 100% pre-leased.

INVENTORY

At the end of second quarter, there was a total of 166,705,891 SF of Office inventory for Phoenix. This square footage is broken out into the 8,227 buildings that make up the sector. There are approximately 907 owner-occupied properties that make up 17,364,415 SF of the total square feet in the Phoenix Office Market.

VACANCYDOWN to 15.7%NET ABSORPTION + 1,371,493 SF

a

aCAP RATES UP - Averaging 7.96% Compared to 7.38% in 2015

To view our available properties,please visit our Property Searchpage online:

www.cpiaz.com/PropertySearch

a aRENTAL RATES UP - Averaging $22.76 Compared to $22.48 Last Qtr.

Off ice Market Report

PHOENIX METRO2ND QTR. 2016

TRANSACTIONS Commercial Properties Incorporated (CPI) completed 37 Retail transactions for a total of 127,986 square feet in second quarter 2016. The top CPI Retail transactions for the quarter were, a 5,049 SF sale of Orange Tree Plaza at 1908 E McKellips Rd for $930,000 in Mesa, AZ and the 7,402 SF sale of 4201 W Bell Rd for $895,000 in Phoenix.

VACANCY RATE

The Phoenix Retail market ended second quarter 2016 with a vacancy rate of 8.8%. This is a 2.222% decrease from the 9.0% last quarter. The second quarter net absorption was positive 640,044 SF. Absorption is down compared to the last quarter’s net absorption which was positive 768,941 SF. The General Retail sector, which is categorized as freestanding retail that is not in a center, had a vacancy rate of 4.6% at the end of second quarter compared to 4.8% last quarter.

Sublease space in the Phoenix retail sector has decreased over the last four quarters. Currently, there are 507,793 SF of vacant sublease space available in the Phoenix market. The figures above include buildings that are owner occupied as well, which affects the actual vacancy numbers. Check with your CPI broker for an accurate representation of the vacancy rates in the submarket around your properties.

RENTAL RATES

Average retail rental rates ended the second quarter at $14.53 per square foot, from the $14.42 per square foot previously quoted last quarter. This represents a 0.763% increase in the average retail rental rates for the Phoenix market.

CONSTRUCTION

1,039,753 SF were reported as still being under construction at the end of second quarter in the retail sector. This up from the 1,030,745 SF previously reported as under construction last quarter. A few of the largest properties delivered were a 97,000 SF facility for Ride Now Motorsports at 2677 E Willis Rd which is 100% occupied, and the 102,000 SF facility for Living Spaces at 15530 E Williams Field Rd which is also 100% occupied.

INVENTORY

The Phoenix Retail inventory currently consists of 13,895 buildings, and 1,952 centers that make up the 221,502,653 SF of total Retail inventory in Phoenix at the end of second quarter 2016.

VACANCYDOWN to 8.8%

NET ABSORPTION +640,044 SF

CAP RATES DOWN - Averaging 6.83%

Compared to 7.51% in 2015

To view our available properties,please visit our Property Searchpage online:

www.cpiaz.com/PropertySearch.asp

RENTAL RATES UP - Averaging $14.53Compared to $14.42 Last Qtr.

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