The Phoenix industrial market continues to forge ahead by posting mostly positive indicators. From vacancy and absorption to construction activity, the industrial sector is riding a strong recovery. One only has to look at the market before the last recession to see similar indicators. From a record-high 17.6% vacancy rate in Q1 2010, it has managed to turn in a sub-12% vacancy rate with nearly 19 million SF absorbed over that time period. The one area that has yet to rise to pre-recession levels is asking rental rates. Although rates have inched up slowly over the past year and made some gains in several sectors, they are still not where most expect them to be. It is still a concern for lessors and investors alike. Tenants still enjoy the modest rates, but will not do so for too much longer. Construction activity remains strong, having grown steadily over the past two years and is the highest recorded activity since Q1 2008, but is still short of the exciting times of the commercial real estate run-up in 2006-2007. Building type and size have changed enormously since then, as well. Currently, most construction is focused on build-to-suit, large distribution and manufacturing facilities with an average building size of 409,059 SF. In contrast, Q3 2007 when spec industrial condos and multi-tenant spaces were in demand, the average construction property size totaled 66,250 SF. Today, with the increased demand for large distribution space, especially in the West Valley, several spec building projects have been announced while some have gone vertical. This trend will accelerate over the next few years. As the Valley housing market continues to roar back, it has propelled the overall

economy forward especially in the industrial sector. New homebuilding-related businesses that laid low during the housing collapse are returning to the market again. From cabinet, countertop and lighting manufacturers to door and window distributors, they are all scrambling for space to meet the increased demand. Much of that smaller space, especially under 50,000 SF, had been languishing. The improving economy has brought these smaller players back to the market and should put a dent in the inventory. Additionally, more creative

PHOENIX INDUSTRIALMARKET REPORT Q12013

www.leearizona.com | 1

Lee & Associates Arizona is part of the 46 office Lee national network.

Absorption 1,544,828 SF

Vacancy -80 basis points to 11.9%

Average RentNo change, $0.51/SF

Under Construction5,735,779 SF

New Supply Delivered447,792 SF

Sales Transactions $86 million

Average Sales PSF$55.45 PSF

Lease Activity2,320,704 SF

Unemployment Rate PHX Metro: 6.7% Arizona: 7.7% U.S.: 7.7%

Q1 TRENDS AT A GLANCE Positive Momentum in Industrial Should Build Throughout 2013

2.57M

1.54M

2.51M

-0.27M

1.90M

0.76M

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Q411

Q112

Q212

Q312

Q412

Q113

ABSORPTIONin millions of SF

Q411

Q112

Q212

Q312

Q412

Q113

14.2% 14.2%

13.4% 13.2%12.7%

11.9%

VACANCY

2| www.leearizona.com

PHOENIX INDUSTRIAL MARKET REPORTQ12013

Property Name Address Submarket Type Tenant Name Square Feet Type6725 W. Allison Rd. 6725 W. Allison Rd., Chandler Chandler Warehouse Sound Packaging 105,000 Move inSun Distribution Center 5120 W. Buckeye Rd., Phoenix SW S of Buckeye Road Distribution Amcor Packaging 80,587 Move inBuckeye Industrial Center 2 5707 W. Buckeye Rd., Phoenix SW S of Buckeye Road Manufacturing Valley Palette 42,000 Move inPhoenix Tech Center 10230 S. 50th Pl., Phoenix Chandler Flex General Motors 40,586 Move in8800 N 22nd Ave. 8800 N. 22nd. Ave., Phoenix N. Black Canyon Flex Dept. of Economic Security 39,978 Move in475 W. Vaughn Dr. 475 N. Vaughn Dr., Tempe Tempe Southwest Warehouse VWR International 34,908 RenewalZ Fahrenheit Building 15690 N. 83rd Way., Scottsdale Scottsdale Airpark Warehouse Ridgeline Energy Services 34,000 Move inHayden Commerce Center 14000 N. Hayden Rd., Scottsdale Scottsdale Airpark Flex Ingram Micro 33,864 Move in

Property Address Buyer Seller Type Sales Price Square Feet PSF3200 W. Germann Rd., Chandler Digital Realty Trust, Inc. Amkor Technology Inc. Manufacturing $21,062,117* 201,398 $104.581840 N. 95th Ave., Phoenix Viawest Properties, LLC Carlson Real Estate, LLC Flex $12,646,018** 118,353 $105.285150 S. 48th St., Phoenix Robert Wells Family Partnership, LP Pantera Holdings, Inc. Flex $9,000,000 82,742 $108.775865 S. Kyrene Rd., Tempe Tidemann Properties, LLC Buchanan St. Partners Distribution $6,500,000 161,333 $40.608205 N. 67th Ave., Glendale CLK Developments AZ, LP Sto Corp. Storage $5,500,000 19,000 $289.477211 E. Southern Ave., Mesa Holuloa Clearview, LLC Case Huff & Associates Warehouse $3,149,000 19,491 $161.5612519 W. Butler Dr., El Mirage Dakota Fabricating, Inc. JDL & Co., LLC Manufacturing $2,700,000 44,090 $61.24353 N. 44th Ave., Phoenix R&B Wholesale Distributors Johnson Living Trust Warehouse $2,650,000 48,294 $54.87

*Multi property sale reflects exclusion of office property portion of transaction. **Multi property sale reflects exclusion of land parcel portion of transaction.

use of space by companies not pigeon-holed by a specifi c building type can fi nd bargains and innovative solutions for their unique space needs.

The Fundamentals The Phoenix industrial market posted an 11.9% vacancy rate, down 80-basis points from Q4 2012. This is the lowest posted vacancy rate since Q1 2008 when industrial vacancies began their steady rise. Net absorption remained strong this quarter at 1,579,608 SF. First quarter absorption fi gures tend to bottom out after high activity at the previous years’ end. However, this is the best fi rst quarter absorption rate since Q1 2007.

Deal velocity was somewhat weak during the quarter with just over 500 transactions and 2.3 million SF leased. There were 4 deliveries this quarter totaling 447,792 SF. There was an increase in construction activity from last quarter totaling 14 properties at 5,735,779 SF. Asking rental rates remained essentially unchanged at $0.51 per square foot (monthly) although several submarkets showed increasing rates.

The largest industrial lease transaction for the quarter was 105,000 SF for Sound Packaging at 6725 W. Allison Rd., Chandler. The largest sale transaction for the quarter was the purchase by Digital Realty Trust of 3200 W. Germann Rd., Chandler for $21.1 million from Amkor Technology,

Inc. The 201,388 SF property posted an allocated price per square foot of $104.58. Sales velocity posted a disappointing $86 million in transaction volume this quarter compared to last quarter’s $187.4 million.

Overview The Phoenix industrial sector is in the strongest shape it has been in over 5 years. Most market indicators are pointing in the right direction. Despite some uncertainty on the national political stage, investors, small business owners and lenders alike are ready to moving forward. Arizona’s economy has been rebounding well. With abundant land, low development costs and an aggressive campaign to lure out-of-state businesses here, the outlook looks strong.

Q1 2013 TOP LEASES

continued from Page 1

4.6M5.4M

7.4M

4.3M

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1.02.03.04.05.06.07.08.0

Q211

Q311

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LEASING ACTIVITYin total SF leased

$0.45$0.46$0.47$0.48$0.49$0.50$0.51$0.52

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$0.49$0.50

$0.51 $0.51 $0.51 $0.51

RENTAL RATESAverage per SF, per month

Q1 2013 TOP SALES

1.50

2.50

3.50

4.50

5.50

6.50

Q411

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3.1M3.6M 3.4M

4.0M

4.8M

5.7M

CONSTRUCTION ACTIVITYin millions of SF

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Q12013PHOENIX INDUSTRIAL MARKET REPORT

The information and details contained herein have been obtained from third-party sources believed to be reliable; however, Lee & Associates Arizona has not independently verifi ed its accuracy. Lee & Associates Arizona 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 fi tness 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.

Further, data sources are continually revised and re-benchmarked, causing both historical and for-ecast information, data and analysis to change as new information is added. Third-party data sources: CoStar Group, Inc., Institute for Supply Management, Moody’s Economy.com, Nielsen/Claritas, Real Capital Analytics, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, U.S. Census Bureau, U.S. Department of Commerce.

Industrial market statistics are compiled using a third-party database for the analysis of over 8,700 distribution, fl ex, manufacturing and warehouse buildings in the Phoenix Metropolitan Area.

© Copyright 2013 Lee & Associates Arizona. All rights reserved.

ABOUT LEE & ASSOCIATES Founded in 1979, Lee & Associates is oneof the largest commercial real estate services companies in the United States with 46 offi ces. Our seasoned shareholders and professionals offer comprehensive brokerage and advisory services. We develop customized solutions for all of your real estate needs through our market-to-market knowledge and versatility across all property types. Our unique business model of broker-ownership and extensive experience has helped us become one of the largest and most highly regarded commercial real estate provid-ers in Arizona and the nation.

Total Net Absorption Under Asking

Submarkets Inventory Total SF Q113 Q113 YTD Total Construction Q113 YTD NNN Rate

Sky Harbor Airport Area

Distribution/Warehouse 31,868,406 3,731,658 11.7% 249,798 249,798 30,000 - - $0.43Manufacturing 8,878,988 1,181,034 13.3% (80,040) (80,040) - - - $0.43Flex 4,890,406 766,737 15.7% 12,190 12,190 155,000 - $0.84Total 45,637,800 5,679,429 12.4% 181,948 181,948 185,000 - - $0.51

Northeast Valley

Distribution/Warehouse 7,260,812 774,436 10.7% 18,228 18,228 - - - $0.75Manufacturing 3,054,410 71,684 2.3% 73,905 73,905 - - - $0.52Flex 5,242,430 1,076,120 20.5% (8,395) (8,395) - - - $0.67Total 15,557,652 1,922,240 12.4% 83,738 83,738 - - - $0.79

Northwest Valley

Distribution/Warehouse 36,232,060 3,257,313 9.0% 326,229 326,229 418,000 - - $0.48Manufacturing 10,737,089 767,328 7.1% 115,987 115,987 164,000 - - $0.54Flex 6,500,742 1,557,687 24.0% 172,766 172,766 - - - $0.94Total 53,469,891 5,582,328 10.4% 614,982 614,982 582,000 - - $0.65

Southeast Valley

Distribution/Warehouse 46,796,680 5,822,179 12.4% 260,767 260,767 - 315,992 315,992 $0.52Manufacturing 22,674,047 2,104,970 9.3% 163,019 163,019 1,285,000 - - $0.56Flex 14,478,845 2,746,015 19.0% 85,556 85,556 91,700 131,800 131,800 $0.88Total 83,949,572 10,673,164 12.7% 509,342 509,342 1,376,700 447,792 447,792 $0.61

Southwest Valley

Distribution/Warehouse 63,390,995 6,188,696 9.8% 198,061 198,061 3,592,079 - - $0.34Manufacturing 11,756,731 2,228,453 19.0% 72,609 72,609 - - - $0.31Flex 1,342,597 378,012 28.2% 2,984 2,984 - - - $0.74Total 76,490,323 8,795,161 11.5% 273,654 273,654 3,592,079 - - $0.32

Total Submarkets

Distribution/Warehouse 185,548,953 19,774,282 10.7% 1,053,083 1,053,083 4,040,079 315,992 315,992 $0.34Manufacturing 57,101,265 6,353,469 11.1% 345,480 345,480 1,449,000 - - $0.45Flex 32,455,020 6,524,571 20.1% 146,265 146,265 246,700 131,800 131,800 $0.88Phoenix Metro 275,105,238 32,652,322 11.9% 1,544,828 1,544,828 5,735,779 447,792 447,792 $0.51

Vacancy Building Completions

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Airport Area Submarket - N. Airport - S. Airport N. of Roeser - S. Airport S. of Roeser - SC. N. of Salt River - SC. S. of Salt River Northeast Submarket - Central Phoenix - Scottsdale Airpark - S. Airport S. of Roeser - Scottsdale/Salt River Northwest Submarket - Deer Valley/Pinnacle Peak - Grand Ave. - N. Black Canyon - N. Glendale/Sun City - W. Phx N. of Thomas Rd. - W. Phx S. of Thomas Rd. Southeast Submarket - Chandler - Chandler Airport - Chandler N./Gilbert - Falcon Field/Apache Junction - Mesa - Tempe East - Tempe Northwest - Tempe Southwest Submarket - Goodyear - SW. N. of Buckeye Rd. - SW. S. of Buckeye Rd. - Tolleson

3200 E. Camelback Road, Suite 100, Phoenix, AZ 85018Offi ce: 602.956.7777 | Fax: 602.954.0510

Contact a Lee & Associates broker who can provide you with the most comprehensive mar-ket knowledge and expertise in the business. We specialize in:

Build-to-Suit- For Lease- For Sale- Facility Specifi cation- Bidding & Design Build Construction- Expansion Planning

Fair Market Value Analysis- Valuation of Land

- Valuation of Buildings and - Other Improvements

Financial Analysis of Alternatives- Comparing Alternative Proposals- Purchase vs. Lease Analysis- Existing Building Search

Site Search- Site Selection Criteria- Development & Analysis

Sale-Leaseback- Institutional Investors- Private Investors

Disposition of Existing Buildings- Locally & Nationally - REO & Distressed-Asset - Valuation & Sales

LOOK TO LEE & ASSOCIATES ARIZONA FOR SOLUTIONS

PHOENIX INDUSTRIALMARKET REPORT Q12013

Report prepared by: Matt DePinto, Senior Research AnalystFollow us on:

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PHOENIX INDUSTRIAL SUBMARKET CLUSTERS

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$50.0$100.0$150.0$200.0$250.0$300.0$350.0

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SALES VOLUMEin millions of SF

Sales Volume No. of Transactions