INDUSTRIAL Economic Indicators Market Indicators Net Absorption/Asking Rent 4Q TRAILING AVERAGE MSF 3.0 2.0 1.0 0.0-1.0 $0.40 Overall Vacancy Net Absorption, 000's Q2 13 Q2 14 Phoenix Employment 1,806K 1,830K Phoenix Unemployment 7.0% 5.9% U.S. Unemployment 7.5% 6.1% Q2 13 Q2 14 Overall Vacancy 12.5% 11.7% Net Absorption 417,256 3,627,400 Under Construction 5,366,726 2,920,334 Average Asking Rent $0.51 $0.51 Asking Rent, $ PSF 12-Month Forecast 12-Month Forecast $0.55 $0.50 $0.45 18% 17% 16% 15% 14% 13% 12% 11% % Economy The metro Phoenix economy continues to post positive gains, adding 24,000 net new jobs year-over-year through the second quarter 2014 with a total employment base of 1,830,000 jobs. Moody s recently raised its employment forecast for year end 2014 and now expects 40,600 net new jobs this year, compared to 38,600 net new jobs originally forecasted at the beginning of the year. As employment levels rise, the metro Phoenix unemployment rate improved year-over-year, declining 1 basis points to 5.9%. The metro Phoenix unemployment rate continues to outperform the national unemployment rate of 6.1%. Market Overview Metro Phoenix posted another strong gain in net absorption in the second quarter with 3,627,400 square feet (sf); bringing the year-to-date total to 6,565,250 sf. The majority of the large gain in the second quarter is due to GT Advance Technologies/Apple occupying the former First Solar facility (1,328,075 sf) in the Gilbert/Gateway submarket and WinCo occupying their new facility (800,000 sf) in the Southwest Phoenix submarket. Average asking rents increased in of the 17 submarkets as the remaining submarkets declined or were flat quarter-over-quarter. Rental rate increases are expected in high demand submarkets where most new construction is occurring. The metro Phoenix vacancy rate declined 50 basis points quarter-over-quarter to finish at 11.7%. Construction activity continues to increase in metro Phoenix, as 2,920,334 sf was under construction at the end of the second quarter. During the second quarter, new projects broke ground, of which five are build-to-suit or owner built and the remaining are speculative construction. EastGroup Properties broke ground on a two building speculative warehouse/ distribution project totaling 119,933 sf in the Chandler submarket. This ground breaking comes after the successful completion of their recent project, 6850 W Morelos Place (126,000 sf), which was pre-leased to Arizona Nutritional Supplements prior to completion. Wentworth Property Company,
along with Clarion Partners, broke ground on a three building warehouse/distribution project consisting of 603,656 sf in the Sky Harbor submarket. The largest speculative construction project to break ground was the 685,084 sf Hillwood project in the Southwest Phoenix submarket. This comes despite there being 13 warehouse/distribution buildings available in the West Valley that can accommodate +300,000 sf users. Construction activity is expected to remain elevated in the second half of 2014 as more developers are expected to break ground on new projects in the next six months. During the second quarter, new projects broke ground, of which five are build-to-suit or owner built and the remaining are speculative construction. New Supply NEW SUPPLY IS EXPECTED TO BE 25.7% ABOVE THE HISTORIC AVERAGE IN 2014 MSF 14 12 8 6 4 2 0 02 03 04 05 06 07 08 09 11 12 13 14 15 Large Block Space BLOCKS OF CONTIGUOUS SPACE (BUILDINGS ARE ONLY COUNTED ONCE) 30 Since 2012, the majority of the new speculative construction in the Valley consisted of +400,000 sf warehouse/distribution buildings. Current speculative construction activity is shifting away from large warehouse/distribution buildings to mid-size (50,000 to 300,000 sf) buildings and smaller owner/user buildings ranging from,000 to 20,000 sf. As 2014 unfolds, expect more construction announcements in the second half of the year, especially small and mid-size buildings. Despite strong net absorption, the metro-wide vacancy rate is expected to remain relatively flat in the second half of 2014 as new construction is expected to come online. # of Blocks 25 20 15 5 0 0-149.9K 150-199.9K 200-299.9K > 300K Flex GI WH/D Flex, General Industrial, Warehouse/Distribution GI AND WH/D RENTS HAVE INCREASED 4.1% AND 4.8% YEAR-OVER-YEAR Outlook Demand from small to mid-size users is expected to strengthen as employers continue to add jobs. The metro Phoenix Vacancy rate is expected to remain below 12.0%. Net absorption could break ±7.0 msf by year end 2014. $1. $0.90 $0.70 $0.50 $0.30 Flex GI WH/D www.cassidyturley.com 2
Cassidy Turley Arizona TOTAL TOTAL SUBLET DIRECT VACANCY 2ND QTR NET YTD NET UNDER WEIGHTED AVG. BUILDINGS INVENTORY VACANT VACANT RATE ABSORPTION ABSORPTION CONSTRUCTION ASKING RENT Submarket Black Canyon General Industrial 31 906,382-33,627 3.7% (4,456) (4,456) - $0.55 Flex 47 1,182,844-270,756 22.9% 6,0 13,783 - $0.60 Warehouse/Distribution 71 1,920,246-119,782 6.2% 8,466,901 - $0.54 Central Phoenix General Industrial 21 894,236-18,8 2.0% 2,025 18,094 - $0.73 Flex 28 741,069-79,003.7% 13,908 18,560 - $0.85 Warehouse/Distribution 62 1,493,183 4,994 154,346.7% (6,126) 4,553 - $0.67 Chandler General Industrial 3 11,757,252 315,750 368,585 5.8% 283,586 2,303,968 - $0.64 Flex 66 3,922,652 95,221 939,244 26.4% 24,7 (12,058) 60,000 $0.93 Warehouse/Distribution 175 6,546,233 11,757 458,373 7.2% 121,685 133,898 382,433 $0.57 Deer Valley General Industrial 118 4,277,235,608 123,303 3.1% 37,900 37,466 - $0.75 Flex 73 3,503,272-835,6 23.9% (73,259) (43,370) - $1. Warehouse/Distribution 291 7,707,8-821,126.7% (57,388) 31,167 164,313 $0.64 East Mesa General Industrial 37 2,453,135-139,712 5.7% 3,0 (5,185) - $0.73 Flex 14 353,344-120,477 34.1% 1,249 (9,092) - $0.73 Warehouse/Distribution 69 1,622,844-181,497 11.2% 52,585 46,076 - $0.58 Gilbert/Gateway General Industrial 120 5,857,063 70,000 402,924 8.1% 1,334,277 1,369,567 9,540 $0.51 Flex 68 2,266,523-555,907 24.5% 33,295 73,790 - $0.82 Warehouse/Distribution 320 8,660,975 4,398 1,126,006 13.1% 47,785 12,531 - $0.57 Glendale General Industrial 29 1,770,037-158,347 8.9% 7,696 7,696 - $0.31 Flex 404,806-94,929 23.5% (19,176) 2,447 - $0.66 Warehouse/Distribution 58 3,670,966-596,9 16.3% 14,876 7,906 600,000 $0.44 Grand Ave General Industrial 131 4,353,512-314,636 7.2% (94,980) (58,681) - $0.32 Flex 31 723,573-58,978 8.2% (7,302) (198) - $0.40 Warehouse/Distribution 391 13,639,9 30,628 829,639 6.3% 11,355 (8,849) - $0.34 North Glendale General Industrial 24 695,724-68,076 9.8% 7,849 (22,953) 15,428 $0.71 Flex 17 402,786-69,142 17.2% 15,896 55,244 - $0.65 Warehouse/Distribution 51 1,936,008-284,974 14.7% 38,422 69,288 - $0.59 Pinal General Industrial 62 3,915,820-180,560 4.6% - 1,651 - $0.36 Flex 1 22,990 0.0% - - - - Warehouse/Distribution 63 2,941,739 3,330 367,846 12.6% (2,970) (3,074) - $0.37 Scottsdale General Industrial 23 2,226,091-22,095 1.0% 37,722 25,127 - $0.96 Flex 61 1,775,275-230,799 13.0%,975 8,132 - $1.05 Warehouse/Distribution 56 1,528,401-179,367 11.7% 38,288 25,600 - $0.92 Scottsdale Airpark General Industrial 71 1,859,681-9,135 5.9% 27,013 21,678 - $1.07 Flex 85 2,325,768 9,951 529,413 23.2% (14,565) (9,003) - $0.81 Warehouse/Distribution 177 3,332,424 21,500 259,620 8.4% 43,237 16,692 - $0.89 Sky Harbor Airport General Industrial 287 11,579,737 77,155 1,371,024 12.5% 1,401 45,556 - $0.49 Flex 1 4,709,066 44,280 931,160 20.7% (14,827) (166,338) - $0.80 Warehouse/Distribution 855 29,219,734 71,899 2,725,821 9.6% 5,343 54,909 603,656 $0.45 Southwest Phoenix General Industrial 80 6,175,268 503,059 412,793 14.8% 135,8 187,736 - $0.37 Flex 18 722,732-86,725 12.0% 19,046 46,230 - $0.57 Warehouse/Distribution 186 32,932,867 220,974 4,434,125 14.1% 878,746 1,233,890 685,084 $0.36 Tempe General Industrial 185 8,891,413-926,334.4% (34,587) (62,292) - $0.45 Flex 162 7,393,402 112,873 1,0,948 15.2% 38,568 (80,690) 237,000 $1.02 Warehouse/Distribution 630 21,450,221 37,617 2,257,969.7% 192,727 293,586 62,880 $0.52 West Central Phoenix General Industrial 257,678,575 22,500 1,159,444 11.1% (19,900) 22,906 - $0.43 Flex 14 646,648-2,839 32.6% - 5,040 - $0.58 Warehouse/Distribution 693 42,701,569 247,121 5,520,512 13.5% 240,046 820,977 - $0.37 West Mesa General Industrial 51 1,476,193-57,215 3.9% (8,390) (32,648) - $0.66 Flex 9 269,970-26,830 9.9% - - - $0.71 Warehouse/Distribution 128 4,323,015 9,050 524,626 12.3% 40,639 57,492 - $0.55 www.cassidyturley.com 3
TOTAL BLDGS TOTAL INVENTORY SUBLET VACANT DIRECT VACANT VACANCY RATE 2ND QTR NET ABSORPTION YTD NET ABSORPTION UNDER CONSTRUCTION WEIGHTED AVG ASKING RENT Submarket Black Canyon 149 4,009,472-424,165.6%,1 20,228 $0.58 Central Phoenix 111 3,128,488 4,994 251,457 8.2% 9,807 41,207 $0.77 Chandler 344 22,226,137 422,728 1,766,202 9.8% 429,981 2,425,808 442,433 $0.71 Deer Valley 482 15,487,615,608 1,780,039 11.6% (92,747) 25,263 164,313 $0.84 East Mesa 120 4,429,323-441,686.0% 56,934 31,799 $0.69 Gilbert/Gateway 508 16,784,561 74,398 2,084,837 12.9% 1,415,357 1,455,888 9,540 $0.62 Glendale 97 5,845,809-850,186 14.5% 3,396 18,049 600,000 $0.46 Grand Ave 553 18,716,194 30,628 1,203,253 6.6% (90,927) (67,728) $0.34 North Glendale 92 3,034,518-422,192 13.9% 62,167 1,579 15,428 $0.62 Pinal 126 6,880,549 3,330 548,406 8.0% (2,970) (1,423) $0.36 Scottsdale 140 5,529,767-432,261 7.8% 86,985 58,859 $0.97 Scottsdale Airpark 333 7,517,873 31,451 898,168 12.4% 55,685 29,367 $0.87 Sky Harbor Airport 1,243 45,508,537 193,334 5,028,005 11.5% 200,917 (65,873) 603,656 $0.51 Southwest Phoenix 284 39,830,867 724,033 4,933,643 14.2% 1,033,602 1,467,856 685,084 $0.36 Tempe 977 37,735,036 150,490 4,195,251 11.5% 196,708 150,604 299,880 $0.61 West Central Phoenix 964 54,026,792 269,621 6,890,795 13.3% 220,146 848,923 $0.37 West Mesa 188 6,069,178 9,050 608,671.2% 32,249 24,844 $0.59 By Product Type General Industrial 1,630 79,767,354 999,072 5,865,918 8.6% 1,825,066 3,855,230 187,848 $0.51 Flex 805 31,366,720 262,325 6,050,760 20.1% 34,618 (97,523) 297,000 $0.89 Warehouse/ Distribution 4,276 185,626,642 663,268 20,842,539 11.6% 1,767,716 2,807,543 2,435,486 $0.44 ASKING RENTS CONVERTED TO NNN. www.cassidyturley.com 4
51st Ave Gilbert Rd Lindsay Rd Industrial Submarkets Metropolitan Phoenix Turner Rd 259th Ave 85 Rooks Rd Lone Mountain Rd Patton Rd Miller Rd Apache Rd 60 Dixileta Dr Jomax Rd Sun Valley Pkwy Watson Rd Rainbow Rd Dean Rd 211th Ave Airport Rd Tuthill Rd Jackrabbit Trl 187th Ave Perryville Rd Citrus Rd Cotton Ln 74 163rd Ave Sarival Rd Waddell Rd Peoria Ave Olive Ave Northern Ave 303 Estrella Pkwy Bullard Ave Litchfield Rd Dysart Rd El Mirage Rd 303 1 Avondale Blvd 60 2 7th Ave 99th Ave 91st Ave Lake Pleasant Rd 4 83rd Ave 1 Thunderbird Rd 75th Ave Peoria Ave 67th Ave Happy Valley Rd Pinnacle Peak Rd 59th Ave Deer Valley Rd 51st Ave 43rd Ave 35th Ave Dunlap Ave Northern Ave Glendale Ave Bethany Home Rd Camelback Rd Chaparral Rd Indian School Rd Indian School Rd 1 60 Thomas Rd Thomas Rd 87 Van Buren St 1 202 McKellips Rd McKellips Rd 16 Buckeye Rd Brown Rd Lower Buckeye Rd University Dr University Dr 202 3 9 17 202 Broadway Rd 5 Broadway Rd Broadway Rd 11 14Southern Ave Baseline Rd Baseline Rd 85 801 60 60 Dobbins Rd Guadalupe Rd 43rd Ave 17 35th Ave 17 27th Ave 19th Ave 19th Ave 7th Ave 7th Ave Joy Ranch Rd Cloud Rd Carefree Hwy Union Hills Dr 7th St Central Ave Central Ave 7th St 16th St 16th St 24th St 24th St Cave Creek Rd 51 303 347 7 40th St 40th St Tatum Blvd 48th St 56th St 56th St 64th St 64th St Scottsdale Rd Lincoln Dr McDonald Dr Kyrene Rd Scottsdale Rd Rural Rd Hayden Rd Pinnacle Peak Rd Thunderbird Rd Priest Dr Ray Rd Hayden Rd McClintock Dr Chandler Blvd Pima Rd 1 Dobson Rd 1 Shea Blvd Ray Rd 202 202 17 6 8 Alma School Rd Mesa Dr McQueen Rd Queen Creek Rd 87 128th St Stapley Dr Cooper Rd 136th St Gilbert Rd Lindsay Rd Elliot Rd Warner Rd Williams Field Rd Pecos Rd Ocotillo Rd Riggs Rd Hunt Hwy 13 Lone Mountain Rd Val Vista Dr Val Vista Dr Dixileta Dr Rio Verde Dr Greenfield Rd Greenfield Rd Higley Rd Recker Rd Power Rd Rittenhouse Rd 12 15 Germann Rd Power Rd Chandler Heights Rd 1 North Glendale 2 Glendale 3 Southwest Phoenix Sossaman Rd Sossaman Rd Hawes Rd Hawes Rd 4 Grand Avenue 5 West Central Phoenix 6 Deer Valley 7 Black Canyon 8 Central Phoenix 9 Sky Harbor Airport Scottsdale Airpark 11 Tempe 12 Chandler 13 Scottsdale 14 West Mesa 15 Gilbert/Gateway 16 East Mesa 17 Pinal About Cassidy Turley Cassidy Turley is a leading commercial real estate services provider with more than 4,000 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $25.8 billion in 2013, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 24,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley. Zach Aulick Director, Research 2375 East Camelback Road Suite 300 Phoenix, AZ 85016 Tel: 602.224.4464 Fax: 602.468.8588 Zach.Aulick@cassidyturley.com The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. Copyright 2014 Cassidy Turley. All rights reserved. www.cassidyturley.com 5