Rents Continue on an Upward Trajectory

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1 Research & Forecast Report GREATER PHOENIX MULTIFAMILY 2 Continue on an Upward Trajectory Key Takeaways > > The fourth quarter closed out a very strong 2 in the Greater Phoenix multifamily market. There has proven to be sufficient renter demand in the market to absorb the new inventory coming online. With vacancy levels remaining low, rents are posting healthy gains. > > ticked up 2 basis points during the fourth quarter, reaching 5.9 percent. Despite the modest rise in the final few months of 2, vacancy is 1 basis points lower than one year ago. > > Asking rents rose 6.8 percent in 2, ending the year at $994 per month. This marked the third straight year where asking rent gains exceeded 6 percent. > > With rents on an extended upswing, multifamily prices are pushing higher. The median price rose 6 percent in 2, topping $11, per unit. Cap rates compressed slightly, averaging in the mid- to low-5 percent range for most of the year. Greater Phoenix Multifamily Market The Greater Phoenix multifamily market closed out another strong year in 2. inched higher in the fourth quarter, but the rate is still lower today than it was one year ago. has remained in a very tight range since the second half of 2, with the rate never ticking above 6.5 percent or below 5. percent. The vacancy rate has remained low even as a wave of new units has come online. Deliveries peaked in 2 and the pace of new construction will likely slow in the year ahead. While the number of new units forecast to come online in 218 will mark a dip from the 2 total, deliveries are being spread across a greater number of submarkets than in recent years. More than half of the submarkets in Greater Phoenix have units currently under construction, with activity picking up in areas such as Peoria, Goodyear and Avondale. Market Indicators Relative to prior period Transaction Activity Price Per Unit Cap Rates Summary Statistics Phoenix Market Rate 5.9% Change from 4Q 2 (bps) -1 Asking (per month) $994 Change from 4Q 2 6. Median Sales Price (per unit YTD) Market 2 $11,2 Average Cap Rate (YTD) 5.5% Market 2

2 Greater Phoenix Multifamily Market (continued) Sales of multifamily buildings were very consistent throughout 2. During the fourth quarter, transaction velocity was nearly identical to figures for the first three quarters of the year. The underlying health of the market is driving investor demand, particularly as new projects get leased up and rents continue to tick higher. Cap rates compressed in 2, particularly during the second half of the year. Cap rates averaged 5.5 percent during the past 12 months, a modest decline from 2 and 2 levels. SUBMARKET STATISTICS Submarket Name 4Q 2 4Q 2 Annual Change (BPS) 4Q 2 4Q 2 E Mesa/Apache Junction % () $1, $926 W Central Phoenix % (7) $856 $821 N Mesa % (5) $833 $8 Chandler % (11) $1,11 $1,43 Gilbert/Superstition Springs 4.9% 5. (9) $1,4 $982 NW Black Canyon 5.% 5.9% (9) $836 $798 Peoria/Sun City (6) $974 $942 S Scottsdale 5.3% 4.9% 4 $1,36 $1,187 North Mountain 5.3% 6. (11) $871 $846 Goodyear/Avondale (4) $1,4 $943 N Scottsdale/Fountain Hills 5.5% 5. (3) $1,264 $1,181 N Paradise Valley 5.5% 5.3% 2 $1,12 $1,46 S Mesa 5.7% 6.3% (6) $926 $853 Central City/Sky Harbor $1,3 $1,271 Deer Valley/N Peoria 5.9% 5. 5 $1, $974 S Phoenix/Laveen 5.9% 5. 3 $96 $851 S Tempe 6.% 5.9% 1 $1,61 $991 Maryvale/Estrella 6.% 5. 4 $77 $721 S Paradise Valley 6.1% 1.% (39) $1, $945 Union Hills/Cave Creek 6.1% 5. 3 $977 $9 E Central Phoenix 6.1% 6.1% - $918 $856 Glendale 6.1% 6. (5) $756 $723 N Tempe % 3 $1,9 $1,86 S Gilbert/Queen Creek % 11 $1,7 $1,54 Ahwatukee Foothills $1,89 $1, N Central Phoenix/Alhambra % (5) $92 $855 Central Phoenix/Encanto 6.9% 6.1% 8 $1,15 $1,67 Central Black Canyon 7.7% 7.1% 6 $686 $6 Metrocenter (2) $776 $765 NE Central Phoenix 1.5% 7.7% 28 $1,14 $1,77 2 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

3 Employment: > > The pace of employment growth in Greater Phoenix cooled in 2, with 37,3 net new jobs added, a 1.9 percent gain. In 2, more than 56, new positions were created and employers expanded payrolls by an average of more than 53, positions per year from > > One segment of the market that has been a recent source of expansion has been construction. Employment in the construction sector grew by 7.3 percent in 2 with the addition of 7,6 new workers. Single-family housing permitting rose by 1 percent in 2, topping 2, units for the year. As more new homes break ground, construction employment will continue to rise. Year over Year Jobs Added (s) Employment Overview 5% 3% 1% Year-over-Year Employment Change > > Employment in white-collar sectors of the economy were largely responsible for the slowdown in employment growth. The professional and business services and the financial activities sectors each added fewer than 4, jobs in 2, after combining to expand by more than 2, positions in 2. Number of Jobs Annual Change Construction Trends: Major Submarkets % Construction: > > New apartment development peaked in 2, with more than 8,8 units coming online. Deliveries were concentrated in Southeast Valley cities including Gilbert and Tempe, as well as in the Central Phoenix/Encanto submarket in Phoenix. > > The pace of deliveries is forecast to slow modestly in 218. At year-end 2, there were approximately 1, units under construction, compared to the more than 12,5 units that were under construction one quarter earlier. Units 4, 3,5 3, 2,5 2, 1,5 1, 5 Completions 2-2 Under Construction > > Multifamily permitting was very consistent during the last three quarters of 2, averaging approximately 2,3 units per quarter. Permitting for multifamily units inched up 4 percent from the third quarter to the fourth quarter. For the year, multifamily permitting was down 8 percent from the 2 total. : > > While construction of new units has been active in recent years, absorption has been strong, and vacancy has remained in a tight range. During the fourth quarter, the rate ticked up 2 basis points to 5.9 percent. Even after accounting for the rise in the final few months of 2, vacancy in Greater Phoenix is 1 basis points lower than one year ago. > > Five of the submarkets in Greater Phoenix have vacancy rates below 5 percent, up from only three submarkets that had rates that low one year ago. Even submarkets such as Chandler and Gilbert/Superstition Springs, which have each received significant amounts of new supply in recent years, have been able to maintain vacancy rates below 5 percent. > > The prevailing trend in the Greater Phoenix multifamily market has been one of stable vacancy. More than 75 percent of the submarkets in the market have vacancy rates that are within 1 basis points of their respective vacancy rates one year ago. Rate 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% 4.% Quarterly Trends 3 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

4 : > > Asking rents in the Greater Phoenix multifamily market continued to rise in the fourth quarter, although the pace of growth slowed a bit. Asking rents inched up.7 percent during the fourth quarter, reaching $994 per month. Asking rents rose 6.8 percent in 2, building on a nearly identical gain in 2. > > More than half of the submarkets in Greater Phoenix have average asking rents above the $1, per month threshold. One year ago, only onethird of submarkets had rental rates topping $1, per month. > > Asking rents in the Class A segment trended higher in 2, ending the year at $1,631 per month. The rents that Class A buildings are achieving are playing a significant role in the pace of new development. Investment Trends: > > Sales of apartment properties inched down by 3 percent from the third quarter to the fourth quarter, continuing a trend of minimal volatility in the number of properties changing hands. Transaction activity was very consistent from quarter-to-quarter in 2. For the full year, the number of properties sold lagged the 2 total by approximately 5 percent. > > After rising in the middle of the year, the median price ticked a bit lower in the final few month of 2. The median price during the fourth quarter was $1,1 per unit, 7 percent lower than the median price from the third quarter. The median sales price in 2 was $11,2 per unit, up 6 percent from the 2 median price. > > Cap rates dipped slightly during the fourth quarter, reflecting the continued investor demand for multifamily properties in the local market. Cap rates averaged 5.3 percent in sales during the fourth quarter, and the average for all of 2 was 5.5 percent. Asking Rent per Month Median Price per Unit (s) Quarterly Rent Trends $1,25 $1, $975 $95 $925 $9 $875 $85 $825 $8 $775 $75 $725 Investment Trends $12 $1 $8 $6 $4 $2 $ Per Month Per SF YTD $1.25 $1.2 $1. $1.1 $1.5 $1. $.95 $.9 $.85 $.8 1% 9% 7% 5% Asking Rent per SF Average Cap Rate Price per Unit Cap Rate Recent Transactions in the Market MULTIFAMILY SALES ACTIVITY Property Name Street Address Units Sales Price Price per Unit Lakeview at Superstition Springs 1849 S Power Rd., Mesa 676 $11,, $9,48 The Highland 1 E Highland Ave., Phoenix 35 $75,25, $2, Solano Village 522 W Northern Ave., Glendale 26 $24,, $92,38 4 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

5 Outlook: The Greater Phoenix multifamily market is positioned for another year of strong performance in 218. has declined in four of the past five years, even as more than 32, new units have been delivered to the market during this time. Persistent renter demand for apartments has more than offset the impact of new inventory, driving vacancies lower and pushing rents higher. Looking forward to 218, vacancy may inch higher an annual increase of approximately 5 basis points is likely but rents should continue to advance at a healthy pace. Metrowide average asking rents will top $1, per month as early as the first quarter of 218. Employment Forecast With property revenues on the rise, the local investment market should remain strong in the year ahead. Property sales have followed a consistent arc over the past 18 months, with little quarterly fluctuation in sales velocity. Pricing has trended steadily higher and cap rates have compressed slightly, even as interest rates have ticked up a bit. The Federal Reserve will likely increase interest rates a few times in 218, and there are some additional market pressures that could push lending rates higher. To this point in the cycle, the market has shown an ability to absorb interest rate hikes without slowing transaction activity, a trend that is likely to continue due to the strong investor demand for local multifamily properties. Rent Forecast 7, 4.% $1,1 1% 6, 3.5% $1,5 Net Employment Change 5, 4, 3, 2, 3.% 2.5% 2.% 1.5% 1.% Year-over-Year Change Average Asking Rent $1, $95 $9 $85 $8 Year-over-Year Rent Change 1,.5% $75 % Permits/Units.% * Jobs Gained/Lost Annual Change Construction and Permitting Forecast 11, 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, * MF Permits Completions $ * Asking Annual Change Forecast 1 1% % * FOR MORE INFORMATION Bob Mulhern Senior Managing Director Greater Phoenix Bob.Mulhern@colliers.com Jim Keeley SIOR Founding Partner Scottsdale Office Jim.Keeley@colliers.com Pete O Neil Research Director Greater Phoenix Pete.ONeil@colliers.com Copyright 218 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 Phoenix 239 E. Camelback Road, Suite 1 Phoenix, AZ colliers.com/greaterphoenix 5 North American Research & Forecast Report 2 Office Market Outlook Colliers International