Prices Spike as Newer Projects Command Top Dollar

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1 Research & Forecast Report GREATER PHOENIX MULTIFAMILY 2 Prices Spike as Newer Projects Command Top Dollar Key Takeaways > > The Greater Phoenix multifamily market had a mixed second quarter, but the overall trajectory is favorable. ticked up in the summer months, but absorption was positive, rents spiked, and the investment market was quite active. > > rose 5 basis points during the second quarter, ending the period at 5.9 percent. The rate is unchanged from one year ago. While net absorption was positive during the second quarter, vacancy crept higher as new units came online. > > Asking rents posted a second consecutive quarterly rent increase of more than 2 percent, reaching $1,46 per month. Year over year, asking rents have increased by 7.1 percent. > > Sales of multifamily buildings picked up during the second quarter and prices recorded strong gains. Fueled by the sale of several newer complexes, the median price spiked to nearly $4, per unit in the second quarter. Cap rates averaged approximately 5.1 percent. Greater Phoenix Multifamily Market The Greater Phoenix multifamily market recorded a stronger second quarter than usual in 2. Apartment vacancy typically edges higher in the second quarter in Phoenix, as seasonal residents move to cooler climates. This trend repeated in 2, with the rate creeping up 5 basis points, but absorption was fairly strong. Net absorption during the second quarter topped 7 units, up more than 35 percent from the same period in 2. This proved to be the strongest second quarter for net absorption since 21. With renter demand for units present in the market, the factor that drove vacancy higher during the second quarter was new development. More than 2,3 units were delivered during the second quarter, and year-todate completions are up percent from the first half of 2. Despite the recent deliveries, the development pipeline is quite full, with more Market Indicators Relative to prior period Transaction Activity Price Per Unit Cap Rates Summary Statistics Phoenix Market Rate 5.9% Change from 2Q 2 (bps) Asking (per month) $1,46 Change from 2Q 2 7.1% Median Sales Price (per unit YTD) Market 2 $131,7 Average Cap Rate (YTD) 5.1% Market 2

2 Greater Phoenix Multifamily Market (continued) than 11, units currently under construction across 19 submarkets. New development will be a significant force in the market for at least the next 24 months. Investment in the Greater Phoenix multifamily market was very strong during the second quarter, with activity surging and prices recording a steep rise. Some of the boost in pricing was due to the mix of properties that changed hands, particularly with some of the market s newest complexes trading. More than 2 percent of the properties that sold during the past three months were complexes that had been built since 2. These projects traded at a median price of more than $23, per unit during the second quarter, compared to a median price of approximately $126, per unit for all other buildings sold during the quarter. SUBMARKET STATISTICS Submarket Name 2Q 2 2Q 2 Annual Change (BPS) 2Q 2 2Q 2 W Central Phoenix 3.7% 4. (7) $72 $89 E Mesa/Apache Junction % 1 $1,4 $969 Goodyear/Avondale (2) $1,43 $988 Gilbert/Superstition Springs 4.9% 4.9% - $1,92 $1,2 Chandler % (9) $1,9 $1,84 N Mesa % 1 $886 $837 S Phoenix/Laveen 5.1% 5. (1) $977 $96 NW Black Canyon $927 $824 S Mesa (2) $974 $889 Glendale (8) $796 $743 Maryvale/Estrella 5.3% 4. 7 $86 $75 N Paradise Valley 5.5% 5. 3 $1,2 $1,76 N Central Phoenix/Alhambra (8) $9 $874 Metrocenter 5.7% 7. () $823 $778 Deer Valley/N Peoria 5.7% 5.9% (2) $1,64 $1,19 Union Hills/Cave Creek (2) $1,36 $978 Peoria/Sun City (6) $1,51 $961 North Mountain $932 $875 E Central Phoenix 6.1% 5.5% 6 $966 $896 N Scottsdale/Fountain Hills 6.1% 6.3% (2) $1,291 $1,222 Ahwatukee Foothills % 3 $1,126 $1,59 S Scottsdale 6.3% 6.1% 2 $1,393 $1,3 S Gilbert/Queen Creek 6.3% 6.1% 2 $1,225 $1,99 S Tempe $1,91 $1,58 S Paradise Valley 6.5% 8. (21) $1,32 $1,33 Central City/Sky Harbor 7.1% 7.3% (2) $1,442 $1,29 Central Black Canyon % 9 $719 $655 Central Phoenix/Encanto () $1,3 $1,9 NE Central Phoenix % 13 $1, $1,59 N Tempe % 23 $1,195 $1,6 2 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

3 Employment: > > The Greater Phoenix employment market continues to expand. Year over year through the second quarter, employers have added 57,2 net new jobs, an expansion of 2.8 percent. Growth has been particularly strong in 2; year to date, more than 37, jobs have been added. > > Maricopa County has led the country is population growth in each of the past two years. Population-serving sectors have recorded some of the strongest gains in local employment. During the past 12 months, 13, new jobs have been added in the education and health services sector, a 4.3 percent gain. > > The construction sector is another segment of the economy that has been benefitting from continued population growth. More than 13, construction jobs have been added in the past year, an 11.4 percent increase. Year over Year Jobs Added (s) Employment Overview Number of Jobs 5% 3% 1% Year-over-Year Employment Change Construction: > > After slowing a bit to start the year, apartment deliveries accelerated in the second quarter. More than 2,3 units came online during the second quarter, bringing the total for the first half of 2 to nearly 3,9 units. This is an increase of percent from the first half of last year. > > There are approximately 11,3 units currently under construction throughout Greater Phoenix, down about 8 percent from one year ago. This marked the sixth consecutive quarter where the number of units under construction was above 1,. > > Multifamily permitting inched higher during the second quarter, rising 2 percent to more than 2,4 units. In the first half of 2, developers pulled permits for nearly 4,8 units, up nearly 2 percent from the first half of last year. Units Construction Trends: Major Submarkets 3, 2,5 2, 1,5 1, 5 Completions 2-YTD 2 Under Construction : > > crept higher in the summer months, which is a common occurrence in Greater Phoenix. The rate rose 5 basis points, in the second quarter to 5.9 percent. The current vacancy rate is identical to the rate one year ago. > > in Greater Phoenix has remained in a consistently tight range for the past few years. Since the beginning of 2, quarterly vacancy levels have ranged from a low of 5.2 percent to a high of just 6.1 percent. The rate has remained below 6 percent in 12 of the past quarters. > > While the prevailing vacancy trend for the past several years has been one of improvement, there are some signs of leveling off, particularly at the submarket level. As of the second quarter, vacancy has posted year-over-year improvements in only submarkets, while submarkets had recorded annual vacancy increases. Rate % % % % 4. Quarterly Trends 3 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

4 : > > Asking rents rose by 2.8 percent during the second quarter, following an increase of 2.4 percent in the first quarter. Current asking rents are $1,46 per month, or $1.22 per square foot, per month. This was the third time in the past six quarters where asking rents gained more than 2 percent. > > During the past 12 months, asking rents have increased by 7.1 percent. This is evidence of a pattern of sustained rent growth. Year-over-year rental growth has averaged 6.7 percent since 2. > > Asking rents in Class A buildings have gotten off to a strong start to 2. Since the end of 2, Class A asking rents have spiked by $13 per month, reaching $1,761 per month, or $1.86 per square foot, per month. These rental rates are supporting development of high-end units. Asking Rent per Month Quarterly Rent Trends Per Month $1,1 $1,5 $1, $95 $9 $85 $8 $75 Per SF $1.25 $1.2 $1. $1.1 $1.5 $1. $.95 Asking Rent per SF Investment Trends: > > Sales velocity for multifamily properties rose by 1 percent from the first quarter to the second quarter, and year to date, total activity is nearly identical to levels from the first half of 2. Sales of properties in the $2 million to $5 million range accelerated during the second quarter, while activity in properties priced from $5 million to $2 million slowed. > > The median price during the second quarter reached its highest point on record. The median price in transactions during the second quarter spiked to nearly $4, per unit. Year to date, the median price is $131,7 per unit, up approximately 2 percent from the median price in 2. > > Cap rates inched higher during the second quarter, averaging approximately 5.1 percent in the second quarter. Year to date, cap rates have averaged approximately 5 percent, with many properties changing hands with cap rates in the mid-4 percent to low-5 percent range. Median Price per Unit (s) $7 Investment Trends $ $125 $1 $75 $5 $25 $ YTD Price per Unit Cap Rate $.9 7% 5% 3% Average Cap Rate Recent Transactions in the Market MULTIFAMILY SALES ACTIVITY Property Name Street Address Units Sales Price Price per Unit Dakota at McDowell Mountain Ranch N Thompson Peak Pky., Scottsdale 736 $,, $2,391 Hanover Mill Avenue 11 W 5th St., Tempe 341 $95,1, $278,886 Capri at Camelback 51 N 4th St., Phoenix 556 $81,25, $6,133 4 Greater Phoenix Research & Forecast Report 2 Multifamily Colliers International

5 Outlook: The outlook for the Greater Phoenix multifamily market remains bright, as continued renter demand is driving absorption of apartment units. The second quarter is typically the softest period in the Greater Phoenix multifamily market, before improvement is often recorded in the second half of the year. This trend is forecast to repeat in 2. The local vacancy rate will likely inch a bit lower from its current level. Construction will remain active, continuing a trend that has been underway for several years. Since 2, more than 32, apartment units have been delivered in Greater Phoenix, increasing the total market inventory by 13 percent. Property sales are showing no signs of slowing down. Activity accelerated in the second quarter and sales velocity in the first half of this year is closely tracking the pace established in 2. Prices are on the rise, which will likely encourage more owners to list properties and capture gains. The recent wave of new development is also providing an additional source of investment activity and will likely continue to change hands. More than two dozen properties built in the latest wave of development have sold since the beginning of 2; collectively, the transactions of these properties have accounted for more than $1.4 billion in activity. Employment Forecast Rent Forecast 8, 4. $1,1 1 7, 3.5% $1,5 6, 3. $1, Net Employment Change 5, 4, 3, 2, 2.5% % 1. Year-over-Year Change Average Asking Rent $95 $9 $85 $8 Year-over-Year Rent Change 1,.5% $ *. $ * - Permits/Units Construction and Permitting Forecast 11, 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Jobs Gained/Lost Forecast 1 1 Asking * MF Permits Completions * 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 2 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