Third Quarter 2018 / New Jersey. Industrial. New Jersey Industrial Vacancy Rate Declines Year- Over-Year, While the Net Rental Rate Continues to Rise

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1 Third Quarter 2018 / New Jersey Industrial Industrial Market Facts 4.2% New Jersey's unemployment rate (national rate 3.9%) 3.4% Overall vacancy rate (3Q17 4.0%) $8.19 Average Direct Asking Rent (3Q17 $7.63) 18.0 M 12-month absorption (SF) New Jersey Industrial Vacancy Rate Declines Year- Over-Year, While the Net Rental Rate Continues to Rise New Jersey s industrial vacancy rate continued its downward trend in the third quarter, declining to 3.4 percent from 4.0 percent in the third quarter of 2017, while the average asking net rental rate rose to $8.19 per square foot, up from $7.63 per square foot a year earlier. As the demand for quality inventory around New Jersey s robust highway system increases, most industrial professionals anticipate that asking rental rates will continue to rise both along the New Jersey Turnpike and its surrounding submarkets. Net absorption was positive once again in the third quarter, even as leasing activity fell to 6.1 million square feet, compared to 8.8 million square feet in the third quarter of The leasing activity was heavier in the central New Jersey markets (4.2 million square feet) compared to northern New Jersey (1.9 million square feet). The following transactions were among the most significant in the third quarter: Luxury consignment company expands its footprint in New Jersey Luxury online consignment company The RealReal inked a 492,276 square-foot lease at 950 Convery Boulevard in Perth Amboy, one of the largest deals in the third quarter. The site, which is The RealReal s third fulfillment center in the United States, features 36-foot high ceilings, 86-dock doors and parking for 342 vehicles and 127 trailers. The RealReal is expected to create about 800 jobs at this location. The RealReal was launched in 2011 by e-commerce entrepreneur Julie Wainwright who serves as its CEO. The company has raised over $288 million dollars over eight investment series, and has opened stores in SoHo and West Hollywood. 800 JOBS REALREAL EXPECTED TO CREATE

2 Sudler s gambles pays off The Sudler Companies leased its two newly constructed state-of-the-art industrial properties located off Exit 8A on the New Jersey Turnpike in Cranbury. RUGSUSA, an e-commerce retailer and supplier of area rugs and home décor, leased the 342,000-square-foot building at 286 Prospect Plains Road, and office product supplier W.B. Mason leased the 416,000-square-foot building located at 300 Prospect Plains Road. In 2016, the company razed a 500,000-square-foot office building on the site and repositioned the property for industrial use to take advantage of the strong demand for such properties along the Turnpike. Goodman North America purchases Amazon distribution center One of the largest industrial property trades in the quarter was TIAA-CREF's $149.1 million sale of the 616,992-square-foot Amazon distribution center at 698 Rt. 46 in Teterboro to Goodman North America. The property has ceilings up to 32 feet high and is located on 27 acres about ten minutes from New York City. TIAA-CREF purchased the property in 2013 from RREEF Funds for $80.8 million. Select Industrial Sale Transactions Former Toys R Us distribution centers sells As part of the liquidation of Toy R Us assets, a two-property industrial portfolio was sold by the former toy retailer to a partnership between Square Mile Management and Saadia Group. The properties include 1110 West Merrill Avenue in Rialro, California (1,195,219 SF) and 703 Bartley Chester Road in Flanders, New Jersey (1,394,393 SF). The package sold for $177 million, with $90 million (64.54/SF) allocated to the New Jersey property. Camber and Advance Realty partnership purchase 7- property flex complex in Allendale A joint venture between Camber Real Estate and Advance Realty purchased a sevenproperty flex portfolio in Allendale. The portfolio totaling 368,863 square feet sold for $50.5 million ($136.91/SF). $8.19 AVERAGE RENTAL RATE Located directly off NJ Route 17 with easy access to I-287 and the metro area, the properties include tenants such as Stryker and Volkswagen and were about 90 percent leased at the time of sale. The new ownership plans to make select capital improvements to create an enhanced tenant experience. Trends to Watch Watch for rising rents in the previous value markets of Exit 8A and 7, as vacancy continues its descent. Watch for a shortage of new construction in the sub-100k square foot market. Market Data Points New Jersey Indicator Q3 18 Q3 17 Vacancy 3.4% 4.0% Rent $8.19 $7.63 Northern New Jersey Indicator Q3 18 Q3 17 Vacancy 4.2% 4.5% Rent $8.73 $8.46 Central New Jersey Indicator Q3 18 Q3 17 Vacancy 2.6% 6.6% Rent $7.81 $6.87 Building Submarket/Market Sale Price Price PSF Size (SF) 698 Route 46, Teterboro Meadowlands /Northern New Jersey $149,114,627 $ , Bartley Chester Road, Flanders Morris West / I-80/Northern New Jersey $90,000,000 $ ,394,393 Allendale Industrial Park (7 Properties) Bergen North / I-80/Northern New Jersey $50,500,000 $ ,863 Select Industrial Lease Transactions Tenant Building Submarket/Market Type Size (SF) XPO Logistics 115 Interstate Boulevard, South Brunswick Exit 8A / Central New Jersey New 526,400 The RealReal 950 Convery Boulevard, Perth Amboy Exit 9- Piscataway / Central New Jersey New 492,276 WB MASON 300 Prospect Plains Road, Cranbury Exit 8A / Central New Jersey New 416,300

3 New Jersey Third Quarter 2018 / Industrial Market at a Glance New Jersey Industrial Vacancy Rate vs. Direct Asking Rent Total Net Absorption Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Market by the Numbers Submarket Inventory (SF) Direct Vacant Available(SF) Sublet Vacant Availble (SF) Total Vacant Availble Rate (%) Qtr Net Absorption YTD Net Absorption Current Under Construction (SF) Direct Asking Rent Bergen Central 24,843, ,641 18, % 39, ,478 0 $10.69 Bergen North 23,214,731 1,146, , % -75,033-24,794 0 $8.65 Eastern Morris 20,420, , , % 153, ,728 0 $8.37 Hudson Waterfront 32,286,849 1,700,057 5, % 282, ,226 0 $7.57 Meadowlands 92,862,234 2,343,585 86, % 152,066 1,965, ,898 $9.23 Morris West/I-80 15,715,449 1,760,772 18, % -1,478-1,229,981 35,000 $7.82 Morristown Area 3,303, ,920 11, % 2,532 18,032 54,000 $8.82 Newark 36,852,902 1,031,284 30, % 958, ,593 0 $8.49 Northwest Frontier 2,601,121 34, % -11,333 76,736 0 $8.96 Route 46/23/3 49,842,767 2,280, , % 111, , ,500 $7.91 West Essex 24,368, ,149 36, % 88, ,270 89,000 $9.02 Northern New Jersey 326,312,439 12,885, , % 1,700,708 2,999, ,398 $8.73 Exit 8 A 67,521, ,004 5, % 1,299,864 4,067,136 1,088,660 $7.35 Exit 9 - Piscataway 50,779, , , % 400,056 2,837,341 1,490,680 $7.48 Exit 10 - Carteret Avenel 80,040,975 1,502, , % 219, , ,500 $8.52 Mercer 35,328,095 1,349, , % 582,766 1,003, ,678 $5.50 Monmouth 19,658, ,616 34, % 91, ,176 95,000 $9.89 Somerset 31,226, ,939 45, % -2,219 70,061 1,074,082 $7.78 Union 60,036,207 2,275, , % -117, , ,201 $7.74 Route 287 9,518,447 1,208, , ,556 86,456 0 $19.89 Route 78 East 15,783,379 1,908, , ,929-20,306 0 $20.38 Union 4,568, ,204 27, ,005 56,872 0 $21.70 Central NJ 344,591,553 7,897, , % 2,474,089 9,433,343 5,185,801 $7.81 New Jersey 670,903,992 20,782,271 1,699, % 4,174,797 12,433,312 6,176,199 $8.19 Data as of October 3, 2018

4 Third Quarter 2018 New Jersey Gas Tax Goes Up for the Second Year In A Row As Unemployment Remains Steady In August 2018, the New Jersey unemployment rate held steady at 4.2 percent. The state s unemployment rate is now 30 basis points above the national rate of 3.9 percent. Year-over-year the New Jersey private sector has added more than 59,600 jobs, accounting for a 50 basis point drop in the unemployment rate. On October 1st New Jersey s gas tax rose 4.3 cents to 41.4 cents, the ninth highest in the nation, marking the second consecutive year that the gas tax rose, following nearly 30 years at 14.5 cents per gallon. These recent increases in the gas tax are part of legislation signed last year to help replenish the Transportation Trust Fund. Experts have pointed to a reduction of gasoline consumption as a primary driver of this year s increase. Prior to 2017, New Jersey was a gas destination for cost-savvy commuters along the New York and Pennsylvania borders, where the gas tax was significantly higher. The recent surges in New Jersey s gas tax have narrowed that gap and reduced the incentives for out of state commuters to fill up in the Garden State. This recent uptick in gas prices may have a substantial effect on the industrial, office and retail sectors. The increased gas tax is expected to drive up shipping costs for industrial tenants that are already dealing with a truck driver shortage. It may also increase the push by office tenants to transit hubs in the hope of attracting employees, while resulting in a reduction of residences disposable income which will hurt the retail market.

5 New Jersey Third Quarter 2018 New Tax deferment program a potential game changer for real estate development market This quarter in lieu of a market spotlight we will highlight the newly developed Opportunity Zone Tax Program. The Tax Cuts and Jobs Act of 2017 had a provision that allowed certain capital gains to be deferred as far as December 31, 2026, and possibly reduce the recognized capital gain as well, through investment in real estate. This program, which will help develop certain underdeveloped locations around the country, can shift the investment sales market in the coming years. The program works as follows: An investor sells an appreciated asset, (i.e. a stock, real property, art, or other asset) creating a capital gain event. The investor has 180 days to place that gain into a qualified opportunity fund, which then invests that money into a business within an opportunity zone. Provided that the investor invests the gain within the allowed period and the opportunity fund invest according to code, the investor will receive certain tax benefits. First, provided that the business in the opportunity zone is held until year five, there is a 10 percent reduction in the seller s gain from the original sale of the appreciated asset. In year seven, this is reduced another 5 percent but at the end of year seven or 2026 (whichever is earlier) the investor will be obligated to pay the capital gain tax on the original gain. However, if the new business is held until year 10, there will be no capital gain on the new business; essentially giving the investor a full stepped-up basis in the new business. The investor will, however, have paid 85 percent of the tax on the original gain at the end of year seven. The program is geared toward ground-up development or substantially improved properties as the program sets the standard of substantial improvement as the property s initial cost within a 30-month period. Please see below for a simplified example: John purchased a stock for $100 per share 10 years ago and sells the same stock for $400 on June 1, 2018, and realizes a capital gain of $300 which he invests in a Qualified Opportunity Fund (QOF) on September 1, 2018, that is used to purchase a property in an opportunity zone. Since he invested his capital gain in a QOF with the 180-day window the capital gain tax is deferred. Furthermore, John is able to retain $100 per share (the original cost) and is not obligated to invest this into the opportunity zone fund. If John sells his Opportunity Zone Investment on October 1, 2022, John will pay tax in 2022 on the full $300 of gain because he only kept his Opportunity Zone Investment for four years. It should be noted that John still gets the benefit of four years of deferral though on gains from his capital gains from his stock. If John sells his Opportunity Zone Investment on October 1, 2023, John will pay tax in 2023 on$270 since he gets the benefit of the 10 percent reduction (10 percent of $300 is $30) for holding Opportunity Zone Investment for five years. If John sells his Opportunity Zone Investment on October 1, 2025, John will pay tax in 2025 on $255 since he gets the benefit of the 15 percent reduction (15 percent of $300 is $45) for holding his Opportunity Zone Investment for seven years. If John sells his Opportunity Zone Investment on October 1, 2027, the deferred gain will have been triggered on December 31, 2026, even though John still has his Opportunity Zone Investment: 1. John will pay tax in 2026 on $255 of phantom income since he gets the benefit of the 15 percent reduction (15 percent of $300 is $45) for holding his Opportunity Zone Investment for at least seven years. 2. If we assume that John s Opportunity Zone Investment has appreciated to $700 when he sells on October 1, 2027, John pays no tax at all on the appreciation of his Opportunity Zone Investment since he held his OZ Investment for 10 years. This new tax deferment program can have a major effect on the real estate development market as the program has the potential to bring in many investors and capital into real estate market for the first time. There is also hope the increased development in the specified Opportunity Zones will help drive the entire economy forward. It should be noted that IRS is yet to release formal regulations regarding the program leaving many investors and advisors uncertain about a few of the details of the program. If you have questions or comments please feel free to reach out to our research team at (973)

6 New Jersey Market Report Third Quarter 2018 For more information, please contact: 2018 Avison Young. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young. Jeffrey L. Heller Principal and Managing Director, New Jersey Headquarters Plaza North Tower, 8th Floor Morristown, NJ Jason Bloom Research Manager Wood Avenue South Third Floor, Suite 310 Iselin, NJ 08830