M A R K E T B E AT

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2015 2016 2017 2018 2019

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11.0%

12.0%

13.0%

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16.0%

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$14.00

$16.00

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$22.00

$24.00

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$28.00

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2015 2016 2017 2018 2019

Asking Rental, $PSF Vacancy Rate

ECONOMY OVERVIEWThe Metro Phoenix economy continues to improve, adding 55,000 jobs year-over-year (YOY) through the fourth quarter of 2019. During the same period, the unemployment rate remained at 4.3%. According to the Bureau of Labor Statistics, the Phoenix metropolitan statistical area added 10,500 office sector jobs through the fourth quarter. The three sectors that make up office employment are: business & professional services, information/technology and financial activities.

DEMANDIn the fourth quarter of 2019, vacancy in the Metro Phoenix office market stood at 14.4%. This marks the lowest vacancy rate since the fourth quarter of 2007, when it was 14.3%. The rate dropped 50 basis points (bps) quarter-over-quarter and 120 bps YOY. The Metro Phoenix office market continues to experience robust demand in the fourth quarter of 2019, absorbing 1.2 million square feet (msf). This brings the 2019 total absorption to 2.8 msf and marks the eighth largest net gain for a single year since to 1999. The largest net gain for any single year posted was 4.2 msf in 2005. In the fourth quarter of 2019, all building classes (A-C) posted positive occupancy growth lead by Class A (+660,032 sf), followed by Class B (+517,074 sf) and Class C (+5,497 sf).

PRICINGThe overall rent in the Metro Phoenix office market increased to $27.10 per-square-foot (psf) on an annual full-service basis in the fourth quarter of 2019. This marks a $0.55 psf increase from the third quarter of 2019 and a $1.27 psf increase from the fourth quarter of 2018. Tempe North recorded the largest increase in overall rental rates, increasing from $27.70 to $31.16 psf from the third quarter of 2019 to the fourth quarter of 2019. The North Phoenix/Desert Ridge submarket recorded the second largest increase with a $1.50 increase in overall asking rates, increasing from

14.4%Vacancy Rate

1.2MNet Absorption, SF

1.7MUnder Construction, SF

$27.10Asking Rent, PSF

ECONOMIC INDICATORSQ4 2019

4.3%

12-Mo. Forecast

Phoenix Unemployment Rate

2,189KPhoenix Employment

3.6%U.S. Unemployment Rate

12-Mo. Forecast

SPACE DEMAND/DELIVERIES OVERALL VACANCY & ASKING RENT

YoY Chg

Source: BLS

YoY Chg

*Q4 data is based on the U.S. Bureau of Labor Statistics, All Employees: Total Nonfarm in Phoenix-Mesa-Scottsdale, AZ (MSA).

PHOENIXOffice Q4 2019

M A R K E T B E AT

PHOENIXOffice Q4 2019

$23.00$24.00$25.00$26.00$27.00$28.00$29.00$30.00$31.00$32.00$33.00$34.00

Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019

CLASS A RATE METRO PHOENIX CLASS A ASKING RENT INCREASED OVER THE TRAILING 4 QUARTERS

14%

16%

18%

20%

Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019

Historical 5 Year Average = 17.2%

OVERALL VACANCY

0

10

20

30

40

50-99.9k 100-149.9k 150-199.9k ≥200kClass A Class B

CONTINUOUS BLOCKS OF AVAILABLE SPACE

• Vacancy rates dropped considerably during 2019, finishing at 14.4%, declining 120 bps from the fourth quarter of 2018. The vacancy rate is anticipated to continue to drop in 2020. Arizona’s strong employment growth and favorable outlook should yield considerable growth in population and GDP, which outpaces the country.

• Demand for coworking space dominated the office landscape in 2019 with the occupancy of four large scale spaces. WeWork, Serendipity Labs and Workuity all added 245,000 sf to the coworking footprint in the market, opening the door for more coworking space in 2020.

• Class A construction continues to dominate with nearly 1.1 msf of Class A projects currently under construction, while Class B only accounts for roughly 510,000 sf of the total construction square footage expected to be completed in 2020. With additional projects expected to start construction, Class A office space is set to dominate the new inventory in 2020, 2021 and beyond.

OUTLOOK

$25.48 to $26.98 psf from the third quarter to the fourth quarter of 2019. Camelback Corridor and Scottsdale South continue to lead the market in highest rental rates at $35.02 and $31.48, respectively. Glendale/Peoria ($18.15) and West Phoenix ($19.73) remain the least expensive office submarkets.

SUPPLYConstruction in the Metro Phoenix office market remained strong in the fourth quarter of 2019, with 1.7 msf of new space currently under construction. The Scottsdale Airpark submarket currently has 667,000 sf under construction which accounts for 40% of the total office square footage under construction for the entire market. The largest project under construction is the 460,000 sf build-to-suit (bts) for Nationwide at Cavasson. Cushman & Wakefield is tracking 13 projects under construction, 10 speculative builds and three bts. Cushman & Wakefield predicts six of the 13 under projects will deliver by the end of the first quarter of 2020, adding 547,000 sf of new inventory. The remaining seven projects under construction will complete by the end of 2020, adding 1.1 msf to the Metro Phoenix office market.

During the fourth quarter of 2019, six projects delivered, adding 1.1 msf of new inventory of which 57.4% was pre-leased. The fourth quarter of 2019 the strongest quarter of new inventory delivered for the entire year, up 48% from the third quarter of 2019 and consisted of 43% of the annual square footage delivered. The Grand at Papago Park Phase II, the largest project to deliver, added 346,000 sf to the Tempe North submarket followed by Block 23 at Cityscape, which added 280,000 sf to the Downtown submarket. Five of the six completed projects were Class A and all six projects were speculative buildings, which was the largest amount of speculative buildings to deliver all year.

M A R K E T B E AT

MARKET STATISTICS

Office Q4 2019

SUBMARKET INVENTORY (SF) SUBLET VACANT (SF)

DIRECT VACANT (SF)

OVERALL VACANT RATE

CURRENT QTR Overall Net Absorption

YTD OVERALL ABSORPTION

UNDER CONSTRUCTION

(SF)

OVERALL AVG ASKING RENT

(ALL CLASSES)

OVERALL AVG ASKING RENT

(CLASS A)

Downtown 7,676,607 120,638 1,141,238 16.4% 273,078 212,175 0 $30.48 $32.10

Midtown 10,561,369 54,372 2,033,617 19.8% 46,973 356,336 0 $23.36 $27.23

CBD Total 18,237,976 175,010 3,174,855 18.4% 320,051 568,511 0 $26.30 $30.43

44th Street Corridor 3,493,052 4,173 355,943 10.3% 8,291 15,975 0 $26.57 $28.27

Arrowhead 1,446,587 6,650 81,761 6.1% -12,579 -18,789 0 $23.97 $26.00

Camelback Corridor 7,343,074 39,066 1,300,397 18.2% -47,775 56,999 0 $35.02 $38.35

Chandler/Gilbert/202 3,275,276 7,192 799,428 24.6% 120,661 340,036 162,113 $25.17 $28.66

Deer Valley 7,918,297 19,793 938,533 12.1% -14,788 128,429 0 $24.90 $27.00

East-Central Phoenix 1,928,669 6,551 200,232 10.7% -833 33,575 0 $21.13 0

Glendale/Peoria 827,799 0 55,400 6.7% -21,123 11,954 0 $18.15 $24.50

Mesa 1,219,383 0 60,691 5.0% 23,797 128,391 0 $21.21 0

Metrocenter 4,589,312 31,118 1,295,120 28.9% 101,430 -78,565 0 $20.60 $23.76

N Phoenix/Desert Ridge 2,397,186 9,389 260,498 11.3% 21,995 62,849 0 $26.98 $30.09

Piestewa Peak Corridor 2,010,074 2,378 348,712 17.5% 6,972 61,258 0 $24.67 $27.00

Price Corridor 6,905,705 3,737 917,815 13.3% -74,787 115,593 161,753 $29.73 $31.05

Scottsdale Airpark 10,178,997 82,250 1,339,964 14.0% 75,420 34,140 667,054 $30.06 $31.51

Scottsdale Central 5,254,354 8,332 586,686 11.3% 20,897 -45,880 0 $28.84 $30.10

Scottsdale South 4,366,381 16,561 565,264 13.3% 70,611 389,334 65,000 $31.48 $34.52

Sky Harbor 4,842,419 95,098 838,828 19.3% 83,324 7,126 0 $22.81 $26.31

South I-10/Ahwatukee 3,091,790 5,166 299,068 9.8% 40,339 70,448 0 $20.96 $28.00

Superstition Corridor 2,464,319 1,555 266,686 10.9% -15,415 67,142 0 $21.17 $26.43

Tempe North 12,211,689 112,192 686,557 6.5% 451,845 882,345 594,333 $31.16 $36.67

West Phoenix 1,665,697 1,787 256,315 15.5% 24,270 24,314 0 $19.73 $27.05

Suburban Total 87,430,060 452,988 11,453,898 13.6% 862,552 2,286,674 1,650,253 $27.33 $32.33

CLASS INVENTORY (SF) SUBLET VACANT (SF)

DIRECT VACANT (SF)

OVERALL VACANT RATE

CURRENT QTR Overall Net Absorption

YTD OVERALL ABSORPTION

UNDER CONSTRUCTION

(SF)

OVERALL AVG ASKING RENT

(ALL CLASSES)

Class A 44,786,000 222,097 5,551,048 12.9% 660,032 1,915,458 1,387,607 $31.91

Class B 53,644,009 402,999 8,071,982 15.8% 517,074 800,379 262,646 $24.25

Class C 7,238,027 2,902 1,005,723 13.9% 5,497 139,348 0 $18.61

Grand Total 105,668,036 627,998 14,628,753 14.4% 1,182,603 2,855,185 1,650,253 $27.10

PHOENIX

M A R K E T B E AT

Office Q4 2019

cushmanwakefield.com

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATIONCushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2020 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

1 44th Street Corridor2 Sky Harbor*3 Camelback Corridor4 Chandler/Gilbert/2025 Deer Valley6 Midtown7 Downtown8 Glendale/Peoria9 Mesa10 East-Central Phoenix11 Metrocenter12 N Phoenix/Desert Ridge13 Scottsdale Airpark14 Scottsdale Central15 Scottsdale South16 Piestewa Peak Corridor17 Arrowhead18 Superstition Corridor19 Tempe North20 South I-10/Ahwatukee21 West Phoenix22 Price Corridor

KEY LEASE TRANSACTIONS Q4 2019PROPERTY NAME SUBMARKET TENANT SQUARE FOOTAGE TYPE

The Grand at Papago Park Phase II Tempe North DoorDash 345,795 New Lease

NWC Loop 101 Scottsdale Airpark Choice Hotels 150,000 New Lease

The Watermark Tempe North Opendoor 100,807 New Lease

Allred Park Place South Price Corridor Toyota Financial Services 63,000 New Lease

555 N 18th St Midtown Stockbridge 27,858 New Lease

*Renewals not included in leasing statistics

KEY SALES TRANSACTIONS Q4 2019PROPERTY NAME SUBMARKET SELLER/BUYER SQUARE FOOTAGE PRICE/ $PSF

Henkel Corporate Center Scottsdale Airpark Henkel Corporation/Stockdale Captial Partners 372,000 $65,000,000/$175

2600 Tower Midtown Adler Realty Investments/Townline Homes Inc. 323,607 $30,750,000/$95

The Hub Chandler/Gilbert/202 Walton Street Capital/Insight Enterprises 298,704 $47,900,000/$160

Biltmore Center II Camelback Corridor Alliance Bernstein/Partners Group AG 288,435 $94,734,111/$328

Three Gateway 44th Street Corridor Lowe Enterprises/Bridge Investments Group 222,118 $45,749,231/$206

KEY CONSTRUCTION COMPLETIONS YTD 2019PROPERTY SUBMARKET MAJOR TENANT SF OWNER/DEVELOPER

The Grand at Papago Park Center Phase II Tempe North DoorDash 345,795 Lincoln Property Company

Block 23 at Cityscape Downtown WeWork 280,399 RED Development

The Watermark Tempe North Opendoor 265,000 Fenix Development

RONAN MCNULTYAssociate DirectorTel: +1 602 224 4448ronan.mcnulty@cushwake.com

DANIEL ZAWISHAResearch Analyst Tel: +1 602 229 5869daniel.zawisha@cushwake.com

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P H O E N I X M E S A

C H A N D L E R

G I L B E R T

Q U E E N C R E E K

S A LT R I V E RP I M A - M A R I C O PA

C O M M U N I T Y

F O R TM C D O W E L L

YAVA PA I N AT I O N

F O U N TA I N H I L L S

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G I L A R I V E R C O M M U N I T Y

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AV O N D A L EG O O DY E A R

L I T C H F I E L DPA R K

G L E N D A L E

P E O R I A

S U R P R I S E

E L M I R A G E

T E M P E

PHOENIX