Metro Phoenix Industrial Trends

Presented By:

Leroy Breinholt

President/Designated BrokerIndustrial Sales & Leasing

Commercial Properties Incorporated

2323 W University Drive, Tempe, AZ 85281

480.966.2301 | www.cpiaz.com

Appraisal & Brokerage

What are your biggest Pain Points?– Collecting accurate data from brokers

– Getting brokers to respond – phone or email

What barriers do you have in working with brokers?

Commercial Properties IncorporatedINDUSTRIAL | OFFICE | MEDICAL | RETAIL | LAND | PROPERTY MANAGEMENT & BUILDING SERVICES

• Established in 1981, CPI has spent the last 37 years consistently growing

• Past 17 years – CPI awarded as a Top Leasing Firm & CoStar Power Broker

• Largest # of transactions in Arizona – Approximately 1,570

• Largest locally owned/ managed, full service brokerage firm

• Over 11.5 million SF of properties managed

• The only local member of CORFAC International

Commercial Properties Inc./ CORFAC International 60 offices in North America & 20 global offices. International markets include: Canada, Colombia, France, Germany,

Greece, India, Ireland, Israel, Italy, Mexico, Poland, Romania, Russia, South Korea, Spain & the United Kingdom

Looking To 2019 & BeyondPhoenix Population Growth Projections

Census 2010 2016 2018 Est. 2020 Est.

3,936,253 ppl 4,305,634 ppl 4,755,500 ppl 4,944,400 ppl

Source:

Office of Economic Opportunity, October 1st 2018

Looking To 2019 & BeyondIndustrial Construction, Absorption & Vacancy Rate

PHX Q3 Industrial Market Update

• Vacancy Rates Down: 7.0% from 8.9% during same time period last year.

• Net Absorption is positive: 790,484 SF

• Rental Rates Up: $7.24 NNN from $7.23 NNN

• CAP Rates Higher: Avg. 6.93% Compared to 6.88% during same time period last year

2018 Strengths

• 2018 is not a or a – It Keeps Getting Better

• Values, in SOME areas, have returned to previous levels

• Net Absorption is positive

• Vacancy rates dropping

• This means inventory is dwindling & prices are increasing

Threats to the MarketConstruction Worker Shortage

• Shortage of skilled workers in Arizona. At least 82 percent of Arizona contractors are struggling to fill jobs. That’s higher than national average of 80 percent. - Survey from the

Associated General Contractors of America.

• Construction costs are continuing on their upward trajectory, according to Turner Construction Co., whose Building Cost Index rose by 1.68% from Q1 to Q2, and 5.63% since a year ago. - www.bisnow.com/national/news

• Wages & Material Prices - expected to continue to rise nationwide

© Turner Construction Co.

Turner Constructions' Building Cost Index, which tracks nonresidential construction

costs in the U.S., as of Q2 2018.

Building Cost Index

Threats to the Market

If Housing Values Drop Again

Reduces consumers wealth often causes reduced spending lowering economic growth

One persons spending is another person’s salary

Current Residential Interest Rates:

• 30-Yr Fixed FHA = 4.875%

• 30-Yr Fixed VA = 4.75%

• 15-Yr Fixed = 4.50%

* As of 10/10/2018, presenter does not guarantee rates as these are subject

to approved credit and rates change daily.

Threats to the Market

If Commercial Values Drop Again

Harder for Businesses to obtain financing for equipment and expansion

May force some to close, vacancies will rise and values & rental rates will drop

Current Commercial Interest Rates:

• Conventional Fixed = 5.50% Avg

• SBA 504 (50% SBA + Bank) = 5.25% Avg

• 7A (100% SBA Loan with 10% Down) = 5.50% Avg

* As of 10/10/2018, presenter does not guarantee rates as these are subject to

approved credit and rates change daily.

Threats to the Market

Interest Rates Increase

– Financing & capital harder to obtain

– Business owners strapped for cash

– Economic growth diminished

Threats to the Market

Owners Turning to Online & Shared Space to Lease up Space

Benefits of a Broker

•Market Knowledge

•Professional Network

•Negotiations

•Time Savings

•Best Data & Systems toPromote your Property

Threats to the Market

Cyber Security – Increased technology use puts us at risk

• Smart Phones

• Tablets & Connected Devices

• Wireless Networks

• Cloud Based Software Data

OpportunitiesCompanies moving to Arizona:

Nikola Motor Company, Chewy.com, Creighton University, Anderson Corporation, Gorbel Cranes, Premier Paint Rollers, King Koil & More…

“We are excited to bring King Koil’s 120 year history of U.S. manufactured mattresses to Arizona. This new King Koil factory is a key component of our new direct-to-retail manufacturing strategy,” said David Binke, chief executive officer of King Koil. “Designed and outfitted with the latest machinery in the bedding industry, the Arizona factory will enhance our efficiency as wecontinue to implement our new platform. By controlling our own manufacturing base, we’ll be able to be respond faster to our retail partners’ needs.”

OpportunitiesCompanies moving to Arizona from California:

– Tax Incentives

– No Natural Disasters

– More employees moving to the Valley – Lower cost of living

Purchasing Housing

Buying Cars

Goods & Services

Current Sale Price Per SF

Northwest$87.00

Northeast$121.00

Southeast$103.00

Southwest$79.00

Airport$77.00

Current Rental Rates Per SF

Northwest$6.77

Northeast$11.49

Southeast$7.66

Southwest$5.20

Airport$7.17

Current Vacancy

Northwest6.4%

Northeast4.3%

Southeast6.5%

Southwest8.9%

Airport6.3%

Opportunities (cont.)

Southeast Valley Vacancy & Rental Rates

Industrial vacancy rates have decreased due to the tight inventory in the S.E. Valley, while rental rates continue to climb.

More multi-tenant projects are under construction to meet demand.

Opportunities (cont.)

Construction on the horizon to fill demand

• Q1–Q3 2018 Net Absorption = 4,991,732 SF

• Currently, 140 properties proposed/under construction for 2019 2,706,585 SF of which approx. 24.7% is already pre-leased.

Working Together

How do you alleviate Pain Points?– Add value to the broker – offer

reports, information, etc.

– Follow up with your offer/value/proposal.

Then, know the questions to ask.– Have a list of questions ready to

ask the broker.

– What influenced the price?

Adding Mutual ValueWe’ll send you our list of questions,

Things you should know to ask Brokers

Know the Market Trends:– We’ll give you our market data

Give me a call:

– I’ll help you understand the Industrial Market

Leroy Breinholt

lbreinholt@cpiaz.com| 480.966.6593

Thank You

QUESTIONS?