Vacancy Drops To 2.7% In 2015; Lease Renewal Shock

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1 QUARTER IN REVIEW 4TH QUARTER 215 L E E & A S S O C I AT E S - I R V I N E / N E W P O R T B E A C H / O R A N G E I N D U S T R I A L M A R K E T R E P O R T Vacancy Drops To 2.7% In 215; Lease Renewal Shock For landlords and owner-users there was plenty to cheer about in 215. For tenants, the squeeze is on as 215 capped a three-year run of solid demand for industrial space, driving vacancies to lows not seen in more than a generation and triggering hefty increases in rental rates. More than 2.3 million sq. ft. of industrial space came off the market in 215 the third straight year of positive absorption as businesses continued to expand. In the fourth quarter the vacancy rate ticked down 9 bps to 2.7%. It was also the third straight year of gains in average rental rates. The difference is that in 215 asking lease rates jumped 9.7%, more than doubling the increases of the previous two years. Despite surging lease rates and prices of buildings for sale, rents remain 6% below their peak reached before the bust in 28. But the reckoning has arrived for many companies that renegotiated leases after the collapse when anxious landlords sought to blend and extend existing tenants. Rent hikes in some recent renewals are topping 5%. MARKET OVERVIEW (Change from last quarter) AVAILABILITY - 5.1% Down from 5.3% last quarter VACANCY - 2.7% Down from 2.9% last quarter ABSORPTION - 823,977 SQ. FT. Down from 1,58,766 last quarter AVERAGE LEASE RATE - $.79 NNN Up from $.77 last quarter With so little inventory, users have few choices. For example, with an average building size of 33,2 sq. ft. in the survey, the current 8.3 million sq. ft. of vacant *All numbers are based on industrial buildings 1, sq. ft. and larger. space translates into only 251 vacant buildings countywide. Moreover, it is estimated that a third or more of those buildings are functionally obsolete. Lee & Associates fourth-quarter survey includes a total base 8,321 buildings totaling million sq. ft. Countywide, there was 823,997 sq. ft. of net absorption in Q4. Although, net absorption in two of the county s four submarkets weakened in the last quarter, all submarkets posted strong gains for the year. North County with about 41% of the county s total inventory saw its vacancy rate tumble 9 basis points to settle at 2.5%. In the submarket s cities of Anaheim, Brea/La Habra, Buena Park, Fullerton, Placentia and Yorba Linda, 1.3 million sq. ft. of space came off the market in 215 and rents are up 11.8% year over year. The vacancy rate in the Airport submarket with 27% of the county s total fell 1 bps in Q4 and 11 bps for the year, settling at 2.5% on 36,29 sq. ft. of net absorption over 12 months. More than 337, sq. ft. was absorbed in South County in Q4, driving the vacancy rate down 7 basis points to 3.5%. Average asking rents are up 1.9% year over year. gains totaled 483,385 sq. ft. in West County last year. The vacancy rate for 44.7 million sq. ft. fell 8 bps to 2.6% and asking lease rates were up 9.6% year over year. The Orange County Industrial Market Report is published quarterly by the Lee & Associates Irvine, Newport Beach and Orange offices. C 216 Lee & Associates, Inc. AVAILABILITY RATE VS VACANCY RATE Availability Vacancy 18.% 1 12.% 9.% 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

2 Q4 215 NUMBER OF LEASES EXECUTED FOR THE QUARTER BY SUBMARKET # of Deals DIRECT LEASE SUBLEASE North County West County Airport Area South County Outlying OC WIDE NET ABSORPTION Sq. Ft. INCLUDING SUBLET SPACE 1,3, 1,1, 9, 7, 5, 3, 1, -1, -3, -5, 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 UNEMPLOYMENT RATE California Orange County 1 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 5.5% 4.5% 11/14 12/14 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 1/15 11/15 Source: EDD YTD NET ABSORPTION Sq. Ft. 1,1, 1,, 9, 8, 7, 6, 5, 4, 3, 2, 1, -1, -2, BY SUBMARKET, INCLUDING SUBLET SPACE AREA OC VACANCY RATE BY SUBMARKET - INCLUDING SUBLET SPACE VACANCY RATE BY QUARTER 8.% 7.% 2.% 1.% 2.5% 2.6% 2.6% 3.5% North County West County Airport Area South County Outlying OC 5.5% 4.5% 3.5% 2.5% 2.% 1.5% 1.%.5% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

3 Q AVERAGE NNN LEASE RATE BY SUBMARKET AVERAGE NNN LEASE RATES BY QUARTER NNN $1.3 $.75 $1.1 $.7 $.9 $.65 $.8 $.6 $.6 $.55 $.4 $.5 $.2 $.45 $. $.4 AREA OC 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 COMPLETED LEE & ASSOCIATES TRANSACTIONS Western 1683 Sunflower Costa Mesa, CA Ann St. Santa Fe Springs, CA Lease Transactions 4Q 15 PROPERTY TENANT LANDLORD REPRESENTING BROKERS Western 175, Haringa Inc. dba Premier Packaging Money Mailer Holding Group David Newton represented the Landlord and Phillip DeRousse & Chuck Noble represented the Tenant Sunflower Costa Mesa, CA 113,5 South Coast Baking International Asset Management Holding Group, LLC Kurt Bruggeman, Philip Cohen, and Ryan Swanson represented the Landlord Ann St. Santa Fe Springs, CA 68,52 Midway Importing, Inc Greenleaf Associates Frank Adler and Jeff Hirsch represented the Landlord Western Ave Gateway Cir. Tustin, CA W. 1st St. Santa Ana, CA Sale Transactions 4Q 15 PROPERTY BUYER SELLER REPRESENTING BROKERS Western Ave. 63, Smith Family Trust Shivom, LLC Darin McDonald and Jim deregt represented the Seller Gateway Cir. Tustin, CA 33,88 RPM Investments SAP, LLC Adam Wicker, Dave Smith, and Travis Watts represented the Landlord W. 1st St. Santa Ana, CA 3, Kiddos, LLC TLG Paving Jeff Gahagan represented the Seller. NNN

4 Q4 215 BY CITY Bldg Count RBA Available Avail. Total Vac. Direct Direct Vac. Net YTD Net Avail Avg Asking Lease Aliso Viejo 57 1,736,94 83, % 9,37 5.2% 86,862 (35,666) (28,82) 23,355 3,175 $1.12 NNN - - Anaheim 1,448 46,378,5 2,296,747 1,558, % 1,558, % 49, ,39 98, $.7 NNN - - Under Construction Brea ,325, , % 8,754.7% 74,296.6% 148, ,998 7,758 6,458 $.62 NNN 367,194 Buena Park 24 14,127, , % 177, % 177, % 363,39 431,456 15, - - $.55 NNN - - Capistrano Beach 1 35, Costa Mesa 395 1,814,976 3, % 23, % 192, % 83,24 273,76 7,178 1,799 $1.4 NNN - - Cypress 12 6,532, , % 263, ,863 (28,261) 223, , $.76 NNN - - Dana Point 1 12, 2, % 2, % 2, % Foothill Ranch 5 3,59, , % 68, % 63, % 81,971 1,715 15,941 5,18 $.89 NNN - - Fountain Valley 24 4,952, ,266 5,623 1.% 5,623 1.% 2,94 (21,453) 37, $.79 NNN 52,113 Fullerton ,844,862 1,19, % 633, % 598, % 11,916 (313,142) 67,64 35, $.56 NNN - - Garden Grove 38 12,857, , % 248,2 1.9% 248,2 1.9% 115, , $.65 NNN - - Huntington Beach ,587 91, % 626, , % (159,64) 1,949 21, ,5 $.66 NNN - - Irvine 1,3 38,845,487 2,392,66 6.2% 1,537,694 1,441,2 3.7% 66,86 (151,977) 245,323 96,674 $1.4 NNN 43,92 La Habra 12 3,113,935 29,764 1.% 24,59.8% 24,59.8% 8,277 39, $.83 NNN - - La Palma 17 1,859, , % 186, % 186, % (18,846) (111,934) Ladera Ranch 1 21, Laguna Beach 3 51,768 3,28 6.3% 3,28 6.3% 3,28 6.3% - - 3, Laguna Hills 111 2,23, , % 66,93 62, % 12,121 21,73 9,362 3,26 $1. NNN - - Laguna Niguel ,42 18,11 2.4% 14,767 2.% 14,767 2.% (3,118) 2, Laguna Woods 1 2, Lake Forest 182 5,55,17 539,13 1.7% 397, % 361, % 72,692 16,899 4,872 35,625 $.88 NNN - - Los Alamitos 15 3,67,964 28,776.9% 28,776.9% 28,776.9% 14, , $.69 NNN - - Mission Viejo 57 1,329,13 66,61 31, % 31, % 11,55 4,249 7, $.98 NNN - - Newport Beach 48 1,83,351 45,66 4.2% 35,66 3.2% 35,66 3.2% (3,959) (26,858) Orange ,248, , % 17, % 165, % 11,863 61,322 7,533 5,3 $.89 NNN - - Placentia 171 4,243,24 126,39 59,25 1.4% 54,51 1.3% (39,282) (12,422) 4,515 4,515 $.78 NNN - - Rancho Santa Margarita 84 2,722,741 84, % 3,83.1% 3,83.1% 4,768 4,352 6, $.98 NNN - - San Clemente 12 2,771, , % 127, % 76,54 2.8% 21,646 39,673 4, 51,228 $1.3 NNN - - San Juan Capistrano 78 1,762,915 41, % 55, % 53,35 16,252 51,29 2,15 2,15 $1.14 NNN - - Santa Ana 1,123 31,833,13 1,838, % 1,167, % 1,91, % (134,61) 19, ,71 75,731 $.7 NNN 12,1 Seal Beach , $.73 NNN - - Stanton 73 1,377,219 2,88.2% 2,88.2% 2,88.2% 8,975 15, Tustin 188 7,469,26 623, % 31,16 299,16 124, ,19 9,944 2, $.7 NNN - - Westminster 84 2,421,59 9, % 59, % 59, % (5,86) (47,376) $.69 NNN - - Yorba Linda 84 2,239,397 99, % 65, % 65, % 9,422 41, $1.5NNN - - Orange County Totals 8, ,261,119 14,18, % 7,45, % 6,982, % 823,977 2,317,924 1,495,17 468,537 $.79 NNN 595,927 Bldg Count RBA Available Avail. Total Vac. Direct Direct Vac. Net YTD Net Avail Avg Asking Lease Under Construction BY AREA North Orange County 3, ,51,65 4,682,12 4.1% 2,847, % 2,759, % 72,58 1,326, ,54 88,33 $.66 NNN 367,194 West Orange County 1,324 44,717,717 2,535,81 5.7% 1,17, % 1,23,52 2.3% (117,651) 483, ,34 147,5 $.69 NNN - - Airport Area 2,511 74,937,862 3,818,73 5.1% 1,975, % 1,852, % (98,164) 36,29 341,73 123,23 $.78 NNN 184,813 South Orange County 1,26 41,97,985 2,982, % 1,457, % 1,347, % 337,284 21, ,19 19,774 $1.4 NNN 43,92 Outlying Orange County 1 186, Orange County Totals 8, ,261,119 14,18, % 7,45, % 6,982, % 823,977 2,317,924 1,495,17 468,537 $.79 NNN 595,927

5 ABOUT LEE & ASSOCIATES As a group of independently owned and operated companies, Lee & Associates currently has more than 54 offices in Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Maryland, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, Pennsylvania, South Carolina, Texas and Wisconsin. With a broad array of regional, national and international clients ranging from individual investors and small businesses, to large corporations and institutions Lee & Associates has successfully completed transactions with a total value of more than $9 billion last year, alone. INDUSTRIAL SERVICES Lee & Associates knows industrial real estate. Large, mid-size and small, we help clients transact their way through the intricacies of manufacturing plans, bulk warehousing/distribution facilities, specialized flex complexes, modern build-to-suit flex space and turn-key, high-tech campuses. Our industrial specialists provide skilled guidance running the gamut from facility, site and land acquisition/disposition to advisory services, sale and lease negotiations, build-to-suit analysis and planning. SUBMARKETS: Anaheim, Break, Buena Park, Fullerton, La Habra, Orange, Placentia, Yorba Linda Anaheim, Cypress, Garden Grove, Huntington Beach, La Palma, Los Alamitos, Santa Ana, Seal Beach, Stanton, Westminster Costa Mesa, Fountain Valley, Garden Grove, Irvine, Newport Beach, Santa Ana, Tustin Aliso Viejo, Capistrano Beach, Dana Point, Foothill Ranch, Irvine, Ladera Ranch, Laguna Beach, Laguna Hills, Laguna Niguel, Laguna Woods, Lake Forest, Mission Viejo, Rancho Santa Margarita, San Clemente, San Juan Capistrano San Juan Capistrano MARKET FORECAST: Economists at Cal State Fullerton and Chapman University said Orange County s job growth will be strong in 216 with gains of up to 39, positions, a 2.5% increase. Forecasters said the county s unemployment rate will dip from 4.4% this year to 4.3% in 216. Industrial Members of the Lee & Associates Group of Companies-Orange County Jeff Bischofberger Kurt Bruggeman Dale Camera Phil Cohen Chris Conway BJ Fell Craig Fitterer Brian Garbutt Ryan Harman Jason Helmick Mark Jerue Guy LaFerrara Nate Pivaroff Ted Rommel LEE & ASSOCIATES - IRVINE 9838 Research Drive Irvine, California (949) LEE & ASSOCIATES - NEWPORT BEACH 1 Bayview Circle, Suite 6 Newport Beach, California 9266 (949) Frank Adler Sean Ahern Tim Arguello Chris Barnett David Bolt Alton Burgess John Collins Chris Coyte Jim deregt Matt Durkin Bill Garrett Bob Griffin Travis Haining Jeff Hirsch Steve Jehorek LEE & ASSOCIATES - ORANGE 14 West Taft Avenue, Suite 15 Orange, California (714) Allen Buchanan Pat Delaney Phillip DeRousse Christopher Destino Greg Diab Johnny Eubanks Ian Fewel Jeff Gahagan Brad Gilmer Tom Gilmer Tom Grant Jack Haley Chuck Hardy James Hawkins Doug Himes Mark Hintergardt Luke Hudson Elizabeth Hughes Dave Hunsaker Joel Hutak Skyler Serrano Justin Smith Brock Stryker John Suggs Ryan Swanson Todd Swanson Pat Lacey Ryan Lawler Mike Long John Martin Darin McDonald Matt McKinlay Kevin Quick Ted Sawyer Dick Silva Jim Snyder Curt Stalder Kevin Thomas Tim Walker Tom West Jedd Zaun Dan Kruse Robert Leiter Frank Mejia Bryan Miller David Newton Chuck Noble Jon Passafiume Bob Sattler Scott Seal John Son Peter Sowa David Tabata Randy Verdieck Dave Williams No warranty or representation is made to the accuracy of the foregoing information. Terms of sale or lease and availability are subject to change or withdrawal without notice.