FOR MORE INFORMATIONBob MulhernSenior Managing Director | Greater Phoenix+1 602 222 5038 Bob.Mulhern@colliers.com

Jim Keeley SIOR

Founding Partner | Scottsdale Office+1 480 655 3300 Jim.Keeley@colliers.com

Pete O’NeilResearch Director | Greater Phoenix+1 602 222 5029Pete.ONeil@colliers.com

Research & Forecast Report

GREATER PHOENIX | INVESTMENTQ3 2017

Investment Overview > The Greater Phoenix commercial real estate market has been on an upswing for the past several years. The expansion continued through the third quarter, but it appears that the market is in the late stages of this phase of the cycle. Investment trends reflect the current state of the market, with activity healthy but trailing last year’s peak.

> Sales of commercial properties were mixed, with activity rising in a few segments and declining in others. In the property types where activity slowed, the declines were more substantial than the increases were in the sectors where sales velocity rose. Year to date, sales velocity is trailing levels from the first three quarters of 2016.

> Prices rose in shopping centers, and also posted gains in non-condo medical offices and in industrial buildings. The median price inched down a bit in office buildings and recorded a more significant decline in medical office condos.

> Cap rates continue to compress in industrial transactions, due in large part to the strengthening tenant and investor demand for these assets. Cap rates have risen in both offices and shopping centers.

Phoenix Pricing Trendsby Property Type

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2 Greater Phoenix Research & Forecast Report | Q3 2017 | Investment | Colliers International2

Office > Sales of office buildings dipped 3 percent during the third quarter. Transaction activity has been consistent for much of 2017; year to date, sales velocity is 6 percent behind the pace established in 2016.

> The median price in properties that changed hands during the third quarter was $139 per square foot, down slightly from the median price in the second quarter. Larger buildings are selling at the high-end of the price spectrum; the median price in buildings over 100,000 square feet is $195 per square foot in transactions so far in 2017.

> Cap rates rose approximately 50 basis points in the third quarter, reaching the mid- to high-7 percent range. The average cap rate in transactions year to date is approximately 7.7 percent, nearly identical to the average cap rate in 2016 investment sales.

Investment Trends > Office

OFFICE SALE ACTIVITY

Property Address Submarket Sale Date Size (SF) Sale Price Sale Price/SF

1201 S Alma School Rd., Mesa Superstition Corridor 8/28 306,571 $23,000,000 $75

7001 N Scottsdale Rd., Scottsdale Scottsdale Central 9/20 91,942 $22,400,000 $244

8377 E Hartford Dr., Scottsdale Scottsdale Airpark 9/25 106,000 $20,650,000 $195

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Medical Office > Sales of medical office condos slowed by approximately 50 percent during the third quarter, after surging during the second quarter. Total transaction activity year to date is down 4 percent from the same period in 2016. The bulk of the activity during the third quarter involved condos in the Southeast Valley.

> The median price for medical office condos dropped by nearly 20 percent to $165 per square foot in the third quarter. Prices are higher than in 2016; year to date, the median price is $182 per square foot, 5 percent higher than the 2016 median price.

> Sales of non-condo medical office buildings have been mixed, rising by more than 75 percent in the third quarter but lagging 2016 levels by approximately 25 percent year to date.

> Prices for medical office buildings are on the rise. The median price in traditional, non-condo medical office buildings was $167 per square foot in the third quarter, up from $132 per square foot in the preceding three months. Year to date, the median price is up to $157 per square foot, compared to $137 per square foot in 2016.

Investment Trends > Medical Office

MEDICAL OFFICE SALE ACTIVITY

Property Address/Name Submarket Sale Date Size (SF) Sale Price Sale Price/SF

4530 E Ray Rd., Phoenix South Tempe/Ahwatukee 7/31 53,310 $12,087,675 $227

7425 E Shea Blvd., Scotttsdale Scottsdale Central 8/10 42,439 $11,653,110 $275

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3 Greater Phoenix Research & Forecast Report | 4Q 2015 | Investment | Colliers International3

Industrial > Sales of industrial buildings have been gaining momentum in 2017, with velocity rising by 5 percent during the third quarter. Through the first nine months of 2017, transaction activity is ahead of the 2016 pace by 10 percent.

> Sales prices have increased as more properties have changed hands. The median price for industrial buildings reached $90 per square foot during the third quarter, up 8 percent from the median price in the first half of the year. To this point in 2017, the median price is $83 per square foot.

> Cap rates are compressing as prices rise. The average cap rate in the third quarter dipped to approximately 6.8 percent, 40 basis points lower than the average in the first half of the year. Thus far in 2017, cap rates have averaged just over 7 percent.

Investment Trends > Industrial

INDUSTRIAL SALE ACTIVITY

Property Address/Name Submarket Sale Date Size (SF) Sale Price Sale Price/SF

101 N 103rd Ave & 101 N 104th Ave., Phoenix Southwest 7/7 558,355 $39,000,000 $70

7822 S 46th St., Phoenix Airport 9/15 188,142 $16,100,000 $86

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Shopping Centers > After activity spiked during the second quarter, sales of shopping centers decelerated in the third quarter, slowing by more than 40 percent. Sales velocity year to date is lagging levels from last year by approximately 10 percent.

> Prices rose in the third quarter, despite a decline in transaction activity. The median price spiked by more than 20 percent in the third quarter, reaching $146 per square foot. Year to date, the median price is $118 per square foot, similar to the median price in 2016.

> Cap rates have risen thus far in 2017. Year to date, the average cap rate in all shopping center transactions is approximately 7.6 percent, up 50 basis points from the 2016 average.

Investment Trends > Shopping Centers

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SHOPPING CENTERS SALE ACTIVITY

Property Address/Name Submarket Sale Date Size (SF) Sale Price Sale Price/SF

1605-1859 S Stapley Dr., Mesa East Valley 7/28 233,130 $42,900,000 $180

9130-9140 W Thomas Rd., Phoenix West Valley 8/29 25,717 $7,213,500 $281

3 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

Copyright © 2017 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.

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