2010 2011

Q2

Q1

VACANCY

NET ABSORPTION

CONSTRUCTION —

RENTAL RATE

THE KNOWLEDGE REPORTPORTLAND

www.colliers.com/portland

Continuing Growth Despite Economic Uncertainty OVERVIEWAs the Portland industrial market continues a slow climb out of nearly four million square feet of negative absorption generated during the recent recession, second quarter economic data suggests the potential for a more uneven recovery in the mid-term than previously anticipated. As indicated by the most recent forecast provided by the Oregon Office of Economic Analysis, major risk factors affecting the recovery of the industrial sector include a slowed easing of credit availability, commodity price inflation, and continued state and federal budget shortfalls. Additionally, while recent national job growth numbers have exceeded published forecasts, jobless claims continue to remain elevated at over 400,000 per month. These points, combined with a sluggish 1.8 percent revised first quarter GDP growth rate and a lingering federal deficit crisis, raise obvious questions over the nature and duration of a sustained economic recovery.

Within the Portland Metro Area, the industrial real estate market is performing modestly well despite lingering concerns over the well being of state and federal economies. Four of the five major submarket sectors recorded positive absorption for the second quarter of 2011, with the sole exception being the North/Northeast submarkets. Additionally, Metro unemployment dropped to 8.8 percent at the end of the current quarter, down from 9.6 percent at the conclusion of the first quarter of 2011. This statistic marries well with modest growth forecasted across Portland manufacturing sectors throughout 2011. As forecasted at the end of the first quarter of 2011, we anticipate that the Portland industrial market will further recover throughout the end of 2011 and moving into 2012. Despite worrisome national economic conditions, local data suggests that growth will continue its slow march forward and past lingering fears of a double dip recession.

MARKET INDICATORS*

UPDATENew Supply, Absorption and Vacancy Rates

Q2 2011 | INDUSTRIAL

*Market Indicators show trend of previous four quarters.

Accelerating success.

LEASING & ABSORPTIONThe second quarter of 2011 reflected several familiar leasing and absorption trends that began developing in the third quarter of 2010. Improved economic conditions have positioned the Portland industrial market in a prolonged recovery period defined by modest absorption, incrementally decreasing vacancy rates, and asking rates that are only now beginning to stabilize. As the mid-point of the year was reached, four consecutive quarters of positive absorption totalling 821,120-square-feet of occupied space removed nearly one-fifth of the negative absorption inflicted on the market as a result of the recent recession. While nearly 8.7 percent of the approximately 174-million-square-feet of inventory remains vacant in the Portland market, the lack of speculative development along with consistent leasing activity are continuing to change the landscape of availabilties within select submarkets. For example, continued demand for large warehouse and distribution facilities in the North/Northeast submarkets has placed considerable limitations on large institutional tenants seeking this space type. Also, as the manufacturing job market continues to recover into 2012, the availability of high-quality manufacturing and distribution space along with generous landlord concessions will begin to diminish.

0.0%

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4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

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500,000

1,000,000

1,500,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2008 2009 2010 2011

Total Net Absorption RBA Delivered Total Vacant %

LEASING & ABSORPTION (CONT.) Several notable lease transactions were signed in the second quarter of 2011. BakeMark signed a lease at the Rockwood Corporate Center in the East Columbia Corridor. Located at 19841 NE San Rafael St. in Gresham, BakeMark will to occupy 46,400-square-feet in this facility. Another deal of note was a direct lease signed by Charter Mechanical in May. Charter will occupy approximately 40,000-square-feet of space at 7924 SW Hunziker in Tigard.

With an encouraging 271,965-square-feet of positive absorption recorded during the second quarter of 2011, the Portland market enjoyed its single largest quarterly absorption since the third quarter of 2008, and its fourth consecutive quarter of positive absorption since mid-2010. Additionally, of the major industrial submarket sectors, only the North/Northeast submarket cluster (Rivergate, East Columbia Corridor, and Airport Way) experienced negative absorption this quarter. The Westside submarkets, burdened with over 2.7 million square feet of negative absorption during the recession, recorded its fourth consecutive quarter of positive absorption at 219,564-square-feet, while Clark County, another perennial under performer of the post-recession period, posted 155,556 square-feet of positive absorption.

VACANCYVacancy during the second quarter of 2011 was 8.7 percent, a decrease of 10 basis points from the first quarter of 2011, and 20 basis points from the second quarter of 2010. As recovery to pre-recession levels continues at an incremental but

prolonged pace, the lack of market-wide speculative development as well as consecutive quarters of positive absorption will continue to provide the foundation for vacancy rates to drop to levels unseen since 2008.

15.1 million square feet of space is currently vacant within the Portland market, with the largest vacancies continuing to reside in the Westside, North/Northeast, and Clark County submarkets. While vacancy rates within the Westside and Clark County submarkets decreased 20 and 80 basis points respectively, the North/Northeast submarket posted a vacancy rate increase of 30 basis points. The I-5 South Corridor, which suffered a 300 percent increase in vacancy during the financial crisis, began to see signs of life through the first half of the year. Within the second quarter of 2011, it posted 116,238-square-feet of positive absorption, dropping the vacancy rate to 11.5 percent. Addionally, second quarter vacancy rates for bulk/logistics facilities, down from a peak of 19.6 percent in the third quarter of 2009, decreased 30 basis points to 16.8 percent.

Despite gradually improving conditions within the Portland Market, persistent economic uncertainty will continue to impede the increased velocity of recovery as well as confident predictions of industrial sector growth beyond the short and mid-term. Improvement in the most important components of growth in this sector - inflation, employment growth, and fuel prices - will be necessary to keep tenants actively engaged in real estate decisions moving into 2012.

During the fourth quarter, 271,965 square feet of positive net absorption was recorded market wide.

UPDATE: SIGNIFICANT LEASES & SALES

LEASE ACTIVITY

PROJECT SUBMARKET TENANT SIZE SF SIGN DATE TRANSACTION TYPE

Oregon Business Park III Tigard Bridgeport Distribution 69,737 04/2011 Relocation

SYNNEX Corporation 217 Corridor/Beaverton SYNNEX Corporation 52,011 04/2011 Renewal

Rockwood Corporate Center East Columbia Corridor BakeMark 46,400 06/2011 New Deal

Fry Distribution Center 217 Corridor/Beaverton George Morlan Plumbing Supply 40,000 05/2011 Renewal

7924 SW Hunziker St Tigard Charter Mechanical 39,509 05/2011 New Deal

SALES ACTIVITY

PROJECT CITY SALES DATE SALES PRICE PRICE/SF TRANSACTION TYPE

2300 SE Beta Street Portland 05/06/2011 $8,025,000 $38.65 Owner/User

9650 SW Herman Road Tualatin 04/27/2011 $3,350,000 $51.86 Owner/User

6235 N Cutter Circle Portland 04/18/2011 $2,725,000 $59.53 Owner/User

1810 W 39th Street Vancouver 06/09/2011 $2,700,000 $38.77 Owner/User

6140 SW Macadam Avenue Portland 06/27/2011 $2,500,000 $111.58 Owner/User

[continued on Page 4]

NORTHWEST

SOUTHWEST SOUTHEAST

NORTHEAST

NORTH

P. 2 | COLLIERS INTERNATIONAL

THE KNOWLEDGE REPORT|Q22011|INDUSTRIAL|PORTLAND

UPDATE

Existing Properties Direct Vacancy Sublease Vacancy Total Vacancy Net AbsorptionSF

New SupplySF U/C

Avg. Rent

Market Sector Inventory SF % SF % SF Q2-11 Q2-10 Current Quarter YTD Current

Quarter YTD SF

CENTRAL

CBD/Lloyd 4,220,040 250,981 5.9% 7,010 0.2% 257,991 6.1% 6.10% (5,160) 67,930 - - - $6.00

NE/SE Close-In 9,184,326 293,606 3.2% - 0.0% 293,606 3.2% 1.90% 49,689 64,478 - - - $4.96

SW Close-In 663,538 96,000 14.5% - 0.0% 96,000 14.5% 8.90% - - - - - $7.56

Total 14,067,904 640,587 4.6% 7,010 0.0% 647,597 4.6% 3.70% 44,529 132,408 - - - $5.47

WESTSIDE

NW/Guilds Lake 13,471,661 1,015,093 7.5% 39,600 0.3% 1,054,693 7.8% 8.70% (61,076) 80,620 - - - $4.34

Beaverton/Hillsboro* 18,726,918 2,086,046 11.1% 57,347 0.3% 2,143,393 11.4% 12.80% 164,402 165,216 - - - $5.01

I-5 South 23,443,254 2,619,139 11.2% 65,887 0.3% 2,685,026 11.5% 12.10% 116,238 116,602 - - - $5.36

Total 55,641,833 5,720,278 10.3% 162,834 0.3% 5,883,112 10.6% 11.50% 219,564 362,438 - - - $5.08

NORTH/NORTHEAST

Rivergate/Hayden and Swan Island 24,501,914 2,290,502 9.3% 0 0.0% 2,290,502 9.3% 8.40% 18,848 47,831 - - 413,700 $4.57

Airport Gateway 15,091,555 723,424 4.8% 61,820 0.4% 785,244 5.2% 4.40% (8,637) (62,271) - - - $5.15

East Columbia/NE Outlying 21,319,974 2,098,374 9.8% 135,992 0.6% 2,234,366 10.5% 10.40% (191,357) (267,491) - - 60,000 $5.17

Total 60,913,443 5,112,300 8.4% 197,812 0.3% 5,310,112 8.7% 7.68.1% (181,146) (281,931) - - 473,700 $4.95

SOUTHEAST

Gresham/Mall 205/Outlying 3,639,252 183,540 5.0% - 0.0% 183,540 5.0% 2.50% (8,500) 28,860 - - - $5.87

Clackamas/Milwaukie/Oregon City 20,941,275 1,472,214 7.0% 24,712 0.1% 1,496,926 7.1% 8.50% 41,962 162,195 - - - $4.32

Total 24,580,527 1,655,754 6.7% 24,712 0.1% 1,680,466 6.8% 7.6% 33,462 191,055 - - - $4.40

CLARK COUNTY

West & Central Vancouver 12,064,867 772,001 6.4% 85,434 0.7% 857,435 7.1% 8.00% 126,844 21,605 - - - $5.37

Van. Mall/Cascade Park/Orchards 4,405,634 475,450 10.8% 0 0.0% 475,450 10.8% 10.3% 36,512 (21,276) - - - $6.01

Camas/Washougal/Outlying 3,427,659 253,875 7.4% - 0.0% 253,875 7.4% 13.00% (7,800) 13,700 - - - $3.60

Total 19,898,160 1,501,326 7.5% 85,434 0.4% 1,586,760 8.0% 9.4% 155,556 14,029 - - - $5.52

GRAND TOTAL 175,101,867 14,630,245 8.4% 477,802 0.3% 15,108,047 8.6% 8.6% 271,965 417,999 - - 473,700 $0.42

QUARTERLY COMPARISON AND TOTALS

2011 2Q 175,101,867 14,630,245 8.4% 477,802 0.3% 15,108,047 8.6% 8.6% 271,965 417,999 - - 473,700 $0.42

2011 1Q 175,101,867 14,643,991 8.4% 699,562 0.4% 15,343,553 8.8% NA 146,034 146,034 - - 473,700 $0.43

2010 4Q 175,101,867 14,829,606 8.5% 535,946 0.3% 15,365,552 8.8% NA 205,298 290,365 - 573,655 60,000 $0.43

2010 3Q 175,101,867 15,097,781 8.6% 563,653 0.3% 15,661,434 8.9% NA 197,823 85,067 415,000 573,655 60,000 $0.44

2010 2Q 174,965,543 14,623,637 8.4% 699,562 0.4% 15,323,199 8.8% NA (83,498) (112,756) 105,000 158,655 475,000 $0.44

COLLIERSINTERNATIONALVALUATION&ADVISORYSERVICES

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THE KNOWLEDGE REPORT|Q22011|INDUSTRIAL|PORTLAND

PORTLAND:

David KotanskyManaging Director, Portland601 SW Second Ave. Suite 1950Portland, OR 97204TEL +1 503 223 3123FAX +1 503 227 2447

RESEARCH CONTACT:

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This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). ©2011. All rights reserved.

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RENTS Rates for industrial properties in the second quarter of 2011 were $0.42 per square foot, which reflects a triple net blended service for shell and office space. This represents a $0.01 decrease from the first quarter of 2011, and $0.02 decrease from the first quarter of 2010. Though perpetually high vacancies have continued to place downward pressure on lease rates since the second half of 2008, the quarterly decline in asking rates has slowed significantly due to increased leasing activity within the past two quarters. Additionally, as high-quality, newer spaces are leased during the short-run, B and C class product may marginally drive average rates down until the market begins to self-correct throughout the remainder of 2011.

Departing from the market-wide generalizations of previous quarters regarding the continued prevalence of concessions and declining rates, increased activity in small to mid-sized spaces has created a two-sided supply environment within select areas. In the North/Northeast submarkets, for example, transaction activity for space below 25,000-square-feet has gained momentum. As a result, rental rates are beginning to increase and landlord concessions are less prevalent. However, the opposite is true for space greater than 30,000-square-feet, as concessions continue to favor tenants and rates remain flat.

If the market continues to recover into the early quarters of 2012, the time for tenants looking to secure long-term leases, discounted rates, and favorable concessions will begin to run short. Many tenants are already begining to experience reduced concessions in the more active, close-in submarkets. This will likely become a more general practice moving into the next year.

CONSTRUCTION The only major industrial properties under construction in the Portland Market are the 413,700-square-foot Subaru of America multi-purpose facility in the Rivergate submarket, and the 60,000-square-foot Boeing Chemical Processing facility in the Rivergate submarket. The Subaru development will serve as a training facility, parts distribution center, and regional offices for the company. This project is slated for delivery in November 2011. The $100 million Boeing facility broker ground in May of 2010. This project is scheduled for completion in December 2012.

The driving theme of stalled speculative development that has defined the previous four quarters continues to prevail in the second quarter of 2011. Tight credit conditions, lingering elevated vacancy rates, and and uncertain economic climate make it likely that speculative development will not return in any substative fashion until 2012. As vacancy rates continue to slowly decline and asking rents dislodge from three year lows, several of the over two dozen proposed 100,000-square-foot and greater industrial projects listed in the CoStar database may begin to see realization.

SALES ACTIVITY Sales volume continues to be depressed through the mid-point of 2011. After four quarters of increasing transaction volume over the course of 2010, the first two quarters of 2011 have seen sales volumes return to the lowered levels sustained during the height of the recession. During the second quarter, 17 industrial properties in excess of $500,000 were sold accounting for approximately $38 million in transaction volume. Over 90 percent of these transactions were owner/user sales, with only two being above the $5 million threshold. This level of activity reflects 1) a carry-over of sluggish activity from the first quarter of 2011 2) continued reticence among lenders to provide credit, and 3) trepidation among investors concerning the immediate and mid-term recovery of the industrial investment market.

The most notable transaction this quarter was the owner/user sale of the Holman Distribution Center located at 2300 SE Beta St. in Milwaukie for $8.025 million. Also of note is the sale of 720 N Hayden Meadows Dr. in the Airport Way submarket. This warehouse facility was sold as part of a 41 property, $87.1 million multi-state disposition by the FedEx Corporation.

WHAT DOES ALL OF THIS MEAN? The conflict between the positive momentum created by consecutive quarters of elevated leasing activity and positive absorption, and persistant fears of economic problems that, if sustained, will likely undermine progress made in the post-recession recovery will be a primary focal point as we enter the second half of 2011. If the balance of economic fundamentals - job growth, credit availability, and tempered inflation - remains steady, we expect the continued recovery of the idustrial market to be sustained over the coming 18 to 24 months.

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KNOWLEDGE REPORT|Q22010|OFFICE|PORTLANDTHE KNOWLEDGE REPORT|Q22011|INDUSTRIAL|PORTLAND