MARKET OVERVIEW (Change from last quarter) QUARTER IN REVIEW 2ND QUARTER AVAILABILITY - 4.8% Up from 4.2% last quarter

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Egbert Hodge
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QUARTER IN REVIEW 2ND QUARTER 217 LEE & ASSOCIATES - IRVINE / NEWPORT BEACH / ORANGE INDUSTRIAL MARKET REPORT Short Supply Sends Lease s, Prices Soaring Strong demand and the record-low supply of

1 QUARTER IN REVIEW 2ND QUARTER 217 LEE & ASSOCIATES - IRVINE / NEWPORT BEACH / ORANGE INDUSTRIAL MARKET REPORT Short Supply Sends Lease s, Prices Soaring Strong demand and the record-low supply of available industrial space are combining to drive up lease rates at a torrid pace with second-quarter average asking rents jumping 4.5 percent over Q1. Virtually every building for lease or sale is drawing multiple offers, regardless of size. Through the second quarter, average countywide lease rates climbed 9.5 percent year over year and are up 21 percent over the last eight quarters, according to data collected by Lee & Associates on 8,312 buildings totaling million sq. ft. The overall vacancy rate settled at 2.7 percent at the end of Q2, but the total of vacant space that is being actively marketed for lease was 2.1 percent or 5.6 million sq. ft. The county s base of buildings is in decline. In the last eight years, the industrial inventory has been reduced by 93 buildings totaling 4.8 million sq. ft. to make way for new multifamily or retail development. There was an 181,69-sq.-ft. building completed in Fullerton in Q2 but the countywide inventory nevertheless fell by 395,788 sq. ft. from the first quarter. The strained market conditions have business owners weighing new strategies and options to accommodate their company s growth and, in some cases, are re-evaluating retirement plans. For example, current building prices in record territory and concern that Congress will end the 131 exchange in the planned tax code overhaul could be added to a list of inducements. The South County submarket was the big gainer in Q2 with 47,6 sq. ft. of net absorption, pushing down the vacancy rate 1 basis points to 2.7 percent in the 41,924,74-sq.-ft. submarket. There was 325,337 sq. ft. of negative net absorption in the West County submarket, which totals 44,717,187 sq. ft. Average asking rents in Q2 jumped 6.9 percent over Q1. North County posted 58,315 sq. ft. of net absorption in Q2 but the vacancy rate remained unchanged at 2.3 percent. The largest submarket with 117,181,593 sq. ft. and 42 percent of the total base inventory, North County currently has only nine buildings available over 15, sq. ft. Despite 22,346 sq. ft. of negative net absorption in Q2, the vacancy rate in the Airport submarket slipped 5 basis points after two buildings totaling 43,64 sq. ft. were removed from the total inventory. The Airport submarket s base now totals 73,741,76 sq. ft. MARKET OVERVIEW (Change from last quarter) AVAILABILITY - 4.8% Up from 4.2% last quarter AVAILABILITY RATE VS VACANCY RATE 18.% 15.% 12.% 9.% VACANCY - 2.7% Down from 2.9% last quarter ABSORPTION - 117,638 SQ. FT. Up from -1,81,38 SF last quarter AVERAGE LEASE RATE - $.92 NNN Up from $.88 last quarter *All numbers are based on industrial buildings 1, sq. ft. and larger. Availability Vacancy The Orange County Industrial Market Report is published quarterly by the Lee & Associates Irvine, Newport Beach and Orange offices. C 217 Lee & Associates, Inc. 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

2 217 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, 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 UNEMPLOYMENT RATE California Orange County 9.% 8.5% 8.% 7.5% 7.% 6.5% 5.5% 5.% 4.5% 4/16 5/16 6/16 7/16 8/16 9/16 1/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 Source: EDD YTD NET ABSORPTION Sq. Ft. 4, 3, 2, 1, -1, -2, -3, -4, -5, -6, -7, -8, -9, BY SUBMARKET, INCLUDING SUBLET SPACE AREA OC VACANCY RATE BY SUBMARKET - INCLUDING SUBLET SPACE VACANCY RATE BY QUARTER 8.% 7.% 5.% 2.3% 2.5% 2.7% 2.% 1.% North County West County Airport Area South County Outlying OC 5.5% 5.% 4.5% 2.5% 2.% 1.5% 1.%.5% 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

217 AVERAGE NNN LEASE RATE BY SUBMARKET AVERAGE NNN LEASE RATES BY QUARTER NNN $1.2 $1.1 $1. $.9 $.8 $.7 $.6 $.

6 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 226 McGaw Lease Transactions Q2 17

Jeff Hirsch represented the Landlord. 15912 Piuma Avenue Norwalk, CA 51,3 Vasquez Trucking, Inc.

29 Parker, Suite 1 15912 Piuma Avenue Norwalk, CA 44,75 Blockade Medical, LLC The Irvine Company 29 Parker,

2811 Harbor Boulevard Santa Ana, CA 226 Carleton Orange, CA 991 Calle Amanecer San Clemente, CA Sale

Carleton Orange, CA 991 Calle Amanecer San Clemente, CA 126,796 Robinson Pharma Rexford Industrial Realty LP

3 217 AVERAGE NNN LEASE RATE BY SUBMARKET AVERAGE NNN LEASE RATES BY QUARTER NNN $1.2 $1.1 $1. $.9 $.8 $.7 $.6 $. AREA OC COMPLETED LEE & ASSOCIATES TRANSACTIONS NNN $.95 $.9 $.85 $.8 $.75 $.7 $.65 $.6 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q McGaw Lease Transactions Q2 17 PROPERTY SF TENANT LANDLORD REPRESENTING BROKERS 226 McGaw 15,12 CTC Global Corporation CNH, LLC Frank Adler & Jeff Hirsch represented the Landlord Piuma Avenue Norwalk, CA 51,3 Vasquez Trucking, Inc. PCK Piuma Family, LP Phillip DeRousse represented the Tenant. 29 Parker, Suite Piuma Avenue Norwalk, CA 44,75 Blockade Medical, LLC The Irvine Company 29 Parker, Suite 1 BJ Fell, Craig Fitterer & Mark Jerue represented the Tenant Harbor Boulevard Santa Ana, CA 226 Carleton Orange, CA 991 Calle Amanecer San Clemente, CA Sale Transactions Q2 17 PROPERTY SF BUYER SELLER REPRESENTING BROKERS 2811 Harbor Boulevard Santa Ana, CA 226 Carleton Orange, CA 991 Calle Amanecer San Clemente, CA 126,796 Robinson Pharma Rexford Industrial Realty LP 3,56 H&H Enterprises, LLC Dosmax Enterprises, LLC 28,75 del Boca Vista Phase II Investments LLC TEEMU LLC, a California limited liability company Dale Camera, Jason Helmick & Kenah Cooper represented the Seller. David Williams represented the Buyer. Tim Walker represented the Seller.

4 217 BY CITY Bldg Count SF RBA Available Avail. Total Vac. Direct SF Direct Vac. Net YTD Net SF Avail SF Avg Asking Lease Aliso Viejo 57 1,743,45 36,86 2.1% 17,382 1.% 17,382 1.% 2,828 6,57 6, - - $ SF Under Construction Anaheim 1,442 46,8,643 1,334, % 751, % 723, % 13,878 (134,885) 312,12 27,691 $ ,8 Brea ,968, , % 551, % 539, % 211, ,164 12,522 12,522 $ Buena Park 25 14,57,165 1,723, % 332, % 332, % (216,178) (225,496) 18, - - $ Capistrano Beach 1 35, Costa Mesa 398 1,755,26 784, % 558, % 554, % (48,239) (58,187) 41,663 4, $ Cypress 13 6,591, , % 194, % 194, % (74,98) (19,546) 7, $ Dana Point 1 12, Foothill Ranch 5 3,594, , % 115, % 84, % 13,199 13,29 7,428 3,93 $ Fountain Valley 26 5,67,359 88, % 91, % 84, % (2,297) (18,648) 18,297 6,99 $ Fullerton 358 2,41, ,39 4.2% 649, % 579, % (36,99) 341, ,892 7,134 $ Garden Grove ,828, , % 445,89 44, % (32,441) (88,343) 37,557 5,277 $ Huntington Beach ,56,67 487, % 444,67 2.9% 359, % (219,11) (197,41) 11,163 84,754 $ Irvine 1,22 38,54,719 2,6, % 1,294,21 3.4% 1,257, % 147,643 (32,37) 299,295 36,275 $ ,45 La Habra 13 3,8,146 51, % 34,91 1.1% 34,91 1.1% 2,124 (72,45) $ La Palma 17 1,859, , 7.% , - - $ Ladera Ranch 1 21, Laguna Beach 3 51,768 5, % 5, % 5, % (95) (1,845) Laguna Hills 11 2,192,64 87,22 49, % 46, % (3,6) (28,462) 4,26 3,6 $ Laguna Niguel ,48 3,696.5% 1,77.2% 1,77.2% 12,1 12,35 1, $ Laguna Woods 1 2, Lake Forest 181 5,37,928 21, ,21 2.4% 118,44 2.3% 196, ,426 67,837 3,157 $ Los Alamitos 16 3,73,461 34, % 28,358.9% 28,358.9% (8,65) (4,28) 5,9 - - $ Mission Viejo 55 1,29,646 26,72 2.1% 44, % 43,3 3.3% (19,265) (18,234) 2,48 1,28 $ Newport Beach 49 1,43,344 14, % 14, % 14, % $ Orange ,228,261 31, % 199, % 199, % 1,761 (57,811) 1, $ Placentia 17 4,23,7 158,97 3.8% 121, % 121, % (46,423) (66,15) $ Rancho Santa Margarita 84 2,739, ,55 5.2% 2,841.8% 5,484.2% 5,676 (2,224) 15,357 15,357 $ San Clemente 122 2,812, ,67 6.6% 4, % 4, % 47,189 56,134 7, $ San Juan Capistrano 78 1,771,97 85, % 63,943 63,943 (14,125) (23,328) 3, $ Santa Ana 1,115 3,917,24 1,22, % 74,56 2.4% 727, % (19,658) (613,94) 134,761 12,837 $ Seal Beach , Stanton 74 1,416,633 47,33 3.3% 5,58.4% 5,58.4% 1,412 (5,58) $ Tustin 188 7,46, , % 516, % 465,51 6.2% (32,81) (1,373) 9,54 51,38 $ Westminster 85 2,419, , % 17,22.7% 17,22.7% 6,956 16, Yorba Linda 84 2,243,878 82,64 3.7% 78,39 64, % 37,636 (6,737) 13,572 13,572 $ Orange County Totals 8, ,752,149 13,467, % 7,551,97 2.7% 7,172,79 2.6% 117, ,67 1,619, ,117 $ ,458 Bldg Count SF RBA Available Avail. Total Vac. Direct SF Direct Vac. Net YTD Net SF Avail SF Avg Asking Lease SF Under Construction BY AREA North Orange County 3, ,181,593 5,47, % 2,719, % 2,595,61 2.2% 58,315 46, , ,919 $ ,8 West Orange County 1,327 44,717,187 2,177, % 1,135, % 1,45,84 2.3% (325,337) (388,284) 281,792 9,31 $ Airport Area 2,51 73,741,76 3,849, % 2,571,695 2,48, % (22,346) (885,448) 341,58 9,85 $.91 51,45 South Orange County 1,259 41,924,74 2,392,92 5.7% 1,124, % 1,5, % 47,6 263,296 34,792 74,317 $ Outlying Orange County 1 186, Orange County Totals 8, ,752,149 13,467, % 7,551,97 2.7% 7,172,79 2.6% 117, ,67 1,619, ,117 $ ,458

ABOUT LEE & ASSOCIATES Celebrating more than 37 years of leadership excellence in commercial real estate, Lee & Associates is the largest broker-owned firm in North America with locations across the

5 ABOUT LEE & ASSOCIATES Celebrating more than 37 years of leadership excellence in commercial real estate, Lee & Associates is the largest broker-owned firm in North America with locations across the U.S. and Canada including Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Maryland, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, Ohio, Pennsylvania, South Carolina, Texas, Vancouver BC, Washington 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 $11 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, Brea/La Habra, Buena Park, Fullerton, Orange, Placentia/Yorba Linda Cypress, Garden Grove, Huntington Beach, La Palma, Los Alamitos/ Stanton, Seal Beach, Westminster Industrial Members of the Lee & Associates Group of Companies-Orange County John Burns Kurt Bruggeman Dale Camera Phil Cohen Chris Conway Kenah Cooper BJ Fell Craig Fitterer Brian Garbutt Ryan Harman Jason Helmick Mark Jerue Guy LaFerrara Nate Pivaroff 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 Nick Barsam David Bolt Alton Burgess John Collins Chris Coyte Jim deregt Matt Durkin Bill Garrett Bob Goodmanson Bob Griffin Travis Haining Jeff Hirsch Steve Jehorek Ted Rommel Skyler Serrano Justin Smith Brock Stryker John Suggs Ryan Swanson Todd Swanson Pat Lacey Ryan Lawler Mike Long John Martin Darin McDonald Matt McKinlay Don Nourse Kevin Quick Brad Schneider Jim Snyder Curt Stalder Kevin Thomas Tim Walker Tom West Jedd Zaun Costa Mesa, Fountain Valley, Irvine, Newport Beach, Santa Ana, Tustin LEE & ASSOCIATES - ORANGE 14 West Taft Avenue, Suite 15 Orange, California (714) Irvine Spectrum, Laguna Hills/Aliso Viejo, Laguna Niguel/Laguna Beach, Lake Forest/ Foothill Ranch, Rancho Santa Margarita, Mission Viejo, San Juan Capistrano, San Clemente, Dana Point Outlying Orange County MARKET FORECAST: Public and private investors, which make up a substantial share of building owners, so far have shown no resistance to higher building prices. Activity may slow as usual in the summer months, but if economic growth and low interest rates remain unchanged, future price spikes could continue. Allen Buchanan Pat Delaney Phillip DeRousse Christopher Destino Greg Diab Johnny Eubanks 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 Dan Kruse Robert Leiter Frank Mejia Bryan Miller David Newton Chuck Noble Jon Passafiume Bob Sattler Scott Seal John Son Peter Sowa David Tabata 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.

Demand Slows In Q1 But Rents Still Are Soaring

QUARTER IN REVIEW 1ST QUARTER 217 LEE & ASSOCIATES - IRVINE / NEWPORT BEACH / ORANGE INDUSTRIAL MARKET REPORT Demand Slows In Q1 But Rents Still Are Soaring Net absorption stumbled in the first quarter,