SHENANDOAH VALLEY INDUSTRIAL MARKET Second Quarter 2017

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1 RESEARCH & FORECAST REPORT SHENANDOAH VALLEY INDUSTRIAL Second Quarter 2017 Market Dynamics Remain Strong Market Indicators Q (Projected) The Shenandoah Valley market continued its upward trend during the second quarter of the year, with the asking rate for warehouse product averaging above $4.00 per square foot for the first time ever and with over 650,000 more square feet under construction compared to this time last year. Absorption remained positive, albeit far less than the 840,000 square feet that was occupied last quarter by groups such as Fiat Chrysler and Sealy, and vacancy remained flat at 6.8% with many users staying put and frantically searching the market for expansion space. In total, there exists more than 3.7 million square feet of active requirements in need of build-to-suit warehouse up and down the corridor. NET RENTAL Industrial construction along the Valley continued to increase, particularly in Martinsburg and the neighboring submarkets of Hagerstown and Winchester. Danish insulation company Roxul just announced plans to construct a $150 million dollar plant in Ranson, WV that should see 463,000 square feet break ground in October and eventually bring 150 jobs to the surrounding community. In nearby Hagerstown, Bowman Development is planning a 350,000 squarefoot expansion to their 360,000 square-foot Newgate building at Hopewell Road that should deliver July Further south in Frederick County, VA Equus Capital Partners has secured a 17- acre site off Tasker Road with the intent of constructing 252,000 square feet on a speculative basis. This comes as Equus readies to break ground on 287,000 square feet that represents Phase III of their Stonewall Industrial Project in Winchester. With respect to relocation and large tenant movement, publishing group Dex Media vacated 109,000 square feet in 621 Mid-Atlantic Parkway in Martinsburg thus balancing out some of the positive absorption resulting from Procter & Gamble s short-term requirements surrounding their new manufacturing plant. The town of Buena Vista took a heavy hit last quarter, lead by Ohio-based HDT Global shutting down operations in their 172,000 square-foot Shenandoah Valley Industrial Facility as a result of government defense cuts. HDT will be relocating a portion of their shelter-building manufacturing to new facilities in Fredericksburg. Despite these move-outs, absorption remains positive on average and across most counties along the Valley, most notably in Waynesboro, VA where third party logistics group REO Logistics expanded their 1 million square foot footprint by another 463,000 square feet by purchasing Concepts West and their building at 901 Delphine Avenue. Page County also saw multiple smaller users take occupancy during the second quarter, bringing their quarterly absorption to over 100,000 square feet. Summary Statistics Q Industrial Market Industrial Total Warehouse Flex Vacancy Rate 6.8% 6.7% 7.9% Change From Q (basis points) Absorption (Square Feet) New Construction (Square Feet) Under Construction (Million Square Feet) Asking Rents Per Square Foot Per Year ,053 52,201 67, , , Direct Asking Rates $4.10 $4.01 $5.44 Change From Q $0.12 $0.15 -$0.03

2 Leasing overall was relatively flat compared to the start of 2017, but this is due to the majority of larger requirements (200,000+ SF) finding no immediately available product for expansion or relocation. The roughly 2.5 million square feet under construction, a mixture of both speculative and build-to-suit developments, will be mostly committed prior to delivery of the buildings. In short, the Shenandoah Valley market continues to see both robust absorption and growth in industrial construction as more and more existing users and newcomers look to find quality space. construction in the Frederick County submarket, which is anticipated to be ready for the holiday season later this year. 500 International Parkway, a 250,000 square-foot build-to-suit is underway in the Botetourt submarket also with an expected to delivery at the end of Vacancy Demand Demand for industrial space in the Shenandoah Valley market grew during the second quarter of The market had 120,053 square feet of positive net absorption during the quarter, bring the yearto-date total to 969,901 square feet. This compares to the first half of 2016 when 283,374 square feet was taken off the market. This marks the fourth straight quarter of overall positive absorption and the eighth straight quarter of positive absorption for Flex product in the Shenandoah Valley Industrial market. The market s overall vacancy rate remained flat to end the quarter at 6.8 percent. The warehouse sector mirrored the overall vacancy rate, staying even at 6.7 percent. The flex sector decreased from 9.5 to 7.9 percent during the quarter. Rental Rates Supply During the second quarter, one building delivered, 60 W Center Drive, a 100,000-square-foot speculative building in the Botetourt submarket. No new buildings broke ground during the quarter. There were four buildings under construction totaling 2.46 million square feet of space. The largest building under construction, 5293 Tabler Station Road, a 1.07 million square-foot build-to-suit for Procter & Gamble in Berkeley County, is expected to deliver at the end of Amazon s 1 million square foot distribution facility is under With the continued demand for industrial space, landlord s rent expectations in the market have continued to increase. During the first quarter, the overall direct average asking rate rose from $3.98 to $4.10 per square foot. Warehouse average asking rates increased, rising from $3.86 to $4.01 per square foot. Flex asking rates decreased, falling $0.03 to end the quarter at $5.44 per square foot.

3 Shenandoah Valley Warehouse Product Q INVENTORY NEW SUPPLY Washington/Hagerstown 17,000, , , % $4.25 Maryland Total 17,000, , , % $4.25 WEST Berkeley 9,222, ,074,273-58,000-58, % $4.83 Jefferson 1,666, , % $4.07 West Virginia Total 10,889, ,074,273-58,000-48, % $4.51 Augusta 4,598, ,000-10, % $4.15 Botetourt 2,896, , , ,000-18, % $2.00 Buena Vista 738, , , % $2.89 Frederick 9,748, ,400 1,038,000-42, , % $4.16 Harrisonburg 1,602, , % $4.60 Page 338, ,394 48, % n/a Roanoke 5,213, ,000 33, % $4.04 Roanoke City 11,954, ,828-62, % $2.67 Rockbridge 1,816, ,000 32, % $3.67 Rockingham 3,566, ,800 35, % $4.93 Salem 4,888, ,800 35, % $2.81 Shenandoah 2,232, % $3.82 Staunton 1,500, , % $3.23 Warren 3,517, , % n/a Waynesboro 1,609, , , % $6.55 Winchester 2,348, ,392-69, % $5.25 Virginia Total 58,571, , ,400 1,388,000 98, , % $3.89 SHENANDOAH VALLEY TOTAL 86,461, , ,400 2,462,273 52, , % $4.01

4 Shenandoah Valley Flex Product Q INVENTORY NEW SUPPLY Washington/Hagerstown 1,040, ,500-1, % $5.05 Maryland Total 1,040, ,500-1, % $5.05 WEST Berkeley 118, % n/a Jefferson 72, % n/a West Virginia Total 190, % n/a Augusta n/a n/a Botetourt 33, % n/a Buena Vista n/a n/a Frederick 1,067, ,240-21, % $7.06 Harrisonburg 64, % n/a Page 150, , , % $3.75 Roanoke 146, % n/a Roanoke City 232, , % $7.68 Rockbridge n/a n/a Rockingham 90, % n/a Salem 391, ,042 17, % $6.50 Shenandoah n/a n/a Staunton n/a n/a Warren n/a n/a Waynesboro n/a n/a Winchester 705, % n/a Virginia Total 2,882, , , % $6.13 SHENANDOAH VALLEY TOTAL 4,113, , , % $5.44

5 Shenandoah Valley Industrial Market Q INVENTORY NEW SUPPLY Washington/Hagerstown 18,041, , , % $4.39 Maryland Total 18,041, , , % $4.39 WEST Berkeley 9,340, ,074,273-58,000-58, % $4.83 Jefferson 1,739, , % $4.07 West Virginia Total 11,079, ,074,273-58,000-48, % $4.51 Augusta 4,598, ,000-10, % $4.15 Botetourt 2,930, , , ,000-18, % $2.00 Buena Vista 738, , , % $2.89 Frederick 10,816, ,400 1,038,000-55, , % $4.79 Harrisonburg 1,667, , % $4.60 Page 488, , , % $3.75 Roanoke 5,359, ,000 33, % $4.04 Roanoke City 12,186, ,828-45, % $2.80 Rockbridge 1,816, ,000 32, % $3.67 Rockingham 3,656, ,800 35, % $4.93 Salem 5,280, ,842 52, % $3.08 Shenandoah 2,232, % $3.82 Staunton 1,500, , % $3.23 Warren 3,517, , % n/a Waynesboro 1,609, , , % $6.55 Winchester 3,053, ,392-69, % $5.25 Virginia Total 61,453, , ,400 1,388, , , % $3.96 SHENANDOAH VALLEY TOTAL 90,575, , ,400 2,462, , , % $4.10 FOR MORE INFORMATION John Lesinski Senior Vice President john.lesinski@colliers.com Ben Luke Assistant Vice President ben.luke@colliers.com Robert Hartley Director of Marketing robert.hartley@colliers.com Miles Rodnan Research Analyst miles.rodnan@colliers.com 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. Colliers International 7900 Tysons One Place Vienna, VA colliers.com/washingtondc 5 North American Research & Forecast Report Q Office Market Outlook Colliers International