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, posting its biggest three-month loss in seven years. But vacancy rates remained in record-low territory with the market s momentum reflected in skyrocketing rents that have jumped an average of 16 percent in the last eight quarters. More than 682,36 sq. ft. of space came back on the market in the first quarter, most of which was in the Airport submarket. The decline follows a strong close to 216 that included the shock of the general election. North County, which includes Anaheim and roughly half of the county s total inventory, was the only submarket to tighten in the first quarter. That was, in part, because one building was removed from its 117-million-square-foot inventory. The North County vacancy rate is 2.2 percent,.4 percent less than the countywide average. At the end of Q1, cities with the most industrial space available were Irvine, Anaheim, Santa Ana, Buena Park, Fullerton, Cypress, Costa Mesa and Tustin. Lee & Associates survey encompassed 8,31 buildings totaling about 278 million square feet. There are a dozen speculative buildings underway in cities of Fullerton, Anaheim and Brea. Even though they will add about 2.5 million sq. ft. to the industrial inventory, they fall short of replacing the 95 buildings totaling 4.7 million sq. ft. that were razed in the last eight years and replaced largely with multifamily and retail construction. Although the inventory reduction is small, only 1.6 percent, it looms larger because there are no substantial development opportunities on the horizon. More than 46, sq. ft. of space returned to inventory in Q1 in the Irvine Business Complex, which pushed up the vacancy rate 5 basis points to 3.5 percent in the Airport submarket. The South County and West County submarkets also showed slight increases in their vacancy rates but available space remains tight. Average asking rents in South County from Irvine Spectrum to San Clemente rose 9.5 percent year over year and are the highest in the county. In West County, which includes Cypress, Huntington Beach, Los Alamitos, Stanton, Seal Beach and Westminster, there has been less upward pressure on rents so far but with a vacancy rate of 1.3 percent some acceleration can be expected. The shortage in space also is forcing company executives seeking to expand to add many months or longer for their site search and to prepare for costly demands from landlords. MARKET OVERVIEW (Change from last quarter) AVAILABILITY - 4.3% Down from 4.4% last quarter VACANCY - 2.6% Up from 2.5% last quarter AVAILABILITY RATE VS VACANCY RATE ABSORPTION - (682,36) SQ. FT. Down from 262,226 SF last quarter AVERAGE LEASE RATE - $.88 NNN Up from $.86 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. 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 18.% 15.% 12.% 9.%

217 NUMBER OF LEASES EXECUTED FOR THE QUARTER BY SUBMARKET # of Deals DIRECT LEASE SUBLEASE 25 225 2 175 15 125 1 75 5 25 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, 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 UNEMPLOYMENT RATE California Orange County 9.% 8.5% 8.% 7.5% 7.% 6.5% 5.5% 5.% 4.5% 4.% 1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 1/16 11/16 12/16 1/17 2/17 Source: EDD YTD NET ABSORPTION Sq. Ft. 9, 8, 7, 6, 5, 4, 3, 2, 1, -1, -2, -3, -4, BY SUBMARKET, INCLUDING SUBLET SPACE AREA OC VACANCY RATE BY SUBMARKET - INCLUDING SUBLET SPACE VACANCY RATE BY QUARTER 8.% 7.% 5.% 4.% 3.7% 2.% 2.2% 1.3% 1.% North County West County Airport Area South County Outlying OC 5.5% 5.% 4.5% 4.% 2.5% 2.% 1.5% 1.%.5% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17

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 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 14 S. Manhattan Avenue Fullerton, CA Lease Transactions 1Q 17 PROPERTY SF TENANT LANDLORD REPRESENTING BROKERS 14 S. Manhattan Avenue 12,288 Berger Transfer & B/E Aerospace, Inc. Justin Smith represented the Tenant. Fullerton, CA Storage 179 Apollo Seal Beach, CA 1442 Myford Road Irvine, CA 179 Apollo Seal Beach, CA 88,57 Limbach Company, LP TPX Apollo, LLC Bryan Miller & Allen Buchanan represented the Tenant. 58,821 Candela Corporation, a California Corporation The Irvine Company - Office Properties 1442 Myford Road Irvine, CA Jim Snyder represented the Tenant. 3 & 33 Warner Avenue 2321 Valencia Circle Lake Forest, CA 2211 S. Susan Street Sale Transactions 1Q 17 PROPERTY SF BUYER SELLER REPRESENTING BROKERS 3 & 33 Warner Avenue 5,815 3 W. Warner, LLC Bonert s Slice of Pie Greg Diab represented the Seller. 2321 Valencia Circle Lake Forest, CA 4,934 Liquid Metal Technologies Valencia Circle, LLC Craig Fitterer & Mark Jerue represented the Buyer. 2211 S. Susan Street 28,78 Six Points Management Group, LLC Jangie LLC Chris Coyte represented the Seller.

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 39,726 2.3% 2,21 1.2% 2,21 1.2% 3,742 3,742 15,811 - - $1.38 - - Anaheim 1,441 46,31,413 1,351,15 2.9% 855,226 1.9% 817,477 1.8% (238,763) (238,763) 159,94 37,749 $.83 - - SF Under Construction Brea 298 12,944,326 532,633 4.1% 774,767 768,27 5.9% 45,148 45,148 6,74 45,179 $.73 - - Buena Park 25 13,994,862 778,432 5.6% 121,769.9% 11,457.7% (37,718) (37,718) 152,133 2,312 $.77 23,191 Capistrano Beach 1 35,486 - - - - - - - - - - - - - - - - - - - - - - - - Costa Mesa 397 1,726,164 71,976 6.5% 522,284 4.9% 51,287 4.8% (9,948) (9,948) 17,272 11,997 $1. - - Cypress 13 6,591,56 756,353 11.5% 12,199 1.8% 12,199 1.8% (35,448) (35,448) 27,98 - - $.77 - - Dana Point 1 12, - - - - - - - - - - - - - - - - - - - - - - - - Foothill Ranch 5 3,594,399 328,615 9.1% 245,618 6.8% 214,715 1 1 68,71 3,93 $.88 - - Fountain Valley 26 5,7,135 121,89 2.4% 79,69 1.6% 79,69 1.6% 1,649 1,649 - - - - $.85 - - Fullerton 355 2,185,92 776,979 3.8% 436,764 2.2% 294,568 1.5% 373,129 373,129 25,874 142,196 $.65 181,69 Garden Grove 379 12,839,977 485,156 3.8% 23,575 1.6% 197,538 1.5% (55,92) (55,92) 18,937 6,37 $.75 - - Huntington Beach 552 15,58,647 384,596 2.5% 225,56 1.4% 221,956 1.4% 21,691 21,691 23,24 3,55 $.71 - - Irvine 1,22 38,593,17 2,239,86 5.8% 1,474,853 3.8% 1,464,352 3.8% (46,4) (46,4) 144,174 1,51 $1.24 51,45 La Habra 14 3,15,146 62,78 2.% 37,34 1.2% 37,34 1.2% (4,169) (4,169) - - - - $.93 - - La Palma 17 1,859,689 - - - - - - - - - - - - - - - - - - - - $.63 - - Ladera Ranch 1 21,784 - - - - - - - - - - - - - - - - - - - - - - - - Laguna Beach 3 51,768 4,175 8.1% 4,175 8.1% 4,175 8.1% (895) (895) - - - - - - - - Laguna Hills 11 2,192,64 93,335 4.3% 46,223 2.1% 46,223 2.1% (25,456) (25,456) - - - - $1.24 - - Laguna Niguel 38 753,48 3,76.5% 13,717 1.8% 13,717 1.8% 34 34 1,989 - - $1.55 - - Laguna Woods 1 2,178 - - - - - - - - - - - - - - - - - - - - - - - - Lake Forest 181 5,37,928 252,839 5.% 327,425 6.5% 38,18 6.1% 42,22 42,22 19,47 19,47 $.92 - - Los Alamitos 16 3,73,461 44,234 1.4% 2,293.7% 2,293.7% 3,785 3,785 5,9 - - - - - - Mission Viejo 55 1,29,646 29,182 2.3% 25,18 1.9% 23,738 1.8% 1,31 1,31 1,28 1,28 $1.17 - - Newport Beach 5 1,55,8 15,63 1.5% 15,63 1.5% 13,93 1.3% (57) (57) 1,7 1,7 $1.23 - - Orange 566 14,258,967 359,147 2.5% 2,88 1.4% 189,373 1.3% (84,172) (84,172) 31,579 11,57 $.86 - - Placentia 169 4,184,52 118,339 2.8% 75,56 1.8% 73,96 1.7% (19,592) (19,592) 2,464 2,464 $.75 - - Rancho Santa Margarita 84 2,738,141 128,552 4.7% 26,517 1.% 17,122.6% (7,9) (7,9) 24,465 9,395 $.84 - - San Clemente 121 2,799,754 211,12 7.5% 88,82 3.1% 48,732 1.7% 8,945 8,945 14,26 39,35 $1.15 - - San Juan Capistrano 78 1,767,825 86,26 5.5% 49,818 3.2% 49,818 3.2% (9,23) (9,23) 4,8 - - $1.2 - - Santa Ana 1,115 31,268,577 1,212,28 3.9% 72,42 2.3% 694,672 2.2% (229,436) (229,436) 167,849 25,73 $.72 - - Seal Beach 13 986,466 - - - - - - - - - - - - - - - - - - - - - - - - Stanton 74 1,388,197 - - - - 6,992.5% 6,992.5% (6,992) (6,992) - - - - $.82 - - Tustin 188 7,461,627 644,674 8.6% 484,8 6.5% 476,54 6.4% 22,437 22,437 59,976 7,54 $1.6 - - Westminster 85 2,419,281 18,84.8% 24,176 1.% 23,356 1.% 9,919 9,919 82 82 $1.1 - - Yorba Linda 84 2,243,878 15,47 4.7% 115,945 5.2% 13,265 4.6% (44,373) (44,373) 12,68 12,68 $.83 - - Orange County Totals 8,31 277,965,58 11,887,389 4.3% 7,361,735 2.4% 6,959,913 2.3% (682,36) (682,36) 1,188,837 44,261 $.88 255,71 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 3,221 116,983,186 4,84,795 2,617,945 2.2% 2,384,297 2.% (1,51) (1,51) 571,374 272,87 $.72 24,26 West Orange County 1,329 44,721,44 1,689,179 3.8% 6,741 1.3% 59,334 1.3% (62,947) (62,947) 75,77 1,47 $.73 - - Airport Area 2,51 74,175,27 3,647,929 4.9% 2,61,824 2,553,893 3.4% (455,462) (455,462) 278,363 47,931 $.88 51,45 South Orange County 1,258 41,899,346 2,465,486 5.9% 1,541,225 3.7% 1,431,389 3.4% (153,117) (153,117) 263,33 19,836 $1.16 - - Outlying Orange County 1 186,95 - - - - - - - - - - - - - - - - - - - - - - - - Orange County Totals 8,31 277,965,58 11,887,389 4.3% 7,361,735 2.6% 6,959,913 2.5% (682,36) (682,36) 1,188,837 44,261 $.88 255,71

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 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 92618 (949) 727-12 LEE & ASSOCIATES - NEWPORT BEACH 1 Bayview Circle, Suite 6 Newport Beach, California 9266 (949) 724-1 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 92865 (714) 647-91 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: Orange County s over-reliance on tourism and information service sector and its high housing prices are constraining prospects for economic growth, two Chapman University researchers warned in a new report. 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.