MarketView Colorado Springs Class A/B Office www.coscommercial.com Second Quarter 2015 Quick Stats Class A/B Office Market Overview Change from last Despite feeling more upbeat about the current state of the Colorado Springs' office market, the statistics don’t

2Q15 Yr. 1Q15 look much different than they did two, or even three, years ago when overall vacancy registered 21% and the ▲

Vacancy 21.25% ▲ average quoted lease rate in the market was $13.08. During the intervening period the vacancy rate has remained

Lease $13.32 ▲ ▲ close to 21% and quoted lease rates have had only a modest increase. While this is a vast improvement since Rates the market’s low point in 2010 where vacancy approached 35%, the momentum we experienced from 2011 psf/yr through early 2013 that attributed to positive absorption and dwindling vacancy rates has been lost. Net 77,350 ▲ ▲ Absorption* Recently we have seen major employers, including Everest College, Focus on the Family, Quantum Corporation, Verizon, and others reduce their work force or close their operations and bring to market large blocks of vacancy Hot Topics that have eroded progress. Compounding that has been companies who have historically leased space have taken advantage of the poor market conditions and purchased their own real estate to occupy, leaving behind • Investment activity remains strong space that is added to the overall market vacancy. These events have added large blocks of vacancy, in some as investors seek yield in Colorado cases more than 100,000 square feet, to the overall market vacancy. These spaces are often difficult or cost Springs. prohibitive to subdivide for smaller users and remain on the market for extended periods until a large employer requires appropriate space. Such an event often requires the city to compete for companies not currently in • New Colorado Springs' Mayor, John Suthers, makes commitment to job Colorado Springs and our success over recent years has been modest, the highlight being Sierra Nevada growth and to an administration that Corporation which is currently building its new facility at the Colorado Springs airport. will work collaboratively with City Council. On the positive side we have seen smaller companies, especially those in high tech, grow organically, adding to their staff and leasing up more space. Of particular note are Value Options, Spectranetics, Cherwell, HGST, • Medical market activity remains CareCore and Home Advisors who have been experiencing very positive growth and have had to lease more stagnant, proximity to hospital space. What we have not experienced in the market is a new company coming to our community and leasing up campuses remains important. one of the large blocks of vacancy. Until that occurs it will be a slow road to recovery.

• Penrose Hospital considers new For tenants who want to take advantage of the market, especially those in the sub 10,000 sf size, there are west side hospital on ground-up limited “deals” to find. One of the reasons is the hike in costs for construction and making thenecessary development. improvements to vacant space to accommodate a new tenant. These costs have increased significantly and landlords can no longer provide “turnkey” build-out at their quoted lease rates. This is requiring tenant’s to either • Olympic Museum to begin construction amortize or pay out of pocket for some of the build out costs – driving up their occupancy costs. in CBD late 2015. With the general health of the economy the real estate market will likely continue to get better, but at a modest • New construction in CBD drives up pace, meaning for the time being there will remain ample opportunities for tenants to find space that works for vacancy rate. them, and at reasonable rates.

• DOD tenants show signs of steady but modest improvement and need for additional SF. Class A/B Vacancy Rate VS Net Absorption 400,000 40.0%

350,000 35.0%

300,000 30.0%

250,000 25.0%

200,000 20.0%

150,000 15.0%

100,000 10.0% Greg Phaneuf, Principal [email protected] 50,000 5.0% 719.418.4064 0 0.0%

-50,000 -5.0%

-100,000 -10.0%

-150,000 -15.0%

-200,000 -20.0%

-250,000 -25.0%

-300,000 -30.0% 2007 2008 2009 2010 2011 2012 2013 2014 1Q15 2Q15 Peter Scoville, Principal [email protected] Absorption Vacancy © 2015, COSC 719.418.4063 Market Statistics

COLORADO SPRINGS CLASS A OFFICE STATISTICS 2ND QUARTER 2015 Office Submarket Total Bldg. SF Available SF Sublease Space Vacancy Rate Absorption Lease Rate NNN Exp. NORTH I-25 CORRIDOR: 2ND Q 2015 5,631,808 1,231,207 64,725 21.86% 56,184 $12.68 $7.61 YTD 2015 801 Airport (SOUTHEAST) AREA: 2ND Q 2015 1,491,894 412,736 57,495 27.67% 4,500 $13.00 $7.54 YTD 2015 9,000 CENTRAL BUSINESS DISTRICT: 2ND Q 2015 1,914,079 276,980 0 14.47% 16,666 $15.22 $8.51 YTD 2015 25,241 TOTAL CLASS A MARKET TOTALS FOR 2ND Q 2015 9,037,781 1,920,923 122,220 21.25% 77,350 $13.32 $7.78 TOTALS YTD 2015 35,042 OVERALL VACANCY RATE: 21.25%% AVAILABILITY RATE (includes sublease space): 22.61%

Significant Transactions SQUARE BUILDING NAME ADDRESS TENANT QTR FEET LEASE TRANSACTIONS Patriot at Interquest IV 9960 Federal Drive Jabil 10,192 2nd 2015 Briargate Tech 8415 Explorer Drive JMark 10,076 1st 2015 1st Bank Building 2 N Cascade Avenue Northwestern Mutual 14,598 1st 2015 Wells Fargo Tower 90 S Cascade Avenue Merrill Lynch 11,362 1st 2015 1st Bank Building 2 N Cascade Avenue Hogan & Hartson 8,826 1st 2015 Garden Gateway Plaza 1365 Garden of the Gods CBA 5,017 1st 2015

INVESTOR/ BUILDING NAME ADDRESS SALE PRICE QTR USER SALE TRANSACTIONS Northcreek Campus 5725 Mark Dabling $15,750,000 Investor 1st 2015 4310-4390 Arrowswest Drive 4310-4390 Arrowswest Drive $3,550,000 Investor 1st 2015 Union Medical Plaza 3027 N Circle Drive $3,225,000 Investor 1st 2015 Cygnet Building 31 N Tejon $2,450,000 Investor 2nd 2015 1580 E Cheyenne Mountain 1580 E Cheyenne Mountain $1,600,000 User 2nd 2015

Featured Office Properties

Palmer Center Patriot Interquest II Epic One 2 N & 90 S Cascade Ave 9925 Federal Drive 10807 New Allegiance Drive 924 to 8,403 SF For Lease 23,528 SF For Lease 3,341 to 30,468 SF For Lease

Page 2 MarketView Colorado Springs Office 2015 |Second Quarter Page 3 s are down in the s are down in the

y negative but 4th nominally quarter and Airport, saw solid in absorption negative slightly in I-25, North positive in CBD. Indications quarters are of for consecutive positive absorption going lease forward activity as picks up and 2015. we forecast a robust There has not been a as is evident lease rates in the past several years, significant shift in the actual leases in the adjacentgraph. However, the asking being completed are increasing in the market while concessions decrease and we anticipate this trend to continue into the foreseeable future. owners, building new as way meaningful a in 2014 of improving slowly a of advantage take to look old, and market. Higher quality properties greatest are increase seeing as the they generally lowest represent the vacancy, but across trend to continue. increasing and we anticipate the the board rates are ABSORPTION Absorption has been positive but at a minimum level. The reason behind this is that while the leasing activity has generally been increased there have been very few new companies coming to town and absorbing additional space. VACANCY drop over the past have continued to rates Vacancy market will The pace. albeit at a modest 18 months, vacancy throughout the rest continue to see decreasing have new companies relocating of 2015 but until we Springs our vacancy will or starting up in Colorado modestly. continue to decrease which is the city's l at 5.6 North I-25 submarket, Airport and CBD Both the million square feet. but with flat for 4th quarter, remained relatively we forecast 1st quarter stronger lease activity for in all three submarkets, and vacancy to be down through 2015. this trend to continue Per RSF) Annual, (NNN, LEASE RATES

16,666

$15.22 $15.22

2Q15

4,500

2Q15 $13.00 $13.00

56,184

$12.68 $12.68

14.47%

2Q15 8,575 27.67%

$15.39 $15.39

1Q15

4,500 21.86%

1Q15 $12.91 $12.91

55,383 -

$12.39 $12.39

15.74%

4,651 1Q15 27.67%

$15.21 $15.21

2014 21,676 - 22.12%

2014 $12.87 $12.87

106,229

$12.43 $12.43

16.85%

67,772

2014 29.32%

$14.47 $14.47

2013 39,743

19.90%

2013 $12.72 $12.72

74,382

$11.81 $11.81

10.55%

18,114

2013

23.28%

$14.80 $14.80

2012 17,854 -

21.60%

2012 $11.81 $11.81

145,202 $12.42 $12.42

CBD

14.34% CBD

13,374 -

2012 25.61%

CBD $14.56

2011 30,805 -

2011

$12.32 $12.32 23.49%

268,896

$11.60 $11.60

14.72%

25,709

$14.63 $14.63 Airport 2011

26.79% Airport 2010

43,175

2010

$12.41 $12.41

25.58% Airport

32,401

$11.70 $11.70

12.72%

13,081

$15.05 $15.05 2010

30.14%

2009 52,334 -

2009

$13.04 $13.04

31.60% 116,917 - $11.88 $11.88

North I-25

13.79% I-25North

12,485

North I-25 $16.58

2009 30.38%

2008 241

2008 $13.71 $13.71

31.03% 235,020 -

ClassVacancy A/B $14.06

11.80% 17,181 -

$15.75 $15.75

2008 18.58% 2007

121,103 -

2007 $13.78 $13.78

20.49%

Class A/B Absorption (SF) Class A/B Absorption 17,189 $13.88 $13.88

11.09% 23,298 - $14.13 $14.13

2006 2007 62,117 - 15.24%

2006

Class A/B Lease (NNN/PSF) Rates $13.21

123,758 14.72% $12.60 $12.60

46,767 11.22% $14.32 $14.32

2005

63,165 2006 12.25% 2005 $13.38 $13.38

186,986 13.38% $11.08 $11.08 0 $0.00 $5.00 0.00% 5.00% 50,000 $10.00 $15.00 $20.00 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% -50,000 150,000 100,000 200,000 250,000 350,000 300,000 400,000 -250,000 -300,000 -200,000 -150,000 -100,000 Medical Market Statistics

2ND QUARTER 2015 Total Bldg. SF Available SF Sublease Space Vacancy Rate Absorption Lease Rate NNN Exp. Colorado Springs MOB Market 1,644,899 214,533 2,614 12.89% 23,580 $16.25 $9.01

OVERALL - VACANCY RATE: 12.89% AVAILABILITY RATE (includes sublease space): 13.04%

Vacancy Medical Office Market Overview 25.00%

The overall health of the Medical Office Market can 20.03% 20.00% 19.10% be characterized as consistently improving. The 18.57% attached graphs show a great visual of a two year 15.84% 15.36% 14.95% trend of decreased vacancy and modest increase 15.00% 14.38% 14.27% 13.46% in asking rents. The overall trend is the market has 12.89% been, and will continue to be, toward the newer/higher quality northern locations and product types. There 10.00% is no speculative development on the horizon, so we anticipate an increasingly tighter market into 2016. 5.00% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Featured Medical Properties Lease Rates (NNN/PSF) $18.00

$16.28 $16.28 $16.28 $16.25 $16.13 $16.14 $16.02 $16.02 $16.02 $15.98 $16.00

$14.00

$12.00 Union Medical Center 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

1625 Medical Center Pt Medical 25,464 SF For Lease Absorption (SF) 100,000 90,276 90,000 80,000 70,000 60,000 47,540 50,000 40,000

30,000 23,580 20,862 20,000 15,887 10,000 0 1,876 0 -50 -10,000 -8,320 -9,655 -20,000 -30,000 Northcare at St. Francis -40,000 6071 East Woodmen Road 13,724 SF For Lease 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Colorado Springs Commercial a Cushman & Wakefield Alliance 2 North Cascade Avenue, Suite 520 Colorado Springs, CO 80903 (719) 634-1500