Manulife US REIT - Annual Report 2021

MANULIFE US REIT 62 Office Market Trends Tempe and Chandler maintained their status as dominant hubs for leasing, sales and development in the Phoenix office market in 2021. Despite negative net absorption for the first time since 2008, vacancy remains below 2009 and 2010 highs, while asking rents in the core of Tempe have approached US$35 per square foot on average – up 2.6% over the year – and compete with the Camelback Corridor at just below US$40 per square foot for Class A space to be the most expensive submarket in the region. Fueling this activity is Tempe and Chandler’s attractiveness to new-to-market tenants interested in the region’s affordability as well as Tempe’s walkable and mixed-use nature for tenants originating within Phoenix. During the second half of the year, Amazon expanded by 50,000 sq ft at 1300 W Southern Avenue, while Cenlar, Peloton, Blue Parasol and Live Ramp rounded out major deals over Overall market statistics Forecast YTD net absorption (s.f.) -1,191,070 Under construction (s.f.) 1,210,926 Total vacancy (%) 21.3% Sublease vacancy (s.f.) 2,881,598 Asking rent ($ p.s.f.) US$28.78 Concessions Stable Vacancy is rising from new supply 2.0 25% 15% 20% 5% 10% 0% 1.5 1.0 0.5 -0.5 0.0 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Net absorption (m.s.f.) Total vacancy (%) Vacancy to decline as the pipeline delivers by year-end 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Cap rates continue to decrease 8% 7% 6% 5% 4% CBD Class A cap rate (%) 2022 2024 2023 2025 Tempe and Chandler Rest of Northern Virginia 470,526 740,400 Phoenix (Tempe And Chandler) • Phoenix is one of the fastest-rebounding markets in the United States. The metro area reached pre-pandemic employment in September and has seen unemployment fall to 2.8%, one of the lowest rates nationally. • Tempe and Chandler continue to be dominant in attracting new-to-market tenants across industries, with particular strengths in finance, tech and professional services. • After a very active development cycle, the pipeline will be fully delivered by year-end. With sustained population growth and corporate expansion, this will bring vacancy back down in 2022 and into 2023. • The need for quality space will spur further new construction, but with a lag, this will keep fundamentals tightening until 2024 at the earliest. Table refers to overall market, while charts refer to Manulife submarkets Independent Market Report By JLL as at 31 December 2021