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5 Office Sector 5.1 Current Conditions Indicators during the last six months show a disciplined and fundamentally strong national office market. Alongside healthy job gains dominated by office-using sectors, the office market showed positive but modest improvement. Vacancy at the end of 2015 was 11.3%. on a par with the previous cyclical trough of 115%''' Effective rents increased 3.8%, slightly Less than in 2014 (see Exhibit 9).27 During the last cycle, as vacancy declined to the 10%- range, effective rents spiked 14.1% over two years. Z6 Amid increased financial volatility in early 2016, businesses appeared to delay action on leases, particularly early renewals or expansion options, translating into a modest slowdown in occupancy and rental momentum. F.. . _`.1 IC r 3 150 100 so 0 -so -100 7% 1989 1991 1993 1995 1937 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Completions MUMMEOW Net Absorption Net Absorption (10-Yr Avg) Vacancy Snatca :366E.EA 08.-scSa Asset slannammt sorasrA. Lea notary 1016 No estarassa can to frIOP tzat ¢W kr Niel et Asset Asafseti • • Supply-side dynamics also continue to underscore discipline in the office markets. Nearly 180 million square feel are slated to deliver during the next two to three years, adding less than 1% to office stock annually compared with a 1.6% average annual increase during the last 15 years. 21 Supply risk has materialized in some markets, but these markets have other vulnerabilities. San Francisco, Seattle and Austin. for instance, all have large pipelines but also have overweight exposure to high-technology. Much of the riskiest speculative supply is in CBD markets, where the expansion has been strongest. CBD markets continue to outperform suburban markets, but with the majority of CBDs across the U.S. nearing or at equilibrium occupancy, growth is slowing. CBD absorption pulled back to 1.3% of stock in 2015 from 1.7% in 2014. 3° In contrast, suburban absorption continued on an upward trajectory to 1.9% of stock, up 50 basis points from 2014)' Rents are responding. During the first quarter, the CBD to suburban office rent premium narrowed 60 basis points (see Exhibit 10). While still a ways off from expansion mode. select urbanized, high-amenity suburban markets are beginning to benefit from demand squeezed out or priced out of proximate CBDs. Total returns on a rolling four-quarter basis through first quarter showed a narrowing in spread. with CBD just 50 basis points over suburban, compared with a long-term historical spread of 100 basis points. r Suburban markets also showed a wider spread relative to the long-term average than CBD markets. CBRE-EA h DolAscho Asset Managemant. Oats as of July 2018. Deta as of July 2016. CSRE-EA. Dols Fs of July 2010. CB RE-EA h Desist-As Ass8t Masnaerrwint. CAS: at July 2016. CBRE-EA. Data as of July 1016 CaRE-EA Baia as of July 2016. m NCREIF. Data as of July 1016 14 U.S. Real Estate Strategic Outlook I September 2016 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0092300 CONFIDENTIAL SDNY_GM_00238484 EFTA01388635