1Q 2011 | Atlanta Office | Market Report by Colliers International

Q1 2011 | OFFICE

ATLANTA

MARKET REPORT

Atlanta Office: Contractions > Expansions in Q1

MARKET INDICATORS Q1 2011 VACANCY

Projected

Q2 2011

—

NET ABSORPTION

The Atlanta office market continues to bounce along the bottom as witnessed through the loss of occupancy starting the year. First quarter office absorption was negative; move-outs trumping move-ins by 153,163 square feet. The amount of occupancy lost pales in comparison to the drops experienced in 2009; still, more space given back adds to the glut of vacancy already in the market, and also shows the reality of Atlanta’s current office market situation. This quarter’s negative absorption was mostly due to contractions outweighing expansions in the market. Current office demand in Atlanta leans overwhelmingly towards existing tenants with lease terms coming due. These companies, seeking more efficiency in their office space usage, are taking advantage of current conditions and moving into more manageable, higher quality and sometimes economically feasible spaces. Two examples of this occurred in first quarter. SunTrust signed a lease two years ago to move from Class B office to Class A office, downsizing from 358,000 square feet to 254,000 square feet. The move occurred this quarter resulting in 104,000 square feet of vacant space added Downtown. The advertising agency J. Walter Thompson also contracted its space usage in first quarter moving from two office locations in Central Perimeter to one of the new towers in Buckhead. The consolidation resulted in a 36,000 square feet occupancy loss. Despite these, Atlanta saw a number of expansions in first quarter as well with Coca-Cola’s move from flex property into 148,000 square feet of Class A office in North Fulton being the largest of the period.

CONSTRUCTION RENTAL RATE

—

CAP RATES

—

Going forward, a holding pattern remains in effect for Atlanta’s office market. The job growth catalyst needed to transition to full recovery remains elusive for the time being. Companies need to feel more confident in the pace of the nation’s economic recovery before increasing their payrolls. Given the current volatility of macro-economic conditions, the status quo will likely remain. Second quarter office leasing should continue at its current pace in Atlanta with contractions and expansions continued on page 2

ATLANTA OFFICE

NEW SUPPLY, ABSORPTION AND VACANCY RATES

UPDATE Atlanta Rental Rates Overall Market & Class A (per sq. ft.)

25%

6,000,000 $24.00

$25.00

5,000,000

$24.00

$23.00

20%

4,000,000

$23.00

$22.00

3,000,000

Market AVG

2011

2010

(2,000,000) (3,000,000)

0% Absorption

www.colliers.com/atlanta

2009

2011

2010 2010

2009 2009

2008 2008

Class A

(1,000,000)

2008

$17.00

10%

$18.00

2007

$18.00

1,000,000 2006

$19.00

2005

$20.00

15%

2,000,000

2004

$20.00

2003

$21.00

2002

$21.00

Square Feet

$22.00

Deliveries

Vacancy %

The Atlanta office market slipped back to negative absorption in First Quarter 2011 with occupancy dropping by 153,163 SF. Despite the drop, vacancy remained relatively flat with the overall rate at 18.3%. There were no deliveries in the first quarter and only three buildings totaling 331,104 SF are under construction. Atlanta’s office inventory stands at just over 214 million sq. ft.

MARKET REPORT | Q1 2011 | OFFICE | ATLANTA

VACANCY & AVAILABILITY

As a sign companies continue to take advantage of favorable market conditions to move up in quality, Class A absorption was positive for the fifth straight quarter.

•

Leasing activity was steady throughout the quarter; nothing spectacular but lively enough to not cause worry. Professional service firms were most active in the quarter.

•

Sublease availabilities decreased for the third straight quarter, dropping 240,000 SF this period.

One reason office demand is stagnant is due to the lack of mobility. Company relocation and expansion plans are being affected by the inability to move employees.

Q1 2011 | Vacant Space By Type

Q1 2011 | Net Absorption by Submarket

Atlanta office vacancy showed little movement in the first quarter, and also since this time last year. The overall rate remains steady at 18.3%

•

Class A properties are seeing the most movement in vacancy levels. The Class A vacancy rate is down 0.8% in first quarter and down 1.1% from a year ago. The occupancy gains for this product type come at the expense of Class B properties where vacancy has increased for three consecutive quarters.

occupied by a tenant, regardless of any lease obligation on the space.

Sublease Space-Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation.

Deliveries-Buildings

•

Build-to-Suit-A term describing property that

CLASS C 3,604,616 SF VCY RATE = 18.3%

was developed specifically for a certain tenant to occupy. Can be either leased or owned by the tenant.

Class B

(100,000))

Class C

MIDTOWN

(200,000))

Class A

DOWNTOWN

100,000

CENTRAL PERIMETER

CLASS B 15,868,921 SF VCY RATE = 17.9%

SOUTH ATLANTA

CLASS A 19,747,887 SF VCY RATE = 18.6%

NORTHLAKE

200,000

WEST ATLANTA

300,000

footage that is committed to and signed for under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity for buildings under construction or planned.

NORTHEAST

Leasing Activity-The volume of square

•

Vacant Space-Space that is not currently

that complete construction during a specified period of time. A certificate of occupancy must have been issued for the property for it to be considered delivered.

ABSORPTION & LEASING ACTIVITY

BUCKHEAD

Vacancy Rate-A percentage of the total amount of physically vacant space divided by the total amount of existing inventory.

NORTHWEST

occupied space over a given period of time, calculated by summing all the positive changes in occupancy and subtracting all the negative changes in occupancy.

NORTH FULTON

Absorption (Net)-The net change in

remaining relatively balanced. Most of the activity taking place over the next few months will range between 10,000 to 25,000 square feet. A number of large deals continue to scour the market; however, most are companies with existing offices in the area. Also, the likelihood of these tenants renewing their space is high. Without new demand, the number of sizeable deals in the market could diminish quickly. The expansion of tech industry companies in Atlanta could be the answer to this problem. In fact, Atlanta’s tech sector could provide the jolt needed to jump start the office market recovery here. Recent announcements by Advanced Micro Devices, Hewlett-Packard and ThyssenKrupp exemplify this best. Over 500 technology jobs are expected to be generated by these companies in the next couple of years either through expansion or new entry into the market.

Square Feet

DEFINITIONS

(300,000))

UPDATE Recent Transactions in the Market SALES ACTIVITY PROPERTY

SUBMARKET

SALES DATE

SALE PRICE

SIZE SF

PRICE / SF

BUYER

3344 Peachtree

Buckhead

1/21/2011

$167,300,000

483,726

$345.86

Parkway Properties

55 Allen Plaza

Downtown

4/5/2011

$57,000,000

348,658

$163.48

Teachers Retirement of Ill.

Two Ravinia

Central Perimeter

437,826

Parkway Properties

Druid Chase

Northlake

2/11/2011

$7,750,000

113,820

$68.09

Atlanta Property Group

LEASING ACTIVITY PROPERTY

SUBMARKET

SunTrust Plaza

Downtown

McKenna Long & Aldrige

SunTurst Plaza Assoc.

163,000

Class A Renewal

1075 Peachtree

Midtown

PriceWaterhouseCoopers

Daniel Corporation

142,115

Class A Lease

Centennial Tower

Downtown

Turner Broadcasting

Jackson Oats Shaw

115,000

Class A Renewal & Expansion

100 Milton Park

North Fulton

Cellnet Technology

Talcott Realty Investors

79,879

Class A Renewal

P. 2

| COLLIERS INTERNATIONAL

TENANT

LANDLORD

SIZE SF

TYPE

MARKET REPORT | Q1 2011 | OFFICE | ATLANTA

UPDATE

Market Comparisons

VACANCY

BLDGS

CLASS

EXISTING PROPERTIES TOTAL SF

DIRECT VCY SF

DIRECT VCY %

URBAN DOWNTOWN A 26 B 78 C 71 Total 175

13,612,159 9,512,158 3,378,318 26,502,635

1,925,270 1,108,481 719,327 3,753,078

14.1% 11.7% 21.3% 14.2%

507,127 5,280 512,407

3.7% 0.1% 1.9%

MIDTOWN A B C Total

39 98 35 172

15,281,304 6,000,764 775,588 22,057,656

3,111,126 1,069,829 91,418 4,272,373

20.4% 17.8% 11.8% 19.4%

203,451 17,827 11,424 232,702

BUCKHEAD A 51 B 52 C 44 Total 147

14,940,660 4,504,149 1,073,997 20,518,806

3,382,083 789,498 49,650 4,221,231

22.6% 17.5% 4.6% 20.6%

8,418,479 2,967,808 860,395 12,246,682

SUBURBAN CENTRAL PERIMETER A 71 19,921,407 B 135 7,367,209 C 100 1,735,102 Total 306 29,023,718 NORTH FULTON A 96 B 325 C 58 Total 479

17.9% 11.7% 21.3% 16.1%

19.6% 7.7% 19.8% 15.4%

240,325 (383,735) (49,099) (192,509)

$19.80 $15.60 $14.53 $18.47

1.3% 0.3% 1.5% 1.1%

3,314,577 1,087,656 102,842 4,505,075

21.7% 18.1% 13.3% 20.4%

22.0% 13.1% 13.4% 19.3%

44,742 (302,961) 1,384 (256,835)

$25.28 $18.37 $13.63 $23.86

226,437 31,491 257,928

1.5% 0.7% 1.3%

3,608,520 820,989 49,650 4,479,159

24.2% 18.2% 4.6% 21.8%

25.6% 18.3% 4.0% 22.9%

221,413 2,356 (6,618) 217,151

$25.06 $18.07 $17.58 $23.81

19.2% 14.8% 16.5% 17.7%

937,015 54,598 11,424 1,003,037

2.1% 0.3% 0.2% 1.5%

9,355,494 3,022,406 871,819 13,249,719

21.3% 15.1% 16.7% 19.2%

22.5% 11.7% 15.6% 18.8%

506,480 (684,340) (54,333) (232,193)

$23.38 $17.35 $15.25 $22.05

3,444,619 1,759,713 441,134 5,645,466

17.3% 23.9% 25.4% 19.5%

81,419 73,134 154,553

0.4% 1.0% 0.5%

3,526,038 1,832,847 441,134 5,800,019

17.7% 24.9% 25.4% 20.0%

18.2% 21.7% 24.9% 19.5%

92,622 (231,651) (9,733) (148,762)

15,106,162 11,350,146 1,005,388 27,461,696

1,745,689 2,049,094 118,009 3,912,792

11.6% 18.1% 11.7% 14.2%

374,794 96,605 6,533 477,932

2.5% 0.9% 0.6% 1.7%

2,120,483 2,145,699 124,542 4,390,724

14.0% 18.9% 12.4% 16.0%

14.9% 20.1% 10.9% 16.9%

131,643 136,612 (14,961) 253,294

$19.98 $14.74 $14.74 $17.47

NORTHEAST ATLANTA A 58 6,639,286 B 402 13,282,399 C 115 2,048,138 Total 575 21,969,823

1,320,955 2,679,992 240,836 4,241,783

19.9% 20.2% 11.8% 19.3%

13,685 114,287 3,595 131,567

0.2% 0.9% 0.2% 0.6%

1,334,640 2,794,279 244,431 4,373,350

20.1% 21.0% 11.9% 19.9%

20.4% 20.8% 11.6% 19.8%

21,251 (28,899) (5,904) (13,552)

$19.84 $14.50 $14.26 $16.46

NORTHLAKE A 15 B 318 C 162 Total 495

2,080,955 11,596,560 3,375,031 17,052,546

398,880 1,646,446 381,947 2,427,273

19.2% 14.2% 11.3% 14.2%

4,777 138,524 143,301

0.2% 1.2% 0.8%

403,657 1,784,970 381,947 2,570,574

19.4% 15.4% 11.3% 15.1%

19.0% 15.0% 11.9% 14.9%

(8,224) (40,570) 19,665 (29,129)

$19.78 $16.71 $14.87 $16.88

NORTHWEST ATLANTA A 75 B 421 C 141 Total 637

17,307,883 15,963,743 2,513,344 35,784,970

2,305,639 2,950,811 343,147 5,599,597

13.3% 18.5% 13.7% 15.6%

359,720 126,482 1,400 487,602

2.1% 0.8% 0.1% 1.4%

2,665,359 3,077,293 344,547 6,087,199

15.4% 19.3% 13.7% 17.0%

15.7% 19.4% 13.8% 17.2%

47,004 13,069 3,277 63,350

16,650 16,650

$21.34 $15.54 $13.66 $18.04

SOUTH ATLANTA A 15 B 222 C 106 Total 343

1,082,749 7,737,011 2,077,173 10,896,933

321,681 1,037,615 442,709 1,802,005

29.7% 13.4% 21.3% 16.5%

20,535 42,557 63,092

1.9% 0.6% 0.6%

342,216 1,080,172 442,709 1,865,097

31.6% 14.0% 21.3% 17.1%

31.9% 13.6% 21.2% 16.8%

3,079 (30,439) (2,034) (29,394)

14,454 14,454

$20.45 $16.19 $13.55 $16.60

WEST ATLANTA A 1 B 45 C 33 Total 79

42,660 1,208,732 1,699,418 2,950,810

131,255 753,487 884,742

10.9% 44.3% 30.0%

131,255 753,487 884,742

0.0% 10.9% 44.3% 30.0%

0.0% 11.3% 43.1% 29.4%

4,967 (21,744) (16,777)

$15.69 $11.28 $13.26

9,537,463 12,254,926 2,721,269 24,513,658

15.3% 17.9% 18.8% 16.9%

854,930 591,589 11,528 1,458,047

1.4% 18.8% 18.9% 1.0%

10,392,393 12,846,515 2,732,797 25,971,705

16.7% 18.8% 18.9% 17.9%

17.2% 18.5% 18.7% 17.9%

287,375 (176,911) (31,434) 79,030

300,000 31,104 331,104

$20.57 $15.91 $13.76 $17.01

17,955,942 15,222,734 3,581,664 36,760,340

16.9% 17.2% 18.2% 17.2%

1,791,945 646,187 22,952 2,461,084

1.7% 0.7% 0.1% 1.1%

19,747,887 15,868,921 3,604,616 39,221,424

18.6% 17.9% 18.3% 18.3%

19.4% 17.0% 17.9% 18.2%

793,855 (861,251) (85,767) (153,163)

300,000 31,104 331,104

$22.14 $15.97 $14.04 $19.22

2,461,084 2,701,744 2,841,511 2,801,050 3,076,260

1.1% 1.3% 1.3% 1.3% 1.4%

39,221,424 39,068,261 39,164,028 38,993,589 39,295,984

18.3% 18.2% 18.3% 18.2% 18.4%

18.2% 18.3% 18.2% 18.4% 17.7%

(153,163) 187,773 (170,439) 320,095 105,977

(153,163) 443,406 255,633 426,072 105,977

331,104 286,460 408,656 108,656 126,356

$19.22 $19.18 $19.42 $19.56 $19.69

SUBURBAN TOTAL A 331 B 1,868 C 715 Total 2,914

62,181,102 68,505,800 14,453,594 145,140,496

ATLANTA MARKET GRAND TOTAL A 447 106,015,225 B 2,096 88,522,871 C 865 19,681,497 Total 3,408 214,219,593

NET NET NEW NEW ABSORP ABSORP SUPPLY SUPPLY CURR SF YTD SF CURR SF YTD SF

RENT

2,432,397 1,113,761 719,327 4,265,485

TOTAL VCY SF

U/C

VCY PRIOR %

43,834,123 20,017,071 5,227,903 69,079,097

SUB VCY %

DELIVERIES

VCY CURR %

URBAN TOTAL A 116 B 228 C 150 Total 494

SUB VCY SF

ABSORPTION

UNDER AVG CONSTR RENT SF RATE

300,000 300,000

$22.05 $18.03 $13.94 $20.34

QUARTERLY COMPARISONS AND TOTALS QUARTERLY COMPARISON AND TOTALS Q1-11 Q4-10 Q3-10 Q2-10 Q1-10

3,408 3,408 3,406 3,406 3,405

214,219,593 214,219,593 214,127,587 214,127,587 214,109,887

36,760,340 36,366,517 36,322,517 36,192,539 36,219,724

17.2% 17.0% 17.0% 16.9% 16.9%

NOTE: STATISTICAL SET CONSISTS OF OFFICE PROPERTIES 10,000 SF AND UP, INCLUDING OWNER-OCCUPIED PROPERTIES; AND EXCLUDING MEDICAL OFFICE AND PROPERTIES WHERE THE GOVERNMENT IS 100% OWNER AND OCCUPIER. WHILE COSTAR ATTEMPTS TO PROVIDE THE MOST ACCURATE DATA AT THE END OF EVERY QUARTER, REVISIONS ARE MADE THROUGHOUT THE YEAR ACCOUNTING FOR DISCREPANCIES IN PAST REPORTING.

92,006 17,700 1,951,624

2,061,330 1,969,324 1,969,324 1,951,324

SOURCE: COSTAR PROPERTY, COLLIERS RESEARCH

COLLIERS INTERNATIONAL |

P. 3

MARKET REPORT | Q1 2011 | OFFICE | ATLANTA

CONSTRUCTION •

Office construction activity in Atlanta is limited to just three buildings. Cox Communications’ 300,000 SF office is the largest building currently in development. This is the first phase of a 600,000 SF build-to-suit.

•

INVESTMENT & SALES ACTIVITY

RENTAL RATES & CONCESSIONS •

480 offices in 61 countries on 6 continents

The market remains highly competitive for deals. Concessions from landlords continue to be aggressive; most notably for the fewer large deals prospecting the market.

The overall average rental rate for office is up slightly in the first quarter to $19.22/sf. This is certainly nothing to represent a trend; however, it reinforces the suggestion rents have stabilized.

•

Investment activity continues to improve for Atlanta office. 3344 Peachtree recently sold for $345/sf which is reminiscent of ‘06 & ‘07 levels.

•

Loan defaults, however, still plague the market. 55 Allen Plaza recently sold on the courthouse steps for what turned out to be a large discount from the previous mortgage.

United States: 135 Canada: 39 Latin America: 17 Asia Pacific: 194 EMEA: 95 •

$2 billion in annual revenue

• Over 2 billion square feet under

management • Over 15,000 professionals

CONSTRUCTION ACTIVITY (100,000 SF+) PROPERTY ADDRESS

SUBMARKET

SIZE (SF)

DELIVERY DATE

UNITED STATES:

6205 Peachtree Dunwoody Rd. - 1

Central Perimeter

300,000

Third Quarter 2011

Atlanta Mike Spears SIOR Senior VP | Colliers Manager Two Midtown Plaza | Suite 1100 1349 West Peachtree Street, NE Atlanta, Georgia, 30309 TEL +1 404 888 9000 FAX +1 404 870 2845

Canton GAINESVILLE Cumming

CHEROKEE CO. FULTON CO. FUL L FORSYTH CO. FOR R

Allatona Lake

Emerson

Lake Lanier

Woodstock CHEROKEE CO.

Acworth

Sugar Hill

FO RS FU

Mountain Park

CO N . CO .

NORTHEAST ATLANTA

e hooch e tac

Cha t

PAULDING CO. COBB CO.

Alpharetta Roswell

NORTHWEST ATLANTA

Bras

H YT O LT

BARTOW CO.

OFFICE SUBMARKETS

Buford

HA GW INN LL CO . ETT CO .

NORTH FULTON Rive r

BARTOW CO. CHEROKEE CO.

Cartersville

Duluth

316 CO BB FU LT CO O . N CO .

MARIETTA

CENTRAL PERIMETER

Lawrenceville

DORAVILLE Norcross

CHAMBLEE SMYRNA

NORTHLAKEG

W IN DE NE KA TT LB C CO O. .

BUCKHEAD Austell COBB CO. DOUGLAS CO.

Clarkston

WEST ATLANTA

ch e

Douglasville

CO .

ATLANTA

MIDTOWN DECATUR DE ECA ATUR Avondale Estates Estate

DOWNTOWN

W AL TO N

CO .

att

ho ac

Snellville

Stone Mountain G W IN NE TT

R iv

PAULDING CO.

DEKALB CO. C FULTON CO. C

Powder Springs

DEKALB HENRY

Hartsfield-Jackson International Airport

FULTON CO. COWETA CO.

Palmetto

FOREST PARK

SOUTH ATLANTA Riverdale Riverda

Fairburn

CO. CO.

Conyers Covington RO C NE KDA WT LE ON CO CO . .

CLAYTON LAYT L A ON CO.

Union City

675

DE KALB RO CO CK . DA LE CO .

Lithonia EAST POINT COLLEGE PARK HAPEVILLE

Stockbridge

. ON CO FULT CO. TTE FAYE

The Atlanta office market consists of ten submarkets. They include the urban markets of Downtown, Midtown and Buckhead, and the suburban markets of Central Perimeter, North Fulton, Northwest Atlanta, Northeast Atlanta, Northlake, South Atlanta and West Atlanta. The major interstates in the region include: I-75, I-85, I-285, I-575, I-985, I-675 and I-20. Georgia 400 and US 316 also play important roles to Atlanta’s transportation system.

RESEARCHER: Atlanta Scott Amoson Director of Research Two Midtown Plaza | Suite 1100 1349 West Peachtree Street, NE Atlanta, Georgia, 30309 TEL +1 404 877 9286 FAX +1 404 870 2845

Jonesboro

McDonough BU TT S

CO .

HENRY CO. CLAYTON CO.

Fayetteville

Newnan Peachtree City

This market report is a research document of Colliers International. Information herein has been deemed reliable and no representation is made as to the accuracy thereof. Colliers International-Atlanta, Inc., and certain of its subsidiaries, is an independently owned and operated business and a member firm of Colliers International Property Consultants, an affiliation of independent companies with over 480 offices throughout more than 61 countries worldwide.

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