2Q 2011 | Atlanta Office | Market Report by Colliers International

Q2 2011 | OFFICE

ATLANTA

MARKET REPORT

Atlanta Office Absorption Positive at Mid-Year

MARKET INDICATORS Q2 2011

Projected

Q3 2011

VACANCY

Thanks to a productive spring, Atlanta’s office market is in positive territory heading into the second half of 2011. Office absorption totaled almost 400,000 square feet in second quarter; the strongest period of occupancy gain since the third quarter of 2007. Combined with the lackluster beginning to the year, Atlanta’s office market has seen a total of 355,000 square feet absorbed year-to-date. As opposed to first quarter, second quarter’s activity was the result of less space being added to the market through tenant contractions and consolidations. The majority of move-ins over the past three months were from tenants ranging between 15,000 to 40,000 square feet, which are considered to be “bread and butter” transactions. An increase in the number of these transactions is an encouraging sign. Companies contributing to positive absorption in the quarter include Agilysys, Kaiser Permanente and Turner Broadcasting, each of which expanded their office space usage. Likewise, North American Electric Reliability Corp. (NERC) and ThyssenKrupp IT opened new Atlanta offices in the second quarter. With an increase in occupied space, the overall vacancy rate for office space in Atlanta dropped slightly from the prior period. Compared to this time last year, however, the rate remains relatively unchanged. In addition, although Atlanta is seeing more office space absorbed, rental rate growth has yet to take hold. Office rental rates decreased for the eleventh time in twelve quarters.

NET ABSORPTION CONSTRUCTION

—

RENTAL RATE

—

CAP RATES

Current conditions closely match Atlanta’s office market from a year ago when mid-year absorption totaled 304,000 square feet. This is important to point out because it shows where the city is in the recovery cycle: modestly steady. Though positive, on the whole, office market activity in Atlanta remains somewhat subdued and far from robust. The outlook for the remainder of the year is not expected to vary from prior quarters. The revolving door of contractions, consolidations and expansions will continue to inundate the market providing no clear picture of when the city will break out of the mired situation plaguing many office markets nationwide. On that point, 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 $25.00

$25.00

5,000,000

$24.00

3,000,000

Market AVG

2011

2010

2009

2008

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

0% Absorption

www.colliers.com/atlanta

2007

2011 2011

2010 2010

2009 2009

2008 2008

Class A

(1,000,000)

2006

$17.00

10%

$18.00

2005

$18.00

1,000,000 2004

$19.00

15%

2,000,000

2003

$20.00

Square Feet

$21.00

2002

$22.00

$21.00

20%

4,000,000

$23.00

Deliveries

Vacancy %

The Atlanta office market saw occupancy increase in Second Quarter 2011. This has pushed the year-to-date absorption total to positive 355,416 SF. Vacancy is down slightly from first quarter, but relatively unchanged from a year ago. There have been no deliveries to date. Cox Communication’s buildto-suits are the only significant buildings currently under construction.

MARKET REPORT | Q2 2011 | OFFICE | ATLANTA

VACANCY & AVAILABILITY •

The overall office vacancy rate dropped to 17.9% in second quarter. The rate is relatively unchanged from a year ago.

•

Class A product has seen the largest drop in vacancy in the first half of 2011. For the year, over 1.1 million square feet of vacant Class A space has been filled.

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

leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation.

More office vacancy is expected to hit the market in third quarter; a result of consolidations and contractions. North Fulton will be affected most by this added space. Q2 2011 | Vacant Space By Type

The largest move-in of the quarter was Cotton States which relocated from Central Perimeter to 66,575 SF of Class A space in North Fulton.

•

Office leasing has remained steady in the first half of the year. Even though the second quarter saw an increase in transactions, overall activity is far from robust and will likely stay this way through the end of the year.

•

Absorption should finish 2011 slightly positive. Q2 2011 | Net Absorption by Submarket 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.

200,000

Build-to-Suit-A term describing property that

CLASS B 16,106,748 SF VCY RATE = 17.7%

CLASS C 3,479,921 SF VCY RATE = 17.6%

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

150,000 100,000 50,000 0 (50,000)) (100,000)) (150,000))

Class A

Class B

Class C

NORTHEAST

CLASS A 19,306,751 SF VCY RATE = 18.1%

CENTRAL PERIMETER

250,000

MIDTOWN

Leasing Activity-The volume of square

•

WEST ATLANTA

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.

Small move-ins were the key to positive absorption in second quarter.

DOWNTOWN

Deliveries-Buildings

•

NORTHWEST

Sublease Space-Space that has been

ABSORPTION & LEASING ACTIVITY

SOUTH ATLANTA

Vacant Space-Space that is not currently

BUCKHEAD

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

NORTHLAKE

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

Atlanta did see a number of sizeable expansions signed in second quarter including NewellRubbermaid for 107,000 square feet, Regions Bank for 80,000 square feet and State Bank for 73,000 square feet. In the cases of Regions Bank and State Bank, these companies are taking advantage of current market conditions, and positioning themselves as key players in their respective industry going forward. Where there are expansions though, contractions and consolidations are not far behind. Atlanta will begin the third quarter with more than 400,000 square feet of expected space given back: AT&T will vacate 376,350 square feet of Class A office in North Fulton, consolidating to its Midtown campus; while Siemens downsizes its North Fulton office from 75,613 square feet to 48,043 square feet. This pattern will continue so long as Atlanta’s job market remains sluggish. Uncertainty persisting in the overall economy does not help matters either.

Square Feet

DEFINITIONS

(200,000))

UPDATE Recent Transactions in the Market SALES ACTIVITY PROPERTY

SUBMARKET

SALES DATE

SALE PRICE

SIZE SF

PRICE / SF

BUYER

675 Ponce de Leon

Midtown

7/11/2011

$27,000,000

2,000,000

$13.50

Jamestown Properties

Crescent Centre

Northlake

5/25/2011

$20,750,000

246,346

$84.23

Barry Levin & Associates

Dupree @ Powers Ferry

Northwest Atlanta

4/29/2011

$20,450,000

137,818

$148.38

Piedmont Office Realty

100 Peachtree St.

Downtown

7/6/2011

$19,000,000

625,000

$30.40

America’s Capital Partners

LEASING ACTIVITY PROPERTY

SUBMARKET

TENANT

LANDLORD

SIZE SF

TYPE

2635 Century Center

Northlake

Federal Bureau of Investigation

Highwoods

137,000

Class A Renewal

One Glenlake

Central Perimeter

Newell-Rubbermaid

Wells Real Estate

107,000

Class A Expansion

Atlantic Center Plaza

Midtown

Regions Bank

CRT Properties

80,000

Class A Lease

Lenox Building

Buckhead

State Bank

Clarion Partners

73,000

Class A Expansion

P. 2

| COLLIERS INTERNATIONAL

MARKET REPORT | Q2 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 73 Total 177

13,612,159 9,696,521 3,409,312 26,717,992

2,034,448 1,054,945 727,798 3,817,191

14.9% 10.9% 21.3% 14.3%

476,529 4,080 480,609

3.5% 0.0% 1.8%

MIDTOWN A B C Total

39 100 36 175

15,281,304 6,065,270 809,738 22,156,312

3,124,993 1,054,681 59,002 4,238,676

20.4% 17.4% 7.3% 19.1%

199,430 718 11,424 211,572

BUCKHEAD A 51 B 54 C 42 Total 147

14,972,357 4,595,830 1,043,135 20,611,322

3,130,704 832,546 64,538 4,027,788

20.9% 18.1% 6.2% 19.5%

8,290,145 2,942,172 851,338 12,083,655

SUBURBAN CENTRAL PERIMETER A 69 19,747,453 B 141 7,621,544 C 95 1,646,443 Total 305 29,015,440 NORTH FULTON A 96 B 330 C 58 Total 484

18.4% 10.9% 21.3% 16.1%

18.2% 11.3% 21.4% 16.1%

(31,257) 38,101 2,523 9,367

209,728 (345,634) (46,576) (182,482)

$19.82 $15.41 $14.26 $18.33

1.3% 0.0% 1.4% 1.0%

3,324,423 1,055,399 70,426 4,450,248

21.8% 17.4% 8.7% 20.1%

21.7% 17.6% 9.4% 20.1%

(6,168) 9,278 5,571 8,681

44,321 (278,505) 7,555 (226,629)

$24.98 $18.13 $11.82 $23.46

202,015 23,956 225,971

1.3% 0.5% 1.1%

3,332,719 856,502 64,538 4,253,759

22.3% 18.6% 6.2% 20.6%

23.3% 18.2% 5.9% 21.3%

156,146 (17,809) (3,388) 134,949

377,643 (15,453) (21,506) 340,684

$25.02 $18.04 $18.34 $23.73

18.9% 14.5% 16.2% 17.4%

877,974 28,754 11,424 918,152

2.0% 0.1% 0.2% 1.3%

9,168,119 2,970,926 862,762 13,001,807

20.9% 14.6% 16.4% 18.7%

21.2% 14.7% 16.5% 18.9%

118,721 29,570 4,706 152,997

631,692 (639,592) (60,527) (68,427)

$23.27 $17.19 $14.81 $21.84

3,380,434 2,063,808 407,544 5,851,786

17.1% 27.1% 24.8% 20.2%

77,144 113,896 191,040

0.4% 1.5% 0.7%

3,457,578 2,177,704 407,544 6,042,826

17.5% 28.6% 24.8% 20.8%

17.4% 26.9% 25.9% 20.4%

(22,572) (127,580) 18,145 (132,007)

71,708 (289,094) 30,914 (186,472)

15,101,178 11,754,884 993,349 27,849,411

1,623,933 1,989,463 113,163 3,726,559

10.8% 16.9% 11.4% 13.4%

295,759 51,662 6,533 353,954

2.0% 0.4% 0.7% 1.3%

1,919,692 2,041,125 119,696 4,080,513

12.7% 17.4% 12.0% 14.7%

13.7% 18.2% 12.5% 15.5%

147,411 94,245 4,846 246,502

328,685 192,124 (10,115) 510,694

$19.68 $14.54 $13.67 $17.26

NORTHEAST ATLANTA A 57 6,512,060 B 408 13,487,302 C 118 2,108,496 Total 583 22,107,858

1,301,170 2,783,806 243,004 4,327,980

20.0% 20.6% 11.5% 19.6%

93,318 84,650 3,595 181,563

1.4% 0.6% 0.2% 0.8%

1,394,488 2,868,456 246,599 4,509,543

21.4% 21.3% 11.7% 20.4%

21.1% 21.2% 11.3% 20.2%

(23,582) (4,762) (8,152) (36,496)

(2,331) (33,630) (7,890) (43,851)

$19.76 $14.11 $13.38 $16.02

NORTHLAKE A 19 B 333 C 161 Total 513

2,510,795 12,193,981 3,318,215 18,022,991

366,616 1,594,268 345,407 2,306,291

14.6% 13.1% 10.4% 12.8%

8,240 97,793 106,033

0.3% 0.8% 0.6%

374,856 1,692,061 345,407 2,412,324

14.9% 13.9% 10.4% 13.4%

16.1% 14.2% 10.7% 13.8%

28,801 34,389 9,326 72,516

20,577 (6,781) 27,891 41,687

$19.74 $17.23 $15.00 $17.24

NORTHWEST ATLANTA A 75 B 427 C 141 Total 643

17,413,989 16,065,556 2,509,782 35,989,327

2,220,137 3,016,868 358,145 5,595,150

12.7% 18.8% 14.3% 15.5%

357,060 111,766 1,400 470,226

2.1% 0.7% 0.1% 1.3%

2,577,197 3,128,634 359,545 6,065,376

14.8% 19.5% 14.3% 16.9%

15.3% 19.2% 13.5% 16.9%

86,918 (45,945) (20,696) 20,277

132,784 (26,107) (14,491) 92,186

16,650 16,650

$20.97 $15.51 $14.18 $17.87

SOUTH ATLANTA A 18 B 230 C 110 Total 358

1,327,124 8,115,172 2,159,840 11,602,136

394,286 1,054,105 384,836 1,833,227

29.7% 13.0% 17.8% 15.8%

20,535 42,557 63,092

1.5% 0.5% 0.5%

414,821 1,096,662 384,836 1,896,319

31.3% 13.5% 17.8% 16.3%

30.9% 13.7% 20.5% 16.9%

(5,062) 15,141 58,800 68,879

(1,983) (32,339) 60,168 25,846

19,015 19,015

$21.43 $16.25 $14.09 $17.07

WEST ATLANTA A 1 B 46 C 33 Total 80

42,660 1,220,732 1,720,418 2,983,810

131,180 753,532 884,712

10.7% 43.8% 29.7%

131,180 753,532 884,712

0.0% 10.7% 43.8% 29.7%

0.0% 10.9% 43.8% 29.7%

2,075 (495) 1,580

7,042 (23,289) (16,247)

$16.62 $11.40 $13.59

9,286,576 12,633,498 2,605,631 24,525,705

14.8% 17.9% 18.0% 16.6%

852,056 502,324 11,528 1,365,908

1.4% 18.6% 18.1% 0.9%

10,138,632 13,135,822 2,617,159 25,891,613

16.2% 18.6% 18.1% 17.5%

16.5% 18.6% 18.5% 17.7%

211,914 (32,437) 61,774 241,251

549,440 (188,785) 63,188 423,843

19,015 19,015

600,000 16,650 616,650

$20.61 $16.02 $13.64 $17.04

17,576,721 15,575,670 3,456,969 36,609,360

16.5% 17.2% 17.5% 16.9%

1,730,030 531,078 22,952 2,284,060

1.6% 0.6% 0.1% 1.1%

19,306,751 16,106,748 3,479,921 38,893,420

18.1% 17.7% 17.6% 17.9%

18.4% 17.7% 18.0% 18.1%

330,635 (2,867) 66,480 394,248

1,181,132 (828,377) 2,661 355,416

19,015 19,015

600,000 16,650 616,650

$21.98 $15.87 $14.00 $19.02

2,284,060 2,347,700 2,609,757 2,737,411 2,696,950

1.1% 1.1% 1.2% 1.3% 1.2%

38,893,420 39,287,668 39,229,821 39,254,094 39,107,150

17.9% 18.1% 18.1% 18.1% 18.0%

18.1% 18.1% 18.1% 18.0% 18.2%

394,248 (38,832) 116,279 (146,944) 360,132

355,416 (38,832) 273,347 157,068 304,012

19,015 19,015 1,934,104 1,842,098 1,842,098

616,650 616,650 635,665 708,656 408,656

$19.02 $19.20 $19.15 $19.38 $19.55

SUBURBAN TOTAL A 335 B 1,915 C 716 Total 2,966

62,655,259 70,459,171 14,456,543 147,570,973

ATLANTA MARKET GRAND TOTAL A 451 106,521,079 B 2,147 90,816,792 C 867 19,718,728 Total 3,465 217,056,599

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

RENT

2,510,977 1,059,025 727,798 4,297,800

TOTAL VCY SF

U/C

VCY PRIOR %

43,865,820 20,357,621 5,262,185 69,485,626

SUB VCY %

DELIVERIES

VCY CURR %

URBAN TOTAL A 116 B 232 C 151 Total 499

SUB VCY SF

ABSORPTION

UNDER AVG CONSTR RENT SF RATE

600,000 600,000

$22.05 $17.90 $13.78 $20.20

QUARTERLY COMPARISONS AND TOTALS QUARTERLY COMPARISON AND TOTALS Q2-11 3,465 217,056,599 36,609,360 Q1-11 3,465 217,056,599 36,939,968 Q4-10 3,464 217,037,584 36,620,064 Q3-10 3,462 216,945,578 36,516,683 Q2-10 3,462 216,945,578 36,410,200

16.9% 17.0% 16.9% 16.8% 16.8%

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.

19,015 92,006 17,700

SOURCE: COSTAR PROPERTY, COLLIERS RESEARCH

COLLIERS INTERNATIONAL |

P. 3

MARKET REPORT | Q2 2011 | OFFICE | ATLANTA

CONSTRUCTION •

Office construction activity continues to be limited to just three buildings. Cox Communications’ 600,000 SF office campus of two buildings is the largest development currently under construction.

•

Speculative office construction in Atlanta is likely five to ten years out depending on future market conditions.

•

INVESTMENT & SALES ACTIVITY •

RENTAL RATES & CONCESSIONS •

512 offices in 61 countries on 6 continents

Both free rent and tenant improvement allowances showed no downward movement from the previous quarter. It remains a tenant’s market for much of the space available in Atlanta.

The average rental rate for office declined for the eleventh time in twelve quarters implying rents may not have completely stabilized yet.

The number of office investment transactions in second quarter was similar to the amount in first quarter; however, dollar volume and the average price per square foot were significantly less. This is due to the increase in REO and foreclosure transactions which occurred over the past three months.

United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 214 EMEA: 117 •

$1.5 billion in annual revenue

• Over 2.2 billion square feet under

management • Over 13,000 professionals

CONSTRUCTION ACTIVITY (100,000 SF+) PROPERTY ADDRESS

SUBMARKET

SIZE (SF)

DELIVERY DATE

UNITED STATES:

6205 Peachtree Dunwoody Rd. - 1

Central Perimeter

300,000

Second Quarter 2012

6205 Peachtree Dunwoody Rd. - 2

Central Perimeter

300,000

Fourth Quarter 2012

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 512 offices throughout more than 61 countries worldwide.

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