3Q 2012 | Atlanta Office Market Report by Colliers International

Q3 2012 | OFFICE

ATLANTA

MARKET REPORT

Q3 Office Absorption Strongest for Atlanta in 5½ Years

Updated May 2012

MARKET INDICATORS Projected

Q3 2012

Q4 2012

VACANCY

The Atlanta office market posted its sixth consecutive quarterly increase of occupied space in the third quarter with office absorption totaling over 1.1 million square feet for the three month period. This amount is the highest quarterly amount of office space absorbed since the first quarter of 2007. The sole contributor to 37% of the amount was State Farm which opened a new customer service center in the old Philips Electronics space at 64 Perimeter Center East and took additional space at the neighboring 66 Perimeter Center East. The new office represents an expansion of State Farm’s presence in Atlanta and is the result of increased business activity for the insurance company. The remaining amount of office space absorbed in the third quarter was from a few new tenants to the Atlanta market including CHEP USA moving into 60,000 square feet in Central Perimeter and Asurion moving into 29,293 square feet in Buckhead; however, the bulk of the office absorption this quarter was from smaller-sized move-ins ranging between 10,000 to 25,000 square feet. These transactions were the result of growth in small businesses and expansions from existing tenants in the market. As a result of the positive activity, the overall vacancy rate in Atlanta’s office market is below 17% for the first time in three years. The absence of new office development continues to benefit the market as a whole. With supply limited to existing vacancies, tenants in the market are filling the void. Compared to this time last year, overall vacancy has dropped by almost 2.5 million square feet.

NET ABSORPTION CONSTRUCTION

—

RENTAL RATE CAP RATES

Through the end of the year, Atlanta’s office market will continue show positive signs of recovery thanks to an active leasing market in the first half of 2012. It is possible this year’s office absorption could reach 2007’s level of 3.3 million square feet. This, however, would require a stronger than expected amount of leasing activity in the final three months of the year and expedited occupancy of these transactions. With year-to-date absorption totaling 2.5 million square feet, and given the expected net change in occupied space next quarter, Atlanta is more likely to see a total of 2.8 to 3 million square feet absorbed in 2012. A remarkable improvement of last year’s absorption. Looking ahead to 2013, the outlook 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 $24.00 $23.00 $23.00

3,000,000

1,000,000

Class A

Market AVG

2012

2011

2010

2009

2008

2007

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

0% Absorption

www.colliers.com/atlanta

2006

(1,000,000)

2005

2012 2012

2011 2011

2010 2010

2009 2009

$17.00 $17.00

10%

$18.00 $18.00

2004

$19.00 $19.00

15%

2,000,000

2003

$20.00 $20.00

Square Feet

$22.00 $22.00 $21.00 $21.00

20%

4,000,000

Deliveries

Vacancy %

Occupancy in Atlanta’s office market increased for the sixth consecutive quarter. Absorption totaled 1,162,632 SF in the third quarter, bringing the year-to-date total to over 2.5 million square feet. Overall vacancy decreased yet again finishing the quarter at 16.9%. Only one building of 16,650 square feet delivered this quarter.

MARKET REPORT | Q3 2012 | OFFICE | ATLANTA

VACANCY & AVAILABILITY •

Atlanta’s overall office vacancy rate is below 17% for the first time in three years. Additionally, the market is seeing its best year of vacancy decline since 2005.

•

Office absorption totaled 1.1 million square feet in third quarter; the highest amount since the first quarter of 2007. The year-to-date total now stands at 2.55 million square feet.

•

In conjunction with positive net absorption, the absence of new development has benefited the Atlanta office market. Only existing vacancies are available to lease. Central Perimeter is seeing the biggest gains in occupancy from this scenario.

•

Office vacancy should continue to trend lower through the end of the year. The Class A sector will see the largest vacancy drop from 2011.

All of Atlanta’s major submarkets experienced positive absorption this quarter with exception to North Fulton which saw occupancy drop by only a small amount. Central Perimeter continues to lead the way with over 1.3 million square feet absorbed this year.

•

Office absorption in 2012 should finish just shy of 2007’s 3.3 million sq. ft. mark.

Vacant Space-Space that is not currently 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.

Q3 2012 | Vacant Space By Type

Q3 2012 | Net Absorption by Submarket 700,000

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.

Build-to-Suit-A term describing property that

CLASS C 3,427,324 SF VCY RATE = 16.2%

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

400,000 300,000 200,000 100,000 0

Class A

Class B

Class C (100,000)

UPDATE Recent Transactions in the Market SALES ACTIVITY PROPERTY

SUBMARKET

SALES DATE

SALE PRICE

SIZE SF

PRICE / SF

BUYER

Concourse Corporate Ctr.

Central Perimeter

10/1/2012

$300,000,000

2,103,399

$142.63

Regent Ptnrs/GEM Realty

Two Alliance

Buckhead

9/21/2012

$145,900,000

491,888

$296.61

Highwoods Properties

Prominence in Buckhead

Buckhead

8/2/2012

$105,000,000

424,252

$247.49

Crocker Partners

One Ravinia

Central Perimeter

7/31/2012

$52,750,000

386,603

$136.44

Franklin Street Properties

LEASING ACTIVITY PROPERTY

SUBMARKET

TENANT

LANDLORD

SIZE SF

TYPE

6303 Barfield Rd.

Central Perimeter

IBM (ISS)

Lexington Realty Trust

289,000

Class A Renewal

10 Glenlake

Central Perimeter

AmeriCold Logistics

Highwoods Properties

76,000

Class A Renewal & Expansion

1155 Perimeter Center

Central Perimeter

Aptean

AEW Capital Mgmt.

50,442

Class A Lease

Two Securities Centre

Buckhead

Aarons Grant & Habif LLC

LNR Partners

39,057

Class B Renewal & Expansion

P. 2

| COLLIERS INTERNATIONAL

NORTH FULTON

CLASS A 18,607,796 SF VCY RATE = 17%

500,000

WEST ATLANTA

CLASS B 15,215,727 SF VCY RATE = 16.8%

NORTHWEST

600,000

DOWNTOWN

Leasing Activity-The volume of square

NORTHEAST

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.

NORTHLAKE

Deliveries-Buildings

BUCKHEAD

Sublease Space-Space that has been

ABSORPTION & LEASING ACTIVITY

SOUTH ATLANTA

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

MIDTOWN

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.

CENTRAL PERIMETER

Absorption (Net)-The net change in

becomes a bit hazier due to a number of factors; the most significant being economic uncertainty. The impact of this can already be seen in the slowdown of office leasing in the third quarter. Small business growth has slowed and companies are holding back on expansion plans. The effect this has on office absorption will be noticed at the beginning of next year. The positive spin though is there does not appear to be many companies looking to exit the Atlanta market or cut their workforce significantly here. This will limit the number of move-outs occurring in 2013. Furthermore, demand for office space in Atlanta remains steady as a number of requirements continue to be active in the market. ULI’s most recent Emerging Trends in Real Estate report forecasts the overall real estate prospects in Atlanta to be fair in 2013. This is a “fair” assessment of Atlanta’s office market heading into the new year.

Square Feet

DEFINITIONS

MARKET REPORT | Q3 2012 | OFFICE | ATLANTA

UPDATE

Market Comparisons

VACANCY

TOTAL SF

DIRECT VCY SF

DIRECT VCY %

SUB VCY SF

SUB VCY %

URBAN DOWNTOWN A 28 B 90 C 78 Total 196

14,770,027 9,466,797 3,678,973 27,915,797

2,643,416 1,066,793 705,939 4,416,148

17.9% 11.3% 19.2% 15.8%

298,302 1,310 2,821 302,433

2.0% 0.0% 0.1% 1.1%

MIDTOWN A B C Total

38 100 38 176

15,230,435 6,042,885 884,951 22,158,271

2,601,897 798,971 55,154 3,456,022

17.1% 13.2% 6.2% 15.6%

140,585 16,571 11,424 168,580

BUCKHEAD A 46 B 49 C 42 Total 137

15,142,483 4,242,018 1,050,897 20,435,398

2,350,371 629,312 65,612 3,045,295

15.5% 14.8% 6.2% 14.9%

URBAN TOTAL A 112 B 239 C 158 Total 509

45,142,945 19,751,700 5,614,821 70,509,466

7,595,684 2,495,076 826,705 10,917,465

SUBURBAN CENTRAL PERIMETER A 69 19,563,601 B 146 7,622,972 C 95 1,626,135 Total 310 28,812,708 NORTH FULTON A 100 B 320 C 62 Total 482

CLASS

BLDGS

EXISTING PROPERTIES

ABSORPTION

RENT

VCY PRIOR %

2,941,718 1,068,103 708,760 4,718,581

19.9% 11.3% 19.3% 16.9%

19.6% 11.6% 19.8% 16.9%

(44,467) 27,702 17,997 1,232

(266,962) (7,838) 42,328 (232,472)

0.9% 0.3% 1.3% 0.8%

2,742,482 815,542 66,578 3,624,602

18.0% 13.5% 7.5% 16.4%

18.3% 14.5% 10.7% 16.9%

40,171 58,431 28,032 126,634

417,082 203,551 3,615 624,248

158,547 158,547

1.0% 0.8%

2,508,918 629,312 65,612 3,203,842

16.6% 14.8% 6.2% 15.7%

17.1% 15.7% 6.6% 16.3%

77,521 38,442 4,198 120,161

517,433 43,217 14,553 575,203

16.8% 12.6% 14.7% 15.5%

597,434 17,881 14,245 629,560

1.3% 0.1% 0.3% 0.9%

8,193,118 2,512,957 840,950 11,547,025

18.1% 12.7% 15.0% 16.4%

18.3% 13.4% 15.9% 16.7%

73,225 124,575 50,227 248,027

667,553 238,930 60,496 966,979

2,864,693 1,923,377 374,031 5,162,101

14.6% 25.2% 23.0% 17.9%

179,982 61,533 241,515

0.9% 0.8% 0.8%

3,044,675 1,984,910 374,031 5,403,616

15.6% 26.0% 23.0% 18.8%

18.3% 27.2% 22.0% 20.8%

527,707 90,732 (15,796) 602,643

1,190,460 166,937 (10,332) 1,347,065

15,444,505 11,147,697 1,087,941 27,680,143

2,369,845 1,769,902 78,991 4,218,738

15.3% 15.9% 7.3% 15.2%

216,207 34,080 250,287

1.4% 0.3% 0.9%

2,586,052 1,803,982 78,991 4,469,025

16.7% 16.2% 7.3% 16.1%

16.7% 16.1% 8.0% 16.1%

(10,092) (10,262) 7,661 (12,693)

(95,524) 75,388 26,341 6,205

NORTHEAST ATLANTA A 59 7,654,592 B 412 13,442,427 C 126 2,370,530 Total 597 23,467,549

1,371,238 2,778,040 260,943 4,410,221

17.9% 20.7% 11.0% 18.8%

28,812 84,377 113,189

0.4% 0.6% 0.5%

1,400,050 2,862,417 260,943 4,523,410

18.3% 21.3% 11.0% 19.3%

17.2% 22.6% 11.4% 19.7%

(85,091) 175,315 9,856 100,080

16,833 170,137 (14,957) 172,013

344,476 344,476

$19.53 $13.77 $13.48 $15.52

NORTHLAKE A 19 B 323 C 162 Total 504

2,520,105 12,146,588 3,396,118 18,062,811

426,690 1,815,214 320,984 2,562,888

16.9% 14.9% 9.5% 14.2%

21,009 21,370 42,379

0.8% 0.2% 0.2%

447,699 1,836,584 320,984 2,605,267

17.8% 15.1% 9.5% 14.4%

18.0% 15.6% 9.0% 14.7%

6,099 57,872 (14,252) 49,719

(90,574) (104,521) 32,736 (162,359)

26,793 26,793

$20.00 $16.83 $13.09 $16.66

NORTHWEST ATLANTA A 77 B 418 C 146 Total 641

17,511,160 15,870,073 2,526,681 35,907,914

2,474,644 3,065,249 349,520 5,889,413

14.1% 19.3% 13.8% 16.4%

160,159 45,718 2,025 207,902

0.9% 0.3% 0.1% 0.6%

2,634,803 3,110,967 351,545 6,097,315

15.0% 19.6% 13.9% 17.0%

15.6% 19.1% 14.0% 17.0%

99,126 (70,665) 1,412 29,873

(53,391) (25,262) 11,649 (67,004)

16,650 16,650

80,070 80,070

$21.86 $15.03 $13.97 $18.10

SOUTH ATLANTA A 17 B 238 C 134 Total 389

1,299,997 9,240,994 2,716,835 13,257,826

293,972 941,650 433,235 1,668,857

22.6% 10.2% 15.9% 12.6%

7,427 48,026 55,453

0.6% 0.5% 0.4%

301,399 989,676 433,235 1,724,310

23.2% 10.7% 15.9% 13.0%

26.8% 11.9% 15.6% 14.1%

46,821 108,745 (10,573) 144,993

60,262 154,038 4,870 219,170

$20.68 $15.58 $13.41 $16.13

WEST ATLANTA A B 60 C 37 Total 97

1,518,107 1,778,629 3,296,736

114,234 766,645 880,879

7.5% 43.1% 26.7%

114,234 766,645 880,879

7.5% 43.1% 26.7%

7.6% 43.0% 26.7%

1,075 (1,085) (10)

40,000 40,000

$13.99 $11.39 $12.42

9,801,082 12,407,666 2,584,349 24,793,097

15.3% 17.5% 16.7% 16.5%

613,596 295,104 2,025 910,725

1.0% 17.9% 16.7% 0.6%

10,414,678 12,702,770 2,586,374 25,703,822

16.3% 17.9% 16.7% 17.1%

17.2% 18.4% 16.5% 17.7%

584,570 352,812 (22,777) 914,605

1,028,066 500,575 49,544 1,578,185

16,650 16,650

300,000 72,650 372,650

644,476 146,863 791,339

$20.69 $15.23 $13.17 $16.63

17,396,766 14,902,742 3,411,054 35,710,562

15.9% 16.4% 16.2% 16.2%

1,211,030 312,985 16,270 1,540,285

1.1% 0.3% 0.1% 0.7%

18,607,796 15,215,727 3,427,324 37,250,847

17.0% 16.8% 16.2% 16.9%

17.7% 17.3% 16.4% 17.4%

657,795 477,387 27,450 1,162,632

1,695,619 739,505 110,040 2,545,164

16,650 16,650

300,000 72,650 372,650

644,476 596,863 1,241,339

$22.27 $15.47 $13.65 $18.89

1,540,285 1,596,536 1,756,927 1,741,986 1,753,943

0.7% 0.7% 0.8% 0.8% 0.8%

37,250,847 38,396,829 38,874,433 39,423,361 39,686,424

16.9% 17.4% 17.6% 17.9% 18.0%

17.4% 17.6% 17.9% 18.0% 18.1%

1,162,632 817,604 564,928 263,063 282,960

2,545,164 1,382,532 564,928 247,449 (15,614)

16,650 340,000 16,000 -

372,650 356,000 16,000 19,015 19,015

1,241,339 1,257,989 1,338,059 1,427,126 632,650

$18.89 $18.96 $18.97 $19.01 $19.07

SUBURBAN TOTAL A 341 B 1,917 C 762 Total 3,020

63,993,960 70,988,858 15,502,869 150,485,687

ATLANTA MARKET GRAND TOTAL A 453 109,136,905 B 2,156 90,740,558 C 920 21,117,690 Total 3,529 220,995,153

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

U/C

VCY CURR %

TOTAL VCY SF

DELIVERIES

63,858 (763) 63,095

300,000 16,000 316,000

UNDER AVG CONSTR RENT SF RATE

450,000 450,000

$19.73 $15.54 $14.98 $18.36

$26.94 $17.78 $15.02 $24.56

$26.63 $19.23 $18.44 $24.96

450,000 450,000

$24.43 $17.52 $16.15 $22.63

300,000 300,000

$21.91 $17.55 $13.37 $20.04

$20.16 $13.89 $13.45 $17.54

QUARTERLY COMPARISONS AND TOTALS QUARTERLY COMPARISON AND TOTALS Q3-12 Q2-12 Q1-12 Q4-11 Q3-11

3,529 3,528 3,526 3,525 3,525

220,995,153 220,978,503 220,638,503 220,622,503 220,622,503

35,710,562 36,800,293 37,117,506 37,681,375 37,932,481

16.2% 16.7% 16.8% 17.1% 17.2%

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.

SOURCE: COSTAR PROPERTY, COLLIERS RESEARCH

COLLIERS INTERNATIONAL |

P. 3

MARKET REPORT | Q3 2012 | OFFICE | ATLANTA

CONSTRUCTION •

No major office buildings delivered in third quarter. Barring any unexpected delays, Primerica’s and Cox Enterprises’ build-to-suits should deliver by year’s end.

INVESTMENT & SALES ACTIVITY

RENTAL RATES & CONCESSIONS •

Following a period of no change, the average rental rate for Atlanta office space declined to $18.89/sf this quarter. The current direction where rents are headed remains unclear.

•

The Class A rental rate average showed no change between quarters. This is the fourth

522 offices in 62 countries on 6 continents

quarter in a row with the average holding steady. This suggests Class A rents could begin to show an uptick in the coming quarters.

•

Investment volume was up significantly this quarter. Over $489 million and 3.4 million square feet traded during the period. This is the highest quarterly volume in four years.

•

Activity should remain strong going forward with a likely year-end dash by investors for core assets still available in the market.

United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 •

$1.8 billion in annual revenue

• Over 2.5 billion square feet under

management • Over 12,000 professionals

CONSTRUCTION ACTIVITY (100,000 SF+) PROPERTY ADDRESS

SUBMARKET

SIZE (SF)

DELIVERY DATE

675 Ponce De Leon Ave.

Midtown

450,000

First Quarter 2014

Primerica - 3100 Breckinridge Blvd

Northeast Atlanta

344,476

Fourth Quarter 2012

Cox: 6205 P’tree Dunwoody Rd. - 2

Central Perimeter

300,000

Fourth Quarter 2012

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 . 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 .

MIDTOWN DECATUR DE ECA ATUR Avondale Estates Estate

DOWNTOWN

W AL TO N

CO .

att

ho ac

ATLANTA

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.

UNITED STATES: Atlanta Caldwell Zimmerman Executive 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

RESEARCHER: Atlanta Scott Amoson Vice President | 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 520 offices throughout 62 countries worldwide.

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