4Q 2010 | Metro Atlanta Office Market Report

YEAR-END 2010 | OFFICE

ATLANTA

MARKET REPORT

Activity Positive Throughout 2010 for Atlanta Office

MARKET INDICATORS Q4 2010

NEXT QTR

Atlanta’s office market returned to positive territory in 2010 following a substantial exodus of tenants from the prior year. Occupancy levels increased in all four quarters this year with the final three months seeing the largest increase. Net absorption for 2010 totaled 821,275 square feet; modest compared to heyday levels in the middle part of the decade, but positive nonetheless and filling back almost half of the occupied space lost in 2009. As a result of the positive activity, the overall vacancy rate has shown minor drops over the past three quarters. During this period of time, almost 600,000 square feet of vacancies have been filled, dropping the rate 0.3% from first quarter’s all-time record high of 19.5%.

The year’s largest move-ins were highlighted by the headquarter relocations of Novelis and NCR, and the new business line headquarters of GE Energy. These companies combined for a total of 357,000 square feet occupied. Other large move-ins for the year include Marsh & McLennan moving into 133,903 square feet in Buckhead and the Nuclear Regulatory Commission moving into 102,436 square feet Downtown. Regarding office rents, Atlanta’s overall rental rate showed its first quarterly increase in two years in the fourth quarter; however, the average is still down $0.10/sf from this time last year.

VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE

—

CAP RATES

—

There are many influential factors which could highlight the performance of Atlanta’s office market this year, though one stands out as most notable: ‘Buckhead, Buckhead, Buckhead’. The submarket led all other office markets in absorption for the year and was second only to Central Perimeter in total leasing activity. Buckhead would also be the source of other aspects characterizing the Atlanta office market in 2010. A number of tenants played ‘musical chairs’ within their current submarkets this year when it came to office relocation decisions. Buckhead saw a number of these transactions occur throughout the year as companies sought higher quality space and took advantage of attractive incentive packages offered from landlords of the submarket’s newest buildings. These landlords were also able to relocate a couple of national headquarters to the submarket including Sony Ericsson and Novelis. continued on page 2

ATLANTA OFFICE

NEW SUPPLY, ABSORPTION AND VACANCY RATES

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

25%

10,000,000 $24.00

$24.00

8,000,000

$23.00

$23.00

2,000,000

10%

Market AVG

2010

2009

2008

2007

2006

(4,000,000)

5% 0%

Absorption

www.colliers.com/atlanta

2005

2010 2010

2009 2009

2008 2008

2007 2007

Class A

(2,000,000)

2004

0

$17.00

$17.00

2003

$18.00

$18.00

15%

2002

$19.00

$19.00

4,000,000

2001

$20.00

$20.00

Square Feet

$21.00

$21.00

20%

6,000,000

$22.00

$22.00

Deliveries

Vacancy %

The Atlanta office market posted its fourth consecutive period of increased occupancy in fourth quarter and ended the year with absorption totaling 821,275 SF. Once again, office vacancy showed little change and the overall rate remains 0.4% higher than 2009. Eight buildings delivered in 2010 combining for a total of 1,896,524 SF. Office inventory remains at just over 201 million sq. ft.

MARKET REPORT | YEAR-END 2010 | OFFICE | ATLANTA

VACANCY & AVAILABILITY •

Vacant Space-Space that is not currently occupied by a tenant, regardless of any lease obligation on the space.

Sublease Space-Space that has been

YEAR-END 2010 | Vacant Space By Type

•

Class A office absorption for 2010 was 998,201 SF. This is the strongest year of absorption for this product type since 2007. Buckhead accounted for 35% of the amount, most of which occurred in the submarket’s newest buildings.

•

Office leasing activity was slower than the past couple of years in 2010. Much of the same is expected going forward. Stronger job growth will be the catalyst to stronger leasing levels.

YEAR-END 2010 | Net Absorption by Submarket 350,000

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.

300,000

150,000 100,000 50,000

NORTHWEST

CLASS C 2,766,850 SF VCY RATE = 17.6%

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

200,000

SOUTH ATLANTA

Build-to-Suit-A term describing property that

CLASS B 14,970,670 SF VCY RATE = 17.7%

NORTH FULTON

250,000

CLASS A 20,890,836 SF VCY RATE = 20.6%

NORTHLAKE

Leasing Activity-The volume of square

Fourth quarter absorption totaled 330,089 SF; the strongest of the year. Office absorption in Atlanta was positive in each quarter of 2010.

CENTRAL PERIMETER

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.

Office availabilities have slowly begun to come off the market. Unlike previous recoveries, there will be no quick fix to the amount of vacant office space in Atlanta. The good news is the market is moving forward, away from record high vacancy. This progress is expected to continue throughout 2011.

•

WEST ATLANTA

Deliveries-Buildings

•

Atlanta’s office vacancy rate finished the year 0.4% higher than year-end 2009. This amounts to roughly 1 million square feet added. The vacant space comes mostly from the delivery of almost 1.9 million square feet of new office.

DOWNTOWN

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

ABSORPTION & LEASING ACTIVITY

MIDTOWN

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

NORTHEAST

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.

BUCKHEAD

Absorption (Net)-The net change in

Going forward, much of the same which occurred in 2010 is expected for Atlanta’s office market in the year to come. Though positive activity made its way back to the market, demand for space remains tepid thanks to a number of factors including uncertainty which still exists in the economy.

Fortunately, confidence in an economic recovery, including commercial real estate, is beginning to emerge. For Atlanta, the diverse mix of industries which comprise the local economy will help keep the region on a solid footing to continue filling office vacancies created during the ‘Great Recession’.

The technology, healthcare and business service sectors are expected to be the most active in 2011.

Additionally, the metro area continues to be a hotspot for business relocation. It is likely Atlanta will become the new home for a few more companies in 2011.

Square Feet

DEFINITIONS

0

Class A

Class B

Class C

(50,000)

UPDATE Largest Transactions in the Market for 2010 SALES ACTIVITY PROPERTY

SUBMARKET

SALES DATE

SALE PRICE

SIZE SF

PRICE / SF

BUYER

Campanile

Midtown

9/8/2010

$36,000,000

446,626

$80.60

Dewberry Capital

9000 Central Park

Central Perimeter

5/4/2010

$31,944,979

204,632

$156.16

Cox Enterprises

Camp Creek Medical Ctr.

South Atlanta

3/2/2010

$19,550,000

80,500

$242.86

Healthcare Trust America

The Park @ McGinnis

North Fulton

2/5/2010

$17,600,000

201,544

$87.33

Allegiance Realty Corp.

LEASING ACTIVITY PROPERTY

SUBMARKET

TENANT

LANDLORD

SIZE SF

TYPE

One Atlantic Center

Midtown

Alston & Bird

Hines

340,000

Class A Renewal & Contraction

1100 Peachtree

Midtown

Kilpatrick Stockton

Manulife Financial

206,140

Class A Renewal

250 Williams Street

Downtown

InComm

Cousins Properties

189,675

Class A Renewal & Expansion

171 17th Street

Midtown

Wells Fargo

AIG

180,000

Class A Renewal

P. 2

| COLLIERS INTERNATIONAL

MARKET REPORT | YEAR-END 2010 | OFFICE | ATLANTA

UPDATE

Market Comparisons

VACANCY

BLDGS

CLASS

EXISTING PROPERTIES TOTAL SF

DIRECT VCY SF

DIRECT VCY %

SUB VCY SF

SUB VCY %

URBAN DOWNTOWN A 25 B 63 C 58 Total 146

13,387,559 8,035,246 3,221,266 24,644,071

2,103,883 686,547 410,768 3,201,198

15.7% 8.5% 12.8% 13.0%

490,464 4,080 494,544

3.7% 0.1% 2.0%

MIDTOWN A B C Total

34 75 19 128

14,419,025 4,964,370 524,768 19,908,163

3,268,483 576,880 82,592 3,927,955

22.7% 11.6% 15.7% 19.7%

197,903 66,733 11,424 276,060

BUCKHEAD A 51 B 42 C 24 Total 117

14,613,336 4,514,507 568,627 19,696,470

3,529,832 821,296 23,461 4,374,589

24.2% 18.2% 4.1% 22.2%

8,902,198 2,084,723 516,821 11,503,742

SUBURBAN CENTRAL PERIMETER A 76 19,059,449 B 131 7,880,038 C 57 1,437,311 Total 264 28,376,798 NORTH FULTON A 99 B 209 C 22 Total 330 NORTHWEST ATLANTA A 74 B 324 C 60 Total 458

ABSORPTION VCY CURR %

VCY PRIOR %

2,594,347 690,627 410,768 3,695,742

19.4% 8.6% 12.8% 15.0%

19.3% 8.4% 12.6% 14.9%

(11,093) (13,130) (6,355) (30,578)

260,330 (69,347) (23,584) 167,399

-

1.4% 1.3% 2.2% 1.4%

3,466,386 643,613 94,016 4,204,015

24.0% 13.0% 17.9% 21.1%

24.6% 13.6% 18.6% 21.7%

75,365 30,412 3,475 109,252

171,622 26,814 (17,506) 180,930

-

239,235 17,563 256,798

1.6% 0.4% 1.3%

3,769,067 838,859 23,461 4,631,387

25.8% 18.6% 4.1% 23.5%

26.1% 18.0% 4.1% 23.6%

50,606 (24,159) 26,447

349,404 (55,929) 31,108 324,583

21.0% 11.9% 12.0% 17.9%

927,602 88,376 11,424 1,027,402

2.2% 0.5% 0.3% 1.6%

9,829,800 2,173,099 528,245 12,531,144

23.2% 12.4% 12.2% 19.5%

23.4% 12.4% 12.2% 19.7%

114,878 (6,877) (2,880) 105,121

3,370,409 1,675,158 526,672 5,572,239

17.7% 21.3% 36.6% 19.6%

133,318 81,761 1,830 216,909

0.7% 1.0% 0.1% 0.8%

3,503,727 1,756,919 528,502 5,789,148

18.4% 22.3% 36.8% 20.4%

18.6% 21.1% 37.1% 20.2%

14,122,900 9,264,152 621,547 24,008,599

2,157,051 2,157,633 48,300 4,362,984

15.3% 23.3% 7.8% 18.2%

249,610 85,709 6,533 341,852

1.8% 0.9% 1.1% 1.4%

2,406,661 2,243,342 54,833 4,704,836

17.0% 24.2% 8.8% 19.6%

15,514,115 15,068,544 2,185,500 32,768,159

2,400,309 3,102,936 246,057 5,749,302

15.5% 20.6% 11.3% 17.5%

424,685 109,022 533,707

2.7% 0.7% 1.6%

2,824,994 3,211,958 246,057 6,283,009

NORTHEAST ATLANTA A 58 6,055,124 B 301 11,850,553 C 37 1,075,431 Total 396 18,981,108

1,368,213 2,424,570 71,520 3,864,303

22.6% 20.5% 6.7% 20.4%

26,114 118,326 144,440

0.4% 1.0% 0.8%

NORTHLAKE A 21 B 277 C 92 Total 390

2,654,996 13,753,356 2,917,849 19,326,201

428,968 1,587,285 292,296 2,308,549

16.2% 11.5% 10.0% 11.9%

12,261 112,477 124,738

SOUTH ATLANTA A 19 B 187 C 52 Total 258

1,282,844 7,791,502 1,635,900 10,710,246

469,563 1,091,631 339,762 1,900,956

36.6% 14.0% 20.8% 17.7%

WEST ATLANTA A 1 B 36 C 21 Total 58

71,500 1,448,226 1,518,652 3,038,378

229,541 705,635 935,176

URBAN TOTAL A 110 B 180 C 101 Total 391

SUBURBAN TOTAL A 348 B 1,465 C 341 Total 2,154

42,419,920 17,514,123 4,314,661 64,248,704

58,760,928 67,056,371 11,392,190 137,209,489

ATLANTA MARKET GRAND TOTAL A 458 101,180,848 B 1,645 84,570,494 C 442 15,706,851 Total 2,545 201,458,193

TOTAL VCY SF

DELIVERIES

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

-

U/C

RENT

UNDER AVG CONSTR RENT SF RATE

-

$19.38 $18.63 $17.48 $19.10

752,710 752,710

-

$26.11 $17.12 $16.18 $24.10

-

908,852 908,852

-

$24.96 $18.44 $18.33 $23.58

781,356 (98,462) (9,982) 672,912

-

1,661,562 1,661,562

-

$23.48 $18.06 $17.33 $22.26

43,677 (96,013) 5,351 (46,985)

178,457 (155,569) (5,087) 17,801

-

-

-

$22.29 $18.78 $13.75 $20.82

18.6% 23.8% 6.3% 20.3%

217,149 (34,012) (15,904) 167,233

86,930 (57,243) (19,937) 9,750

-

-

-

$19.42 $15.80 $15.12 $18.14

18.2% 21.3% 11.3% 19.2%

17.5% 21.4% 11.7% 18.9%

(86,456) 16,045 10,718 (59,693)

(160,943) 159,944 (27,619) (28,618)

32,500 32,500

56,736 56,736

30,000 16,650 46,650

$20.63 $16.50 $14.47 $18.64

1,394,327 2,542,896 71,520 4,008,743

23.0% 21.5% 6.7% 21.1%

22.7% 21.6% 7.4% 21.2%

(16,991) 20,283 8,566 11,858

125,690 36,322 20,838 182,850

-

127,226 127,226

64,162 64,162

$19.64 $15.71 $15.67 $17.54

0.5% 0.8% 0.6%

441,229 1,699,762 292,296 2,433,287

16.6% 12.4% 10.0% 12.6%

16.5% 12.9% 11.0% 13.1%

(2,240) 71,795 28,606 98,161

(20,331) (53,409) 54,944 (18,796)

-

-

-

$19.16 $17.09 $14.68 $17.19

20,535 19,669 40,204

1.6% 0.3% 0.4%

490,098 1,111,300 339,762 1,941,160

38.2% 14.3% 20.8% 18.1%

39.9% 14.4% 21.7% 18.6%

22,014 37,493 14,672 74,179

1,462 (25,151) (1,058) (24,747)

30,000 30,000

51,000 51,000

45,000 45,000

$21.46 $18.49 $13.82 $18.76

15.8% 46.5% 30.8%

1,853 1,853

0.1% 0.1%

231,394 705,635 937,029

0.0% 16.0% 46.5% 30.8%

0.0% 16.5% 44.7% 30.2%

7,715 (27,500) (19,785)

5,580 5,049 (506) 10,123

-

-

-

$25.34 $19.56 $14.84 $18.70

10,194,513 12,268,754 2,230,242 24,693,509

17.3% 18.3% 19.6% 18.0%

866,523 528,817 8,363 1,403,703

1.5% 19.1% 19.7% 1.0%

11,061,036 12,797,571 2,238,605 26,097,212

18.8% 19.1% 19.7% 19.0%

19.1% 19.1% 19.9% 19.1%

177,153 23,306 24,509 224,968

216,845 (90,057) 21,575 148,363

32,500 30,000 62,500

183,962 51,000 234,962

75,000 80,812 155,812

$20.43 $17.42 $14.62 $18.54

19,096,711 14,353,477 2,747,063 36,197,251

18.9% 17.0% 17.5% 18.0%

1,794,125 617,193 19,787 2,431,105

1.8% 0.7% 0.1% 1.2%

20,890,836 14,970,670 2,766,850 38,628,356

20.6% 17.7% 17.6% 19.2%

20.9% 17.7% 17.8% 19.3%

292,031 16,429 21,629 330,089

998,201 (188,519) 11,593 821,275

32,500 30,000 62,500

1,845,524 51,000 1,896,524

75,000 80,812 155,812

$21.60 $17.08 $15.14 $19.67

2,431,105 2,666,512 2,722,158 3,026,650 3,339,206

1.2% 1.3% 1.4% 1.5% 1.7%

38,628,356 38,895,945 39,024,802 39,224,280 37,553,107

19.2% 19.3% 19.4% 19.5% 18.8%

19.3% 19.4% 19.5% 18.8% 18.3%

330,089 149,857 199,478 141,851 (929,561)

821,275 491,186 341,329 141,851 (1,687,290)

62,500 21,000 1,813,024 82,597

1,896,524 1,834,024 1,813,024 1,813,024 2,544,176

155,812 218,312 199,150 124,150 1,850,674

$19.67 $19.55 $19.64 $19.73 $19.77

QUARTERLY COMPARISONS AND TOTALS QUARTERLY COMPARISON AND TOTALS Q4-10 Q3-10 Q2-10 Q1-10 Q4-09

2,545 2,543 2,542 2,542 2,537

201,458,193 201,422,504 201,401,504 201,401,504 199,588,480

36,197,251 36,229,433 36,302,644 36,197,630 34,213,901

18.0% 18.0% 18.0% 18.0% 17.1%

NOTE: STATISTICAL SET INCLUDES OFFICE PROPERTIES 15,000 SF AND UP, EXCLUDING SINGLE-TENANT OWNEROCCUPIED. 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 | YEAR-END 2010 | OFFICE | ATLANTA

CONSTRUCTION •

Eight buildings totaling 1,896,524 SF delivered in 2010. Almost 88% of that amount occurred in Midtown and Buckhead.

•

In the fourth quarter, the average rental rate increased from the prior period. This suggests a bounce, or that rents are close to bottoming.

•

Office development is the lowest in Atlanta since statistics have been kept. Construction levels are expected to remain low for some time to come; likely a couple of more years.

•

Concessions still remain attractive and aggressive, though some pullback by landlords is beginning to take shape.

480 offices in 61 countries on 6 continents United States: 135 Canada: 39 Latin America: 17 Asia Pacific: 194 EMEA: 95

INVESTMENT & SALES ACTIVITY RENTAL RATES & CONCESSIONS •

•

The overall average rental rate for office is down $0.10/sf from 2009.

The number of office investment sales in 2010 was about the same as 2009; however, total sales volume was almost double last year’s amount.

•

$2 billion in annual revenue

• Over 2 billion square feet under

management

2010 DELIVERIES (100,000 SF+)

• Over 15,000 professionals

PROPERTY ADDRESS

SUBMARKET

SIZE (SF)

DELIVERY DATE

1075 Peachtree

Midtown

752,710

First Quarter 2010

Phipps Tower

Buckhead

472,267

First Quarter 2010

UNITED STATES:

3630 Peachtree

Buckhead

436,585

First Quarter 2010

631 Professional Dr.

Northeast Atlanta

127,226

First Quarter 2010

Atlanta Mike Spears SIOR Senior VP | Colliers Manager 1349 West Peachtree Street Suite 1100 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

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MIDTOWN DECATUR DE ECA ATUR Avondale Estates Estate

DOWNTOWN

o

W AL TO N

CO .

att

ho ac

Snellville

Stone Mountain G W IN NE TT

r

R iv

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PAULDING CO.

DEKALB CO. C FULTON CO. C

Powder Springs

Ch

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 1349 West Peachtree Street Suite 1100 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.

Accelerating success.

www.colliers.com/atlanta