4Q 2011 | Atlanta Office | Market Report by Colliers International

YEAR-END 2011 | OFFICE

ATLANTA

MARKET REPORT

Slow, Steady Growth for Atlanta Office in 2011

MARKET INDICATORS Projected

Q4 2011

Q1 2012

—

VACANCY NET ABSORPTION

—

CONSTRUCTION RENTAL RATE

—

— —

CAP RATES

The Atlanta office market wrapped up the year with its strongest quarter of absorption in 4.5 years. Occupancy increased by 556,476 square feet in the fourth quarter, bringing the year-to-date total for 2011 to just over 811,000 square feet. Yet again, Atlanta experienced positive results in an unsettled economy. Buckhead led all Atlanta office submarkets, as expected, accounting for almost all of 2011’s space absorption. The largest occupiers in 2011 were mostly existing tenants in the Atlanta area. The majority of these tenants took advantage of the depressed market conditions over the past couple of years, relocating to higher quality space at a discount. Six of the top ten largest move-ins of the year occurred in the fourth quarter including InComm which doubled its 90,000 SF space at 250 Williams Street Downtown, Regions Bank which consolidated from multiple offices across the market into 80,000 SF at Atlantic Center Plaza in Midtown and the Reznick Group which also consolidated offices into 77,049 SF at Two Alliance Center in Buckhead. The foremost trend in the office market in 2011 was the flight to quality by tenants. This is most apparent when looking at the year-end absorption results of Class A and Class B properties. Tenants chose Class A properties overwhelmingly, taking advantage of favorable rental rates and absorbing over 1.6 million square feet of space this year. Meanwhile, Class B properties saw occupancy decrease by 850,000 square feet over the same period of time. As far as vacancy, Atlanta is somewhat in parity. All space types and the market as a whole are 17.8% vacant. Regardless of how modest activity might be, consecutive years of occupancy gains provide momentum in Atlanta’s office market; moving the city that much closer towards recovery. Heading into 2012, much of the same factors which contributed to the positive activity in the past year will continue. So long as Class A rental rates remain favorable, the flight to quality will remain prominent. Small business growth, which averaged a 3% increase in monthly hiring over the past six months and also accounted for 15% of continued on page 2

Class A

2011 2011

2010 2010

2009 2009

Market AVG

2011

2010

5% 0%

Absorption

www.colliers.com/atlanta

2009

$17.00 $17.00

10% 2008

$18.00 $18.00

2007

$19.00 $19.00

2006

$20.00 $20.00

15%

2005

$21.00 $21.00

2004

$22.00 $22.00

20%

2003

$23.00 $23.00

25%

2002

$25.00 $25.00 $24.00 $24.00

7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) (2,000,000) (3,000,000) (4,000,000)

Square Feet

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

2008 2008

ATLANTA OFFICE

NEW SUPPLY, ABSORPTION AND VACANCY RATES

UPDATE

Deliveries

Vacancy %

The Atlanta office market saw occupancy increase for the second consecutive year in 2011. Absorption topped 811,000 SF, bringing the overall vacancy rate down to 17.8%. Only one building of 19,015 SF delivered in 2011. Construction work began on Primerica’s build-tosuit and Jamestown’s Ponce City Market in the fourth quarter.

MARKET REPORT | YEAR-END 2011 | OFFICE | ATLANTA

VACANCY & AVAILABILITY •

The office vacancy rate ended the year at 17.8% for all property types and the market as a whole.

•

Compared to Year-End 2010, Atlanta’s office vacancy declined by a modest 0.3% in 2011. Class A vacancy saw the most movement with a 1.5% drop. This represents almost 1.7 million square feet of space filled for this property type.

Vacant Space-Space that is not currently

Sublease Space-Space that has been

2011’s office absorption was led by small business growth and expansions in the market

•

Class A space had its strongest occupancy gain since 2007, absorbing over 1.6 million square feet in the past year. This came at the expense of Class B landlords. Flight to quality was the prominent theme of the year.

•

Since the deliveries of 3630 Peachtree and Phipps Tower (the last of new construction in the submarket), Buckhead’s vacancy rate has dropped 5%.

•

Atlanta office vacancy should continue trending downwards in 2012; though moderately.

Seven of the top ten office lease transactions in the year were renewals. Three of those included expansions.

YEAR-END 2011 | Vacant Space By Type

YEAR-END 2011 | Net Absorption by Submarket 800,000

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

(200,000)

Class A

Class B

DOWNTOWN

CLASS C 3,652,609 SF VCY RATE = 17.8%

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

400,000

CENTRAL PERIMETER

Build-to-Suit-A term describing property that

CLASS B 15,898,201 SF VCY RATE = 17.8%

WEST ATLANTA

CLASS A 19,276,124 SF VCY RATE = 17.8%

MIDTOWN

600,000

Class C

(400,000)

NORTHEAST

Leasing Activity-The volume of square

•

Deliveries-Buildings

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.

Atlanta’s office absorption was strongest in the fourth quarter of the year accounting for 69% of the year’s total space absorbed.

SOUTH ATLANTA

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

•

NORTHLAKE

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

ABSORPTION & LEASING ACTIVITY

NORTHWEST

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

BUCKHEAD

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

this year’s positive absorption, is expected to continue influencing occupancy gains. Lastly, technology companies will continue dominating the leasing landscape. As for the not so positive, like many cities throughout the United States, the grinding economy will still weigh down on Atlanta’s recovery and growth. Uncertainty continues to suppress sustainable job growth which is key to new space demand. For Atlanta’s office market, the focus must be at the local level. In 2011, the city lost out to other regional markets on two major corporate assignments. Once a given here, it is important local development authorities and business leaders focus their efforts on winning these types of assignments to bring quality jobs to the area and help fill the 39 million square feet of office vacancy.

Square Feet

DEFINITIONS

UPDATE Largest Transactions in the Market for 2011 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

Promenade II

Midtown

11/23/2011

$137,500,000

774,344

$177.57

Cousins Properties

Riverwood 100

Northwest Atlanta

9/16/2011

$81,500,000

502,527

$162.18

Highwoods Properties

760 Doug Davis Dr.

South Atlanta

12/15/2011

$63,000,000

334,000

$188.62

Digital Realty Trust

LEASING ACTIVITY PROPERTY

SUBMARKET

TENANT

LANDLORD

4111 Northside Pkwy. One Atlantic Center

Northwest Atlanta

IBM

Atlanta Public Schools

830,000

Class B Leaseback

Midtown

Alston & Bird

Hines

365,000

Class A Renewal & Expansion

Legacy Park

Northeast Atlanta

Primerica

Duke

344,475

Class A Build-To-Suit

Ten Peachtree Place

Midtown

AGL

Cousins

258,197

Class A Renewal

P. 2

| COLLIERS INTERNATIONAL

SIZE SF

TYPE

MARKET REPORT | YEAR-END 2011 | OFFICE | ATLANTA

UPDATE

Market Comparisons

VACANCY

BLDGS

CLASS

EXISTING PROPERTIES TOTAL SF

DIRECT VCY SF

DIRECT VCY %

URBAN DOWNTOWN A 28 B 84 C 78 Total 190

14,770,027 8,968,480 3,540,448 27,278,955

2,181,666 1,110,180 760,563 4,052,409

14.8% 12.4% 21.5% 14.9%

479,701 1,310 481,011

3.2% 0.0% 1.8%

MIDTOWN A B C Total

38 100 37 175

15,195,101 6,105,051 861,751 22,161,903

2,954,312 1,082,954 76,607 4,113,873

19.4% 17.7% 8.9% 18.6%

168,466 18,093 11,424 197,983

BUCKHEAD A 49 B 52 C 43 Total 144

15,032,930 4,445,020 1,060,897 20,538,847

2,895,971 780,233 80,165 3,756,369

19.3% 17.6% 7.6% 18.3%

8,031,949 2,973,367 917,335 11,922,651

SUBURBAN CENTRAL PERIMETER A 68 19,535,457 B 143 7,692,697 C 99 1,842,735 Total 310 29,070,889 NORTH FULTON A 99 B 325 C 57 Total 481

18.0% 12.4% 21.5% 16.6%

17.4% 12.2% 22.1% 16.3%

(94,824) (17,512) 21,909 (90,427)

175,971 (468,353) (39,501) (331,883)

1.1% 0.3% 1.3% 0.9%

3,122,778 1,101,047 88,031 4,311,856

20.6% 18.0% 10.2% 19.5%

21.1% 17.9% 9.7% 19.8%

87,169 (5,373) (4,013) 77,783

177,550 (312,441) (10,050) (144,941)

154,406 22,965 177,371

1.0% 0.5% 0.9%

3,050,377 803,198 80,165 3,933,740

20.3% 18.1% 7.6% 19.2%

21.6% 16.7% 8.6% 19.9%

196,900 (59,493) 11,519 148,926

786,136 (42,100) (37,133) 706,903

17.8% 15.2% 16.8% 17.0%

802,573 42,368 11,424 856,365

1.8% 0.2% 0.2% 1.2%

8,834,522 3,015,735 928,759 12,779,016

19.6% 15.5% 17.0% 18.3%

20.1% 15.0% 17.5% 18.5%

189,245 (82,378) 29,415 136,282

1,139,657 (822,894) (86,684) 230,079

450,000 450,000

$23.89 $17.29 $15.24 $22.18

3,614,405 2,017,719 370,103 6,002,227

18.5% 26.2% 20.1% 20.6%

83,879 109,211 193,090

0.4% 1.4% 0.7%

3,698,284 2,126,930 370,103 6,195,317

18.9% 27.6% 20.1% 21.3%

18.7% 28.5% 20.8% 21.4%

(36,091) 62,030 13,337 39,276

(67,972) (216,728) 52,065 (232,635)

600,000 16,000 616,000

$21.72 $17.86 $13.36 $19.97

15,371,750 11,319,676 980,060 27,671,486

1,964,736 1,825,790 98,332 3,888,858

12.8% 16.1% 10.0% 14.1%

169,100 26,580 6,533 202,213

1.1% 0.2% 0.7% 0.7%

2,133,836 1,852,370 104,865 4,091,071

13.9% 16.4% 10.7% 14.8%

14.4% 15.9% 9.9% 14.9%

75,070 (46,936) (7,828) 20,306

131,590 222,213 5,516 359,319

NORTHEAST ATLANTA A 57 7,316,139 B 413 13,563,439 C 118 2,280,907 Total 588 23,160,485

1,288,482 2,848,180 215,822 4,352,484

17.6% 21.0% 9.5% 18.8%

57,572 83,138 3,595 144,305

0.8% 0.6% 0.2% 0.6%

1,346,054 2,931,318 219,417 4,496,789

18.4% 21.6% 9.6% 19.4%

20.2% 21.7% 10.3% 20.1%

129,265 10,518 15,126 154,909

95,676 (53,749) 23,992 65,919

NORTHLAKE A 19 B 326 C 165 Total 510

2,519,738 12,072,074 3,524,840 18,116,652

346,683 1,551,583 519,883 2,418,149

13.8% 12.9% 14.7% 13.3%

10,442 61,878 72,320

0.4% 0.5% 0.4%

357,125 1,613,461 519,883 2,490,469

14.2% 13.4% 14.7% 13.7%

14.4% 13.4% 14.3% 13.7%

5,502 5,788 (15,206) (3,916)

31,247 46,070 18,511 95,828

$20.12 $17.11 $14.13 $17.07

NORTHWEST ATLANTA A 77 B 422 C 144 Total 643

17,450,997 15,863,328 2,445,412 35,759,737

2,412,381 2,954,546 356,345 5,723,272

13.8% 18.6% 14.6% 16.0%

132,261 129,893 262,154

0.8% 0.8% 0.0% 0.7%

2,544,642 3,084,439 356,345 5,985,426

14.6% 19.4% 14.6% 16.7%

15.0% 20.1% 13.7% 17.2%

79,872 100,756 (22,510) 158,118

291,773 55,926 (45,593) 302,106

16,650 16,650

$21.27 $15.05 $14.00 $17.82

SOUTH ATLANTA A 17 B 228 C 118 Total 363

1,302,124 8,190,807 2,307,869 11,800,800

346,929 1,102,050 404,648 1,853,627

26.6% 13.5% 17.5% 15.7%

14,732 48,326 63,058

1.1% 0.6% 0.5%

361,661 1,150,376 404,648 1,916,685

27.8% 14.0% 17.5% 16.2%

29.2% 14.6% 17.9% 16.9%

18,583 44,596 8,863 72,042

51,177 (76,003) 35,348 10,522

19,015 19,015

$20.96 $16.18 $13.73 $16.74

WEST ATLANTA A B 51 C 34 Total 85

1,311,935 1,736,418 3,048,353

123,572 748,589 872,161

9.4% 43.1% 28.6%

123,572 748,589 872,161

9.4% 43.1% 28.6%

8.0% 43.0% 27.9%

(18,384) (2,157) (20,541)

(394) (19,346) (19,740)

$16.07 $12.59 $13.88

9,973,616 12,423,440 2,713,722 25,110,778

15.7% 17.7% 17.9% 16.9%

467,986 459,026 10,128 937,140

0.7% 18.4% 18.0% 0.6%

10,441,602 12,882,466 2,723,850 26,047,918

16.4% 18.4% 18.0% 17.5%

16.9% 18.6% 17.9% 17.8%

272,201 158,368 (10,375) 420,194

533,491 (22,665) 70,493 581,319

19,015 19,015

944,476 32,650 977,126

$20.60 $15.80 $13.51 $16.97

18,005,565 15,396,807 3,631,057 37,033,429

16.6% 17.2% 17.6% 16.9%

1,270,559 501,394 21,552 1,793,505

1.2% 0.6% 0.1% 0.8%

19,276,124 15,898,201 3,652,609 38,826,934

17.8% 17.8% 17.7% 17.8%

18.2% 17.8% 17.8% 18.0%

461,446 75,990 19,040 556,476

1,673,148 (845,559) (16,191) 811,398

19,015 19,015

944,476 482,650 1,427,126

$21.97 $15.74 $13.86 $18.90

1,793,505 1,947,158 2,119,678 2,276,428 2,535,390

0.8% 0.9% 1.0% 1.0% 1.2%

38,826,934 39,383,410 39,552,758 39,807,637 39,619,317

17.8% 18.0% 18.1% 18.2% 18.1%

18.0% 18.1% 18.2% 18.1% 18.2%

556,476 169,348 254,879 (169,305) 201,094

811,398 254,922 85,574 (169,305) 280,445

19,015 92,006

19,015 19,015 19,015 19,015 1,958,599

1,427,126 632,650 632,650 616,650 635,665

$18.90 $18.89 $19.05 $19.24 $19.19

SUBURBAN TOTAL A 337 B 1,908 C 735 Total 2,980

63,496,205 70,013,956 15,118,241 148,628,402

ATLANTA MARKET GRAND TOTAL A 452 108,494,263 B 2,144 89,532,507 C 893 20,581,337 Total 3,489 218,608,107

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

RENT

2,661,367 1,111,490 760,563 4,533,420

TOTAL VCY SF

U/C

VCY PRIOR %

44,998,058 19,518,551 5,463,096 69,979,705

SUB VCY %

DELIVERIES

VCY CURR %

URBAN TOTAL A 115 B 236 C 158 Total 509

SUB VCY SF

ABSORPTION

UNDER AVG CONSTR RENT SF RATE

450,000 450,000

344,476 344,476

$19.53 $15.19 $14.63 $18.22

$27.05 $18.06 $12.92 $24.63

$25.09 $18.63 $18.18 $23.69

$20.00 $14.44 $13.34 $17.62

$19.52 $13.90 $13.42 $15.66

QUARTERLY COMPARISONS AND TOTALS QUARTERLY COMPARISON AND TOTALS Q4-11 3,489 218,608,107 37,033,429 Q3-11 3,489 218,608,107 37,436,252 Q2-11 3,489 218,608,107 37,433,080 Q1-11 3,489 218,608,107 37,531,209 Q4-10 3,488 218,589,092 37,083,927

16.9% 17.1% 17.1% 17.2% 17.0%

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 | YEAR-END 2011 | OFFICE | ATLANTA

CONSTRUCTION

RENTAL RATES & CONCESSIONS

•

There was only one office building of 19,015 SF delivered in 2011. This is unprecedented for the Atlanta office market which has averaged 51 deliveries a year over the past decade.

•

Buildings going under construction in the fourth quarter include Primerica’s build-to-suit of 344,476 SF and Jamestown’s Ponce City Market, a mixed-use redevelopment with 450,000 SF of office.

•

For the market as a whole, the average rental rate for office showed no change from last quarter; Class A office showed a slight uptick.

•

Historically speaking, Class A’s average rent is equal to year-end 2010, while the overall market average is down $0.30/sf.

512 offices in 61 countries on 6 continents United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 214 EMEA: 117

INVESTMENT & SALES ACTIVITY •

With optimism slowly returning, talk of more construction has made its way back to the market.

Over 1 billion dollars of investment sales occurred in the Atlanta office market this year. This is the highest amount sold since 2008.

•

$1.5 billion in annual revenue

• Over 2.2 billion square feet under

management

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

Third Quarter 2012

Cox: 6205 P’tree Dunwoody Rd. - 1

Central Perimeter

300,000

Second 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 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.

• Over 13,000 professionals

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 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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