1Q 18. Charlotte Office Market Report

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1 1Q 18 Charlotte

2 Charlotte, Mecklenburg County Q Total Number of Buildings 3,266 Total Square Feet 85,653,112 Average Asking Rates $25.40 Overall Vacancy 9.4% Net Absorption Deliveries Under Construction 1,000, , , , , , ,000 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 0 477,055 SF 160,323 SF 3,123,089 SF Absorption (RSF) / Asking Rates Avg. Asking Rate Vacancy Rates Absorption SF 9.7% Average Vacancy Rate $26.00 $25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 $15.00 $14.00 Charlotte s Economy Continues Strong and Office Rental Rates Continues to Make New Highs... Charlotte s Local Economy Charlotte s economy showed continued strength during the first quarter despite at least one piece of disappointing news the Queen City didn t make the list of finalists for Amazon s proposed second headquarters site, a massive development that likely would have pumped many billions of dollars into the local economy. The Charlotte metro area s unemployment rate hovered around 4.3% during the quarter, according to data from the U.S. Bureau of Labor Statistics. That was about the same as the previous quarter but up slightly from the previous year. Charlotte s unemployment rate is lower than North Carolina as a whole but slightly higher than the national average. Average Q1 employment in the Charlotte metro area rose 7% from the prior year to 3.33 million, marking the first time the figure topped 1.3 million. The median price of a home sold in the Charlotte region climbed 7.2 percent from the prior year to $235,000, according to data from the Charlotte Regional Realtor Association. 1Q17 vs. 1Q18 NET ABSORPTION VACANCY RATE DELIVERIES ASKING RATES Charlotte Market Overview Charlotte s office market showed improvement in most metrics during the first quarter compared to the 2017 fourth quarter, with an especially steep rise in the amount of square footage under construction. 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% Charlotte Unemployment Rate The market s Q1 vacancy rate stood at 9.4%, down slightly from the previous quarter but up from 8.9% a year earlier. Vacancy rates trended higher for most of 2017, reaching their highest point in two years. Even so, they remain well below rates earlier in the decade, when vacancy pushed above 15%. The top lease signing for the quarter took place in South End, where Dimensional Fund Advisors inked a deal for 265,000 square feet at 1515 South Tryon Street. The next largest deal was signed by Little Diversified Architectural Consulting, which took on 52,289 square feet at 615 South College Street in the Central Business District. Net absorption during Q1 was positive 477,055 square feet. That compares to negative -331,492 square feet the previous quarter and positive 139,357 square feet the previous year. Average rents continued to climb during Q1, reaching a new high of $25.40 per square foot and marking the first time that rents have

3 climbed above $25. The figure was up from $24.57 the previous quarter and $23.04 the prior year. Average rents have ballooned more than 40 percent since the beginning of the decade. A total of 229 office lease deals were signed during the quarter, down from 260 a quarter earlier and roughly the same as the year before. The largest sales transaction in the Greater Charlotte area was the $62.5 million sale of five buildings at The-Park Huntersville. The biggest delivery during the quarter was for 120,000 square feet at One Silver Crescent in the Southwest submarket s Ayrsley development. The project will house the new headquarters for Jen-Weld. Another top delivery was for 90,438 square feet at Harding Place in the Midtown market. A total of 18 buildings were under construction at the end of the first quarter, which was the highest total in a year. Buildings under construction totaled just more than 3 million square feet of office space up from 1.7 million square feet the prior quarter and the highest figure in nine years. The biggest project underway was the 853,073-square-foot Legacy Union development at 620 South Tryon Street in the Central Business District. Most of that building is pre-leased to Bank of America. It s expected to deliver during the 2019 second quarter. The biggest project to break ground during Q1 was the Ally Charlotte Center development, a 742,000-square-foot building in uptown Charlotte that is 55% pre-leased. Ally Financial will be the anchor tenant. Construction also began on the Gama Goat Building, a 169,730-square-foot facility at 1701 North Graham Street in the North Charlotte submarket. Central Business District Dutch co-working group Spaces signed a lease for nearly 32,000 square feet of space uptown. The group will locate on the first and sixth floors at 101 North Tryon Street, at the corner of Trade and Tryon. The building is owned by LRC Properties and Barings Real Estate Advisers and has been undergoing renovations since the summer. Pittsburgh-based F.N.B. Corp., the parent of First National Bank, will take at least 30,000 square feet at a new building at 401 South Graham Street in the CBD. The 31-story mixed-use tower, called FNB Tower-Charlotte, will be developed by Raleigh s Dominion Realty Partners. F.N.B. will be the anchor tenant at the building, which will have more than 160,000 square feet of office space, 215 apartments and street-level retail. The property is owned by an entity called 401 South Graham Street LLC. Bank of America renewed its lease for 294,000 square feet and also signed an expansion of 24,000 square feet at Fifth Third Center uptown. Fifth Third Center, located at 201 North Tryon Street, spans 698,000 square feet. BofA currently leases 318,000 square feet at the office tower. New York-based accounting firm CohnReznick renewed its lease for 16,800 square feet on the eighth floor of 525 North Tryon Street. The 22-story building is owned by Grubb Properties and New York Life and includes more than 400,000 square feet. CBD Midtown-SouthEnd SouthPark South/485 Midtown-Randolph Park Road Cotswold South Charlotte University Northeast/I-77 Plaza Midwood / Noda Airport Northwest Charlotte Matthews East Charlotte Rates by Submarket $12 $14 $16 $18 $20 $22 $24 $26 $28 $30 $32 Midtown KASK America, an Italian maker of sport and safety helmets, paid $2 million to purchase a building in South End to house its North American headquarters. The building is located at 301 West Summit Avenue and covers 8,710 square feet. Kask America is expected to move into the space over the summer. A combination of office and showroom space is planned. Durham-based Dilweg Cos. spent $5.7 million to acquire a 25,543-square-foot mixed-use building at 1406 Winnifred Street in South End. The one-story building was sold by Target Investments LLC. It has retail and office tenants and sits on a 1.7-acre site across three parcels near the intersection of Summit Avenue and Winnifred Street. The price came it at $223 per square foot. Southpark A 54,125-square-foot office building located at 6115 Park South Drive in Southpark was sold for $11.3 million to LPA CP SouthPark LLC, affiliated with real estate firm Lat Purser & Associates and Consolidated Planning. South Charlotte Childress Klein announced plans to break ground on a new six-story office building in south Charlotte. The project, called The Nexus at Waverly, will total around 154,000 square feet and be built on an empty lot near the intersection of Ardrey Kell Road and Waverly Walk Avenue. One tenant has already signed on: The Remi Group, an equipment maintenance management provider that will lease 31,000 square feet. Northwood Investors was set to break ground on an 11-story office building at Ballantyne Corporate Place in South Charlotte. The building will sit on a acre site that includes part of a golf course. Huntersville Cincinnati real estate firm Viking Partners spent nearly $15 million to acquire a pair of single-story office buildings at The Park-Huntersville. The properties include the 57,214-square-foot Bostick Building and 59,903-square-foot Calhoun Building. Both are located on Kincey Avenue. The seller was U.S. Trust-Bank of America N.A. Tenants at the buildings include Liberty Mutual, SMC Corporation of America and BioCytics.

4 Another deal at The Park-Huntersville involved Atlantabased OA Development, which paid $62.5 million to buy five buildings spanning 395,796 square feet of office space. The acquired properties were the Kemp Building, the Reed Building, the Latta Building, the Storrs Building and the Alexander Building. The properties are 91.4% occupied. Airport Charlotte-based tech firm Midrex Technologies signed a lease for 46,259 square feet at LakePointe Corporate Center 5, an office park off Tyvola Road. LakePointe Corporate Center 5 is owned by Atlanta Property Group. Curvature, a provider of IT support, products and services, signed a lease to take 41,716 square feet at Coliseum Centre Five, a 152,000-square-foot office building in the Airport submarket. Curvature will take the entire sixth floor and most of the fifth floor at Coliseum Centre Five. $30 $28 $27 $25 $24 $22 $21 $19 $18 $16 $15 $13 Asking Rates by Building Class Outlook Rising vacancy rates over the past year are a concern for Charlotte s office market, though average rents have also been on the upswing, indicating there s still plenty Class A Class B Class C of demand. The wild card is whether rents will soften amid a boom in office construction, which will put a lot more product on the market in coming years. Demographic trends are largely positive. Although Charlotte was scratched from the Amazon H sweepstakes early in the year, the city s economic indicators remain robust. In February, Forbes named Charlotte one of the nation s Top 10 hottest housing markets alongside San Francisco, Seattle, Denver and other high fliers. Charlotte also made the National Association of Realtors list of hottest employment markets. Meanwhile, leading economists project that North Carolina will enjoy about 3% growth in state domestic product in 2018, with Charlotte and other urban centers leading the way. The state could get an additional boost from increased infrastructure spending 2014 Q Q Q Q Q1 Total SF Total # of Buildings Total Available SF Class A, B & C Office Submarket Statistics Vacancy Rate % Net Absorption Deliveries Under Construction End of 1Q Average Rental Rate Class A / (4 & 5 Star) 40,863, ,037, % 207, ,652,097 $29.06 Class B / (3 Star) 29,696,662 1,113 1,877, % 337, ,922 $22.14 Class C / (1 & 2 Star) 15,137,221 1,898 1,085, % (68,342) 0 0 $17.05 CBD 21,801, ,505, % 92, ,595,073 $31.22 Midtown-SouthEnd 6,220, , % (46,543) 0 777,456 $31.20 SouthPark 5,694, ,089 12% 23, $30.70 South/485 6,828, , % 107, ,000 $30.46 Midtown-Randolph 3,562, , % (39,659) 1 7,500 $26.41 Park Road 1,230, , % 41, $25.54 Cotswold 490, , % (254) 0 0 $22.86 South Charlotte 2,738, , % (701) 0 0 $22.21 University 8,480, , % 177, $20.97 Northeast/I-77 5,627, , % (20,085) 1 30,000 $20.83 Airport 13,500, ,266, % 130, ,330 $19.18 Plaza Midwood / Noda 2,134, , % 7, ,730 $20.53 Northwest Charlotte 1,324, , % 18, $18.30 Matthews 2,814, , % (7,376) 2 0 $15.57 East 3,203, , % (6,963) 0 0 $14.37

5 Notable Lease Transactions * Renewal Building Submarket SF Qtr Tenant Name S College St CBD 52,289 1st Little Diversified Architectural Consulting W Tremont Ave Midtown/Southend 30,000 1st N/A 3 Bank of America Plaza CBD 21,663 1st N/A 4 Hawkins Street Design Center Midtown/Southend 20,549 1st N/A 5 Three Harris Corners Northeast/I-77 18,877 1st N/A 6 Capitol Towers - North Office Tower SouthPark 18,831 1st N/A 7 Quail Plaza South Charlotte 18,523 1st N/A 8 Alexander Building Northeast/I-77 15,985 1st Ensemble/hcc Partners 9 One Harbour Place Northeast/I-77 15,524 1st N/A 10 LakePointe 5 Airport 15,340 1st N/A 11 Grove 4 University 15,000 1st M 12 The Hub at Waverly South/485 13,852 1st Horizon Investments 13 The Hub at Waverly South/485 12,000 1st ESRI 14 Morehead Square Midtown/Southend 11,817 1st Time Warner Northcross Center Ct Northeast/I-77 11,717 1st N/A 16 Bank of America Plaza CBD 10,427 1st N/A 17 Frenette Bldg South/485 9,414 1st Lending Tree E Independence Blvd Matthews 9,027 1st N/A 19 Historic Textile Supply Midtown/Southend 8,424 1st N/A 20 Carillon Tower CBD 7,538 1st N/A 21 Three Morrocroft Centre SouthPark 7,500 1st Berkshire Hathaway Home Services 22 Morehead Square Midtown/Southend 6,526 1st Valeo Group 23 Toringdon 2 South/485 6,392 1st N/A 24 South Tryon Square CBD 6,286 1st N/A Brookway Dr Northeast/I-77 5,880 1st N/A Carmel Executive Park South Charlotte 5,596 1st Finance of America Mortgage 27 Bascomb s Corner University 5,552 1st N/A S New Hope Rd Gaston County 5,500 1st Total Care Oral Surgery 29 The Davie Building South Charlotte 5,345 1st N/A 30 ADBEL Building Matthews 4,942 1st N/A N Main St Rowan County 4,620 1st Concord Seventh-day Adventist Church 32 The Hub at Waverly South/485 4,500 1st Edward Jones W Corriher Ave Rowan County 4,500 1st N/A 34 Carmel Park II South Charlotte 4,373 1st N/A 35 The Hub at Waverly South/485 4,244 1st Toaki Carbon GE Major Sales Transactions Building(s) Price SF Seller Buyer BB&T Center $148,500, ,601 CIM Group, LP The Arden Group, Inc LPL Financial Headquarters I & II $130,000, ,000 Childress Klein Griffin Capital Corp First Citizens Bank Plaza $79,000, ,987 Osprey Management Co, Inc The Dilweg Companies The Park Huntersville - Part II $62,500, ,796 Bank of America Pension Plan OA Development, Inc Rotunda Building $60,000, ,790 RREEF Management LLC Equus Capital Partners, Ltd Harris Corners Corporate Park $58,500, ,654 New Boston Fund, Inc Bridge Investment Grp Ptnrs,LLC Koll Intellicenter Charlotte $40,000, ,164 LIC Asset Management GMBH Rodin Global Property Trust 200 South Tryon $35,490, ,496 LNR Partners, LLC Jewell Capital, LLC Sherrill Building $35,000, ,929 Northwood Investors, LLC Bank of America Corporation

6 13 Office Submarkets 1 CBD 2 Midtown-Randolph 3 Midtown-Southend 4 Park Road 5 SouthPark 6 Cotswold 7 South Charlotte 8 South / Matthews 10 Mint Hill 11 Plaza Midwood / NoDa 12 University 13 Northeast I Northwest Charlotte 15 Airport

7 Scott Davies Vince Sumner Caldwell Rose Mike Wiles NAI Southern Real Estate 4201 Congress Street Charlotte, NC NAI Southern Real Estate-Charlotte, NC. We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty, or representation about it. No part of this document is to be reproduced without our written permission. This document has been prepared and issued by NAI Southern Real Estate on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. NAI Southern Real Estate or its affiliates does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions provided herein. Any expressions of opinions are subject to change without notice. This document does not constitute an offer or an invitation to invest, lease, rent, purchase or conduct any real estate activity, business activity, or personal activity based upon its data or purpose. No party should treat any of the contents herein as advice.