Quick Absorption of Newly Constructed Office Buildings

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1 Research & Forecast Report CHARLESTON, SC OFFICE Q Quick Absorption of Newly Constructed Office Buildings Bryana Mistretta Research Coordinator South Carolina Key Takeaways >> The Interstate 526 corridor office market is booming. Market Indicators >> Expansion of the automotive industry is driving office leasing in Upper North Charleston and Summerville. VACANCY >> Investors continue to be attracted to Charleston s office market with three additional sales this quarter. Booming Activity Along Interstate 526 Office market activity in Charleston has been the most robust since 2007 along the Interstate 526 corridor which connects from Mt. Pleasant to West Ashley. There are a total of 18 buildings that are immediately accessible to the interstate clustered primarily on Daniel Island and North Charleston. Collectively, these two areas have seen the most development, the lowest vacancies and the shortest leasing period when a new building is completed. At the end of the third quarter, the vacancy rate was 4.3% for these buildings. In comparison, the market as a whole was at 7.3%. Two of the four last buildings constructed along this corridor, Faber Pointe and 1 Central Island Plaza were both more than 90 percent occupied within one year of completion. In addition to speculative construction, the corridor has seen significant build-to-suit activity with both Benefitfocus and Blackbaud developing their campuses on Daniel Island. Driving the activity along Interstate 526 is its central location. As regional traffic has increased in the last ten years, employers are attracted to buildings that employees can easily reach from the principal residential submarkets Summerville, Mt. Pleasant, and West Ashley. Going forward, we anticipate this trend will continue with the most ideal regional location being Interstate 526 between the Ashley River and I-26, home to the Faber Office Park, the Montague Road interchange, Boeing, and the Centre Pointe mixed use development. Relative to prior period Q Q NET ABSORPTION CONSTRUCTION RENTAL RATE** Note: Construction is the change in Under Construction. *Projected **Rental rates for current quarter are for CBD. Rent forecast is for metro-wide rents. Summary Statistics Market CBD Suburban 7.3% 4.8% 7.9% Change From Q Absorption Q Charleston Office Market Vacancy Rate (basis points) (Thousand Square Feet) New Construction (Thousand Square Feet) Under Construction (Thousand Square Feet) Asking Rents Per Square Foot Per Year Market Change From Q $ % CBD Class A $35.94 Change From Q %

2 Automotive Drives Leasing Activity The recent announcements of Mercedes-Benz Vans/Daimler and Volvo Cars of North America are economic drivers impacting the growth of Charleston s office market in Upper North Charleston and Summerville submarkets. There has been significant interest by companies that will help construct these facilities or service them once they are operational. The Mercedes-Benz Vans/Daimler and Volvo Cars announcements have committed a combined $1 billion of capital investment to create 3,300 new jobs at their manufacturing facilities. Mercedes-Benz Vans/Daimler will develop an additional facility on more than 200 acres at the Palmetto Commerce Park in North Charleston for the production of their Sprinter vans for the United States and Canadian markets. Volvo Cars is constructing a manufacturing facility in Ridgeville that will begin production in While capital investment is a major economic driver, a rapidly growing population and housing market are also impacting the Summerville and Upper North Charleston submarkets. There are more than 30,000 new single-family homes permitted for Summerville, 443 multifamily units under construction and an additional 1,254 multifamily units proposed for the two submarkets. These new housing developments will support the 35 new residents that are moving to Charleston every day. ESRI estimates the current population of the three county area to be 740,000 people with projections to reach 810,000 by Upper North Charleston and Summerville have only a few Class A office buildings with large blocks of space available currently limiting the leasing activity in these submarkets although activity is robust. As a result, a number of older buildings in the area have been purchased and are being upgraded to make them more competitive. The addition of these office buildings near the new Mercedes-Benz Vans/Daimler and Volvo facilities will foster the growth of new companies locating to the area to service Charleston s expanding automotive sector. Investor Activity Continues As the flight for quality capital investment has continued, buyers have been attracted to the high growth economy of the Charleston region. Unfortunately, their appetite has been limited by the supply of available buildings. Despite this limitation, there were three additional office buildings traded in the market this quarter. Going forward, investment sales will continue in the market as new or redeveloped buildings are leased or current owners capitalize on their investments. Charleston is expected to remain on the national radar for capital placement because of the strong underlying market fundamentals. > > 288 Meeting Street, a 31,300 square-foot office building was purchased by Chicago-based The Turtle Factory Building Corporation for $11.8 million, or $377 PSF. The downtown Charleston, class A office building was fully occupied at the time of purchase. > > The Oaks at Centre Pointe located at 4969 Centre Pointe Drive in the Lower North Charleston submarket is 42,000 square feet. The class A building was purchased by Doublz Investments LLC for $10.6 million, or $252 PSF. > > The Atrium, a 54,600 square-foot Class B building located at 7301 Rivers Ave, sold to an LLC for $7.53 million or $ PSF Rivers Ave Upper North Charleston Market Vacancy By Class 6.7% Source: CoStar 4969 Centre Pointe Drive Lower North Charleston 11.0% Market Vacancy 7.3% 6.0% Class A Class B Class C Source: CoStar 2 South Carolina Research & Forecast Report Q Charleston Office Colliers International

3 Construction Pipeline Nearly 411,000 square feet of office space are under construction throughout the Charleston market. Increasing land prices and construction costs are influencing developers to incorporate a mix of retail, office and residential space to maximize their return. These mixed-use projects allow more intensive development and increase Charleston s walkability. Highlighted Construction > > 349 Coleman Boulevard, an approximately 28,000 square-foot, Class A mixed-use office building, is under construction in Mount Pleasant. The building is expected to deliver in 2017 and will include 5,700 square feet of restaurant space on the ground level. > > The Comcast Center of Excellence will be an 80,000 square foot building developed at 3450 Ingleside Boulevard. The building will house the company s customer service and technical support center, employing 550 people. > > Blackbaud has invested $154 million for a new office campus along the I-526 corridor. The 360,000 square-foot campus will be built in two phases. The first phase will be a 172,000 square-foot office building set to deliver in Planned > > Rushmark Properties is in the process of constructing a master planned office park in Upper North Charleston along the I-526 corridor. At build-out, there will be four, 100,000 square-foot office buildings and three hotels. The development will provide tenants and guests direct access to the Charleston International Airport and I-26 via I-526. Market Conditions Absorption was positive this quarter leading to a market vacancy rate of 7.3%, a record low. At the end of the previous quarter, market vacancy was 8.8%. The majority of space absorbed was Class A space. The vacancy rate dropped from 9.5% at the end of the previous quarter to 6.7% at the end of this quarter. The average asking rental rate is steady at $23.30 PSF/YR this quarter. The average asking rental rate increased for Class B and C spaces to $23.29 PSF/YR and $18.57 PSF/YR, respectively. The average asking rental rate for Class A space was higher at $27.52 PSF/YR. The vacancy rate in Downtown Charleston was 4.8% at the end of the third quarter, a drop from 5.8% last quarter and from 10.6% a year ago. The largest change in vacancy was due to the absorption of 29,000 square feet of Class A and B spaces in the downtown submarket. Launch Office Building Rendering Source: Rushmark Properties Blackbaud Campus Rendering Source: ASD SKY Average Asking Rental Rates Market A B $23.29 $27.52 The suburban submarkets saw increased activity this quarter, as well. Nearly 180,000 square feet of space were absorbed and the vacancy rate dropped to 7.9% from 9.5% in the previous quarter. Although vacancy showed a significant decrease, average asking rental rates have remained steady at $22.14 PSF/YR for suburban office space. C $ South Carolina Research & Forecast Report Q Charleston Office Colliers International

4 Q Office Market Summary Statistics Charleston, SC MARKET DOWNTOWN CHARLESTON BUILDINGS INVENTORY DIRECT VACANT SUBLEASE VACANT TOTAL VACANT TOTAL VACANCY RATE (%) NET ABSORPTION AVERAGE ASKING RENTAL RATE (SF/YR) Class A ,039 55,785-55, % -2,739 $35.94 Class B 29 1,022,400 26,638-26, % 31,374 $28.62 Class C ,709 13,188 21,528 34, % -5,051 $22.92 Downtown Total 69 2,422,148 95,611 21, , % 23,584 $30.78 LOWER NORTH CHARLESTON Class A ,218 42,944-42, % 51,924 $26.01 Class B 28 1,294,220 46,340-46, % 38,354 $25.62 Class C ,794 60,983 1,135 62, % 50,867 $19.45 Lower North Charleston Total 61 2,719, ,267 1, , % 141,145 $23.16 UPPER NORTH CHARLESTON Class A ,212 81,692-81, % 32,370 $23.89 Class B ,694 49,453-49, % 18,030 $19.60 Class C , , , % 753 $17.70 Upper North Charleston Total 51 2,250, , , % 51,153 $20.10 DANIEL ISLAND Class A ,937 9, , % 82,347 $25.76 Class B ,780 43,714-43, % 1,683 $22.67 Class C 3 78, Daniel Island Total 37 1,398,433 53, , % 84,030 $23.26 MT. PLEASANT Class A ,683 11,251-11, % 15,123 $29.52 Class B 56 1,023,800 31,890 6,199 38, % -35,406 $25.99 Class C 9 177,864 5,163-5, % 2,419 $19.12 Mt. Pleasant Total 84 1,783,347 48,304 6,199 54, % -17,864 $26.06 WEST ASHLEY Class A 3 140,749 31,683-31, % 24,278 $26.06 Class B , , , % -49,230 $22.20 Class C 9 186,583 21,577-21, % -100,758 $16.75 West Ashley Total , , , % -125,710 $22.23 SUMMERVILLE/GOOSE CREEK Class A 2 175,000 57,500-57, % 44,338 $26.50 Class B ,740 12,527-12, % -3,131 $22.48 Class C ,181 10,215-10, % 5,510 $14.53 Summerville/Goose Creek Total ,921 80,242-80, % 46,717 $24.35 SUBURBAN SUBMARKETS Class A 66 3,407, , , % 250,380 $25.42 Class B 154 4,344, ,775 6, , % -29,700 $22.82 Class C 80 2,138, ,626 1, , % -41,209 $17.96 Suburban Submarkets Total 300 9,890, ,854 8, , % 179,471 $22.14 MARKET Class A 83 4,357, , , % 247,641 $27.52 Class B 183 5,367, ,413 6, , % 1,674 $23.29 Class C 103 2,587, ,814 22, , % -46,260 $18.57 Market Total ,312, ,465 29, , % 203,055 $ South Carolina Research & Forecast Report Q Charleston Office Colliers International

5 Office-Using Employment Office-using employment, those jobs related to the professional and business services, financial activities, and information sectors are growing within the Charleston-North Charleston Metropolitan Statistical Area (MSA). According to the most recent July 2016 data from the Bureau of Labor Statistics, 3,900 office-using jobs were added over the last 12 months. Non-Farm employment is also showing a positive upwards trend, increasing by 2.9% over the last year, adding a total of 9,800 new jobs. Office-using employment as of July 2016 accounts for 21.2% of total non-farm employment in the Charleston-North Charleston MSA and accounted for 40% of all new jobs added to the MSA over the last 12 months. Employment growth, especially growth of office-using employment is a good indicator of market vacancy as additional jobs correlate with a greater demand for office space and lower vacancy rates. As the employment sector continues to grow, the market will experience additional demand for space. Market Forecast Continued growth of employment, population, and developments across the market will continue to expand the number of new officeusing tenants locating to Charleston in the future. Construction levels are at record highs across all property types in Charleston, making room for new employers in the area. Increased leasing activity will remain strong in the coming quarters and is expected to increase absorption, occupancy and asking rental rates. As these market characteristics continue and interest rates remain low, Charleston s office market will continue to favor investment sales. Around South Carolina Office markets across the state are seeing new developments and are increasingly attractive to out-of-market investors. Columbia, South Carolina > > Owners of downtown office towers are replacing traditional first floor office spaces with retail and restaurant space. The trend is extending outside of Main Street to 2801 Devine Street, the 32,000 square-foot former Aflac office building. The building is being renovated to include retail space on the street-level and two floors of traditional office space above. The building will be ready for occupancy by the end of the year. Office Using Employment Charleston-North Charleston, MSA Number of Jobs Added 4,000 3,500 3,000 2,500 2,000 1,500 1, Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Jobs Added Source: Bureau of Labor Statistics, St. Louis Federal Reserve, Colliers International Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Office Using Employment Commercial Real Estate Growth Cycle: Where the market stands and where it is going NEW CONSTRUCTION RENTAL RATE EMPLOYMENT OCCUPANCY PHASE 4: RECESSION PHASE 1: RECOVERY Devine Station Rendering COMMERCIAL REAL ESTATE GROWTH CYCLE Jan-16 Apr-16 PHASE 2: EXPANSION PHASE 3: HYPERSUPPLY Jul Office Using Employment (Thousands) Greenville, South Carolina > > Spartanburg has $67.4 million of capital investment in planned projects. Fast paced development, average asking rental rates comparable to those of suburban Greenville office space, the availability of large, quality, blocks of office space and free, ample parking will prove to be attractive amenities to employers considering cities throughout the region. For more statewide commercial real estate news check out our market reports at: Sources: Devine Station, LLC 5 South Carolina Research & Forecast Report Q Charleston Office Colliers International

6 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.5 billion in annual revenue 2 billion square feet under management 16,000 professionals and staff FOR MORE INFORMATION: Liz H. McCary Director of Marketing South Carolina Liz.McCary@colliers.com Bryana L. Mistrettta Research Coordinator South Carolina Bryana.Mistretta@colliers.com CHARLESTON OFFICE PROFESSIONALS: Peter Fennelly, MCR, SIOR, SLCR Market President Peter.Fennelly@colliers.com Mark Mattison, CCIM, SIOR Principal Charleston Mark.Mattison@colliers.com Mike Palmer Brokerage Associate Mike.Palmer@colliers.com Colliers International Charleston 25 Calhoun Street, Suite 220 Charleston, South Carolina USA About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com or follow us on Twitter (@ColliersIntl) and LinkedIn. colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.