Despite Q1 Results, No Collapse for Atlanta Office

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1 Research & Forecast Report Atlanta Q Office Despite Q1 Results, No Collapse for Atlanta Office Key Takeaways > > Like the beginning of 2016, first quarter results show a slow start for Atlanta s office, seeing occupancy decrease due to negative absorption activity. > > The overall vacancy rate showed no significant movement from the end of last year and is still slightly below the year-over-year amount. Overall, the office vacancy rate in Atlanta increased only 10 basis points from last quarter. The Class A market, however, increased by 40 basis points from the same time. > > There were no significant deliveries over the past three months. These are anticipated to come online next quarter. Construction activity increased in Q1 with the 430,000 square foot 725 Ponce breaking ground at the site of the former Murder Kroger on the Beltline. > > With the first quarter now over, along with its scheduled vacancies, Atlanta will now begin to see a more positive outlook in the coming quarters as it relates to absorption of space. Atlanta Office Market Though not as significant as the recent collapse of the I-85 bridge, Atlanta s office market experienced a similar tumble to start the year with Q1 absorption totaling -137,847 square feet. This is the largest quarterly occupancy loss for Atlanta office since the first quarter of Coca-Cola, which is now completely out of its space at 2500 Windy Ridge, was the main contributor to the negative absorption this quarter vacating a total of 322,612 square feet. Though substantial, this was anticipated as part of the company s consolidation to its Downtown headquarters over the past couple of years. Other sizeable move-outs include Farmers Insurance vacating 138,961 square feet at Corporate Centre Two in North Fulton and State Farm vacating its space at North Terraces; although this was balanced out by the insurance company s Market Indicators Relative to prior period Summary Statistics Atlanta Office Market Market Class A Class B Vacancy Rate 13.8% 13.3% 15.2% Change From Q % 0.4% -0.3% Absorption YTD (Thousands Square Feet) Construction Deliveries YTD (Thousands Square Feet) Under Construction (Millions Square Feet) Asking Rents Per Square Foot Per Year Q VACANCY - NET ABSORPTION - CONSTRUCTION RENTAL RATE CAP RATES - *Projected Q2 2017* Average Quoted $23.10 $27.52 $18.24 Change From Q % 1.7% 0.2% Year-Over-Year Change 6.4% 5.6% 4.8%

2 Atlanta Office Market (continued) 146,250 square foot move-in at its new office tower in Dunwoody. On the positive side, three of the most unlikely submarkets led the Atlanta market in space absorption this quarter. Downtown, South Atlanta, and Northeast Atlanta saw the largest overall occupancy gains in Q1, likely for the first time ever as a trio in the history of Atlanta s office market. For Downtown, the increase in leasing activity over the past year helped fill over 100,000 square feet of vacant space this quarter. Anthem s first phase move-in at Bank of America Tower was the largest for the submarket at 73,240 SF. Most notable is the fact there were no substantial move-outs in the Central Business District which is a welcomed reversal of fortune compared to previous years. Downtown continues to benefit from the intown activity taking place; mostly in Midtown this cycle, but leaking southward now. With lower rents, plenty of space options, and its four MARTA rail stations, the submarket has become more desirable to tenants in the market. For South Atlanta and Northeast Atlanta, a number of scheduled move-ins helped contribute to their respective occupancy gains this quarter. At 13.8%, Atlanta s office vacancy showed no significant change from last quarter despite the negative absorption. Year-over-year the rate has not drastically changed either, down only 10 basis points (-0.1%). The average rental rate for Atlanta office increased yet again and remains at its highest level ever in the city s history. On the construction front, overall development activity is in check. No notable deliveries occurred in Q1. The only new project to break ground this quarter was the 725 Ponce office building. UPDATE - Recent Transactions in the Market Notable Leasing Activity Tenant Property Submarket Landlord Size Type Jackson Healthcare 2655 Northwinds Pkwy. North Fulton Duke Realty 267,000 Class A Expansion Westrock Northpark 400 Central Perimeter Cousins Properties 179,261 Class A Lease Aaron s 400 & 500 Chastain Center Northwest Atlanta TerraCap Management 115,314 Class B Renewal & Expansion CBRE Three Alliance Center Buckhead Tishman Speyer 104,817 Class A Lease SAIA Freight Johns Creek North Fulton Embry Office Properties 78,000 Class A Renewal & Expansion Notable Sales Activity Property Submarket Sales Date Sale Price Size Price / SF Buyer Crown Pointe Central Perimeter 2/14/2017 $83,400, ,968 $ KBS Strategic Opp. REIT One & Two Premier Plaza Central Perimeter 2/22/2017 $54,700, ,600 $ Zeller Realty Group 100 Ashford Center North Central Perimeter 1/27/2017 $22,375, ,247 $ OA Development 1052 W Peachtree St. Midtown 2/24/2017 $19,400,000 35,000 $ Georgia Tech Foundation 3500 Parkway Lane Northeast Atlanta 1/18/2017 $18,225, ,962 $ OA Development Historical Absorption, Deliveries and Vacancy Rates 5,000,000 20% 4,000,000 Square Feet 3,000,000 2,000,000 1,000,000 0 (1,000,000) (2,000,000) % 10% 5% (3,000,000) (4,000,000) Absorption Deliveries Vacancy % 0% 2 Research & Forecast Report Q Atlanta Office Colliers International

3 Vacancy & Availability > > There was no significant change from last quarter in the overall vacancy rate for Atlanta s office market. The rate has remained level over the past twelve months, hovering around 13.8%. > > The Class A vacancy rate in Atlanta increased because of negative absorption for the first time since mid-year > > Northwest Atlanta, in particular the Cumberland/Galleria area, saw the largest increase in vacant space this quarter. This is due entirely to Coca-Cola having moved completely out of its space at 2500 Windy Ridge. This move-out was expected and part of a consolidation by the company to its headquarters intown. > > With new deliveries expected to hit the market beginning next quarter, it is likely the Atlanta office market will see more upward movement in its vacancy rate; this in spite of stronger occupancy gains. Absorption & Leasing Activity > > Atlanta s office market experienced its largest quarterly decrease in occupancy in six years in Q1. > > The largest contributor to the negative absorption was Coca-Cola which is now completely out of its space at 2500 Windy Ridge. The move-out has been anticipated as the company has completed extensive renovations to its Downtown headquarters and moved its employees from Cumberland/Galleria to the campus. > > Class B absorption was more positive this quarter helping to diminish the negative Class A amount. The majority of this Class B absorptoin occurred in the Northwest and Northeast Atlanta submarkets. > > The negative absorption in the first quarter is no alarm to the overall conditions in Atlanta s office market. A combination of anticipated vacancies and also a lull in office leasing in the back half of 2016 directly affected Q1 results. Occupancy gains are expected in future quarters. Rental Rates > > Atlanta s overall average rental rate increased for an eleventh consecutive quarter. Since this time last year it has increased 6.4%. > > Class A rates saw the largest increase in Buckhead in Q1. The average is up 5.8% from last quarter. The jump is most likely tied to the confidence of landlords and property owners who continue to raise quoted rates due to the sustained demand for space in the submarket. > > Although rates continue their upwards movement, there is some notion to rents beginning to peak this cycle. Brokers are beginning to see some landlords hold rates steady, but give fewer incentives. Q Vacant Space By Type Square Feet class a 15,218,888 SF Vcy Rate = 13.3% Q Net Absorption By Submarket 150, ,000 50,000 0 (50,000) (100,000) (150,000) (200,000) (250,000) Q Atlanta Rental Rates Overall Market & Class A (per sq. ft.) 2014 Class A Class B Class C Downtown South Atlanta Class A 2015 class B 13,314,058 SF Vcy Rate = 15.2% class C 2,041,290 SF Vcy Rate = 10.5% Northeast ATlanta Central Perimeter Midtown Sources: CoStar Property, Colliers Research Buckhead 2016 Market AVG West Atlanta Northlake 2017 North Fulton Northwest Atlanta $29.00 $27.00 $25.00 $23.00 $21.00 $19.00 $ Research & Forecast Report Q Atlanta Office Colliers International

4 Construction > > With the exception of two smaller office buildings, Q1 was pretty quiet in terms of office deliveries in Atlanta. > > 725 Ponce on the former Murder Kroger site broke ground this quarter. The office portion of this project will total 430,000 square feet. > > Three Alliance, Riverwood 200, 8000 Avalon, and 3400 Overton are all anticipated to deliver in the second quarter. Investment Activity > > Office investment was considerably down this period compared to last. Around $317 million in transaction volume took place in Q1. > > The largest sales by volume took place in the Central Perimeter submarket this quarter. > > Activity is off due to the lack of offerings in the market. A few large buildings remain for sale but overall volume is expected to be low in DEFINITIONS Absorption (Net)-The net change in 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. Vacancy Rate-A percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Vacant Space-Space that is not currently occupied by a tenant, regardless of any lease obligation on the space. Construction Activity (100,000 SF+) Property Submarket Size Delivery Date Coda Spring Street Midtown 760,000 First Quarter 2019 Three Alliance Center Buckhead 506,647 Second Quarter 2017 NCR Headquarters - Phase I Midtown 485,000 First Quarter Ponce de Leon Ave. Midtown 430,000 First Quarter Perimeter Summit Central Perimeter 355,000 Fourth Quarter 2017 Riverwood 200 Northwest Atlanta 308,000 Second Quarter 2017 One Ballpark Center Northwest Atlanta 260,000 Fourth Quarter Avalon North Fulton 228,182 Second Quarter 2017 Mercedes HQ - Abernathy Rd. Central Perimeter 225,000 Second Quarter 2018 Encore Center Northwest Atlanta 222,000 First Quarter Overton Northwest Atlanta 172,906 Second Quarter 2017 Stockyards Atlanta Midtown 123,000 Third Quarter Edison North Fulton 107,643 Third Quarter 2017 The E. Paces Ferry Buckhead 100,000 Second Quarter 2017 Outlook First quarter s negative absorption is the second year in a row of the occurrence. Although this seems to be turning into an annual phenomenon, the slow start was not surprising given the scheduled vacancies of the past three months. Looking ahead, the recent bridge collapse on I-85 intown, though significant to Atlanta s daily traffic management, should not have a profound effect on the office market given the quick turnaround of the repair schedule. If anything, the incident highlights the importance of mass-transit in the metro area and the need for a more robust system. This provides even more fuel to the demand for office submarkets with MARTA rail stations. It also shines light on the existence of Atlanta s many co-working options, despite the talk of the market being too saturated with these types of spaces. For second quarter, positive absorption will return, possibly reaching the 1 million square foot mark if anticipated occupancies occur. While this should help lower Atlanta s office vacancy rate, construction deliveries will deter this outcome. Over 1.2 million square feet of new space is expected to come online next quarter. This will be the highest amount of quarterly inventory added in seven years. Because of this, the vacancy rate will likely increase slightly quarter-over-quarter even with projected absorption. Overall, Atlanta will continue its positive annual trend. Now that first quarter has passed, the occupancy gains set to occur will lead to higher absorption totals by the end of the year. Demand in the market remains high as numerous prospects scout the market. So long as this remains, the measured growth in Atlanta will continue. Sublease Space-Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. 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. Leasing Activity-The volume of square 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 was developed specifically for a certain tenant to occupy. Can be either leased or owned by the tenant. Class A Office-A classification used to describe buildings that generally qualify as extremely desirable investment-grade properties and command the highest rents or sales prices compared to other buildings in the same market. Such buildings are well located and provide efficient tenant layouts as well as high quality floor plans. Class B Office-A classification used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sales prices compared to Class A properties. Such properties have ordinary design, lack prestige and generally must depend on a lower rent/sales price to attract tenants/investors. 4 Research & Forecast Report Q Atlanta Office Colliers International

5 Atlanta Office Market Update Existing Properties Vacancy Absorption Deliveries U/C Rent CLASS BlDGS Existing Inventory Direct Vacancy Direct VCY % Sublet Vacancy SUBLET VCY % Total Vacancy VCY Curr Qtr % VCY Prior Qtr % Net ABsorp CURR Net ABSORP YTD New SUPPLY CURR New SUPPLY ytd Under Constr AVG Rent Rate URBAN DOWNTOWN A 28 15,009,330 2,497, % 86, % 2,584, % 17.6% 62,606 62, ,000 $24.90 B 80 9,229,916 1,113, % - - 1,113, % 12.1% 5,583 5, ,000 $18.27 C 78 3,864, , % , % 22.8% 35,296 35, $16.70 Total ,103,942 4,459, % 86, % 4,546, % 16.5% 103, , ,000 $23.43 MIDTOWN A 42 16,272,701 1,615, % 310, % 1,925, % 11.9% 18,064 18, ,798,000 $32.21 B 98 5,509, , % 5, % 600, % 11.6% 38,629 38, $24.00 C ,871 41, % , % 2.2% (21,117) (21,117) $20.26 Total ,689,952 2,251, % 315, % 2,567, % 11.5% 35,576 35, ,798,000 $29.27 BUCKHEAD A 50 16,098,888 1,829, % 108, % 1,937, % 12.1% 5,931 5, ,694 $34.34 B 54 4,025, , % 27, % 298, % 7.7% 11,529 11, ,518 $25.36 C ,640 19, % , % 2.3% $22.11 Total ,022,058 2,119, % 135, % 2,255, % 10.8% 18,315 18, ,212 $33.02 URBAN TOTAL A ,380,919 5,942, % 505, % 6,448, % 13.8% 86,601 86, ,564,694 $30.48 B ,764,826 1,978, % 33, % 2,012, % 11.0% 55,741 55, ,518 $22.54 C 155 5,670, , % - 0.0% 908, % 16.3% 15,034 15, $19.69 Total ,815,952 8,830, % 538, % 9,369, % 13.3% 157, , ,644,212 $28.57 SUBURBAN CENTRAL PERIMETER A 72 21,101,403 2,090, % 420, % 2,510, % 11.9% (7,640) (7,640) ,716 $28.48 B 137 6,721,131 1,249, % 24, % 1,274, % 19.3% 23,188 23, ,402 $23.26 C 72 1,143,015 97, % % 97, % 9.2% 6,834 6, $15.23 Total ,965,549 3,437, % 444, % 3,882, % 13.5% 22,382 22, ,118 $26.43 NORTH FULTON A ,741,504 1,934, % 72, % 2,007, % 11.7% (163,747) (163,747) ,718 $25.77 B ,305,901 1,423, % 19, % 1,442, % 12.8% 7,407 7, ,500 $17.56 C 68 1,051, , % 2, % 113, % 7.7% (32,545) (32,545) $16.99 Total ,098,919 3,468, % 94, % 3,563, % 12.0% (188,885) (188,885) ,218 $22.67 NORTHEAST ANTA A 60 8,046,540 1,254, % 41, % 1,295, % 15.8% (23,799) (23,799) ,000 $21.27 B ,756,902 2,972, % 74, % 3,046, % 22.5% 85,385 85,385 50,000 50,000 - $15.51 C 125 2,170, , % , % 9.9% 7,406 7, $12.90 Total ,974,350 4,434, % 115, % 4,550, % 19.1% 68,992 68,992 50,000 50,000 20,000 $17.28 NORTHLAKE A 23 3,129, , % 12, % 437, % 12.7% (39,148) (39,148) ,000 $21.12 B ,982,679 1,573, % 124, % 1,697, % 15.2% (23,130) (23,130) ,000 $17.21 C 152 3,118, , % 5, % 150, % 5.2% 11,841 11, $14.99 Total ,230,551 2,142, % 142, % 2,285, % 13.0% (50,437) (50,437) ,000 $17.72 NORTHWEST ANTA A 73 17,395,820 2,176, % 223, % 2,399, % 11.7% (360,965) (360,965) - - 1,046,906 $26.56 B ,219,514 2,190, % 26, % 2,216, % 15.5% 146, , $17.72 C 156 2,825, , % , % 10.2% 4,657 4, $13.75 Total ,440,978 4,649, % 249, % 4,898, % 13.2% (209,375) (209,375) - - 1,046,906 $22.02 SOUTH ANTA A 17 1,344, , % 4, % 120, % 10.7% 41,037 41,037 20,000 20,000 - $21.14 B 234 9,108,962 1,080, % 72, % 1,153, % 13.2% 45,889 45, ,000 $15.69 C 134 2,657, , % , % 8.7% (12,862) (12,862) $17.34 Total ,110,168 1,439, % 76, % 1,516, % 12.0% 74,064 74,064 20,000 20,000 20,000 $16.43 WEST ANTA A B 68 1,964, , % , % 23.0% (18,434) (18,434) $20.47 C ,349 37, % , % 5.6% 6,470 6, $16.96 Total 107 2,737, , % , % 18.1% (11,964) (11,964) $19.94 SUBURBAN TOTAL A ,759,072 7,996, % 774, % 8,770, % 12.3% (554,262) (554,262) 20,000 20,000 2,101,340 $24.06 B 1,880 69,059,857 10,960, % 341, % 11,301, % 16.7% 267, ,238 50,000 50, ,902 $18.20 C ,738,703 1,123, % 8, % 1,132, % 8.2% (8,199) (8,199) $15.45 Total 2, ,557,632 20,080, % 1,124, % 21,205, % 13.9% (295,223) (295,223) 70,000 70,000 2,210,242 $20.36 ANTA MARKET GRAND TOTAL A ,139,991 13,939, % 1,279, % 15,218, % 12.9% (467,661) (467,661) 20,000 20,000 4,666,034 $27.52 B 2,112 87,824,683 12,939, % 374, % 13,314, % 15.5% 322, ,979 50,000 50, ,420 $18.24 C ,408,910 2,032, % 8, % 2,041, % 10.6% 6,835 6, $15.86 Total 3, ,373,584 28,911, % 1,663, % 30,574, % 13.7% (137,847) (137,847) 70,000 70,000 4,854,454 $23.10 Quarterly Comparisons and Totals QUARTERLY COMPARISON AND TOTALS Q1-17 3, ,373,584 28,911, % 1,663, % 30,574, % 13.7% (137,847) (137,847) 70,000 70,000 4,854,454 $23.10 Q4-16 3, ,303,584 28,845, % 1,521, % 30,366, % 13.8% 815,603 1,324, ,345 1,071,384 4,360,954 $22.79 Q3-16 3, ,545,239 29,142, % 1,280, % 30,423, % 13.8% 184, , , ,039 3,946,656 $22.41 Q2-16 3, ,289,428 29,145, % 1,207, % 30,352, % 13.9% 356, ,756 17,110 57,228 4,063,233 $21.95 Q1-16 3, ,272,318 29,610, % 1,081, % 30,692, % 13.9% (32,222) (32,222) 40,118 40,118 3,373,544 $21.72 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. Sources: CoStar Property, Colliers Research 5 Research & Forecast Report Q Atlanta Office Colliers International

6 Atlanta Office Submarkets Canton Cartersville Emerson BARTOW CO. PAULDING CO. COBB CO. BARTOW CO. CHEROKEE CO. Acworth Allatona Lake NORTHWEST ANTA MARIETTA Woodstock CHEROKEE CO. Mountain Park COBB CO. CHEROKEE CO. FULTON L CO. FORSYTH R CO. Alpharetta OCENTRAL PERIMETER DORAVILLE O. Roswell CHAMBLEE NORTH FULTON FORSYTH Cumming FULTO N CO. CO. River Duluth Chattachoochee Norcross Lake Lanier Sugar Hill HALL CO. GWINNETT CO. Lawrenceville Buford NORTHEAST ANTA 316 GAINESVILLE Bras OFFICE Submarkets 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. PAULDING CO. Douglasville Powder Springs COBB CO. DOUGLAS CO. Austell WEST ANTA SMYRNA oochoch Ch attachoochee River ANTA BUCKHEAD MIDTOWN DECATUR A Avondale Estates DOWNTOWN NORTHLAKE Clarkston GWINNETT G CO. Stone Mountain Lithonia Snellville GWINNETT CO. WALTON CO. Submarket Size & Occupancy COWETA CO. Palmetto Fairburn Union City EAST POINT COLLEGE PARK HAPEVILLE Hartsfield-Jackson International Airport FAYETTE CO. Fayetteville CLAYTON L A CO. FOREST PARK SOUTH ANTA Riverdale 675 Jonesboro HENRY CO. CLAYTON CO. HENRY CO. Stockbridge ROCKDALE CO. McDonough Submarket Size Occupancy % Conyers Covington Northwest Atlanta 35.4 msf 86.2% Central Perimeter 30.0 msf 86.6% North Fulton 28.1msf 87.3% Downtown 28.1 msf 83.8% Northeast Atlanta 24.0 msf 81.0% Midtown 22.7 msf 88.7% Buckhead 21.0 msf 89.3% Northlake 17.2 msf 86.7% ROCKDALE CO. NEWTON CO. Newnan Peachtree City South Atlanta 13.1 msf 88.4% West Atlanta 2.7 msf 81.4% BUTTS CO. FOR MORE INFORMATION Scott Amoson VP, Director of Research Atlanta scott.amoson@colliers.com Bob Mathews President & CEO Atlanta bob.mathews@colliers.com Copyright 2017 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. Colliers International Atlanta Promenade Suite Peachtree Street, NE Atlanta, Georgia, colliers.com/atlanta 6 North American Research & Forecast Report Q Office Market Outlook Colliers International