RALEIGH-DURHAM OFFICE

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1 Research Report RALEIGH-DURHAM OFFICE Q Accelerate Success New Third Quarter Office Deliveries Contribute to Moderate Increase in Vacancy Emily Bostic Research Analyst Raleigh-Durham Market Indicators Key Takeaways >> At the close of the third quarter, overall vacancy in the RaleighDurham office market increased as several large developments finally delivered. Even with the slight increase in vacancy, absorption numbers were resilient and increasing demand for Class A space continues to create a construction frenzy in the. >> Average asking rents in the Raleigh-Durham market, particularly in the Class A sector, are forecast to steadily increase during the fourth quarter of With the large amount of Class A space that is currently under construction and the additional properties proposed, increasing price points will push office rents well into the new year. >> While national job growth seems to have peaked as the country nears full employment, the economic environment in the remains very strong. Raleigh has the second highest GDP growth across all metro hubs in the nation. Job growth has gained momentum across many sectors, however, the IT sector in the market is growing 1% faster than the rest of the United States. >> As a well-known hub for life sciences, the is also experiencing significant expansion in the technology sector. Raleigh reported a 38.5% increase in technology employment between , second only to San Francisco and ahead of Austin, Boston and other major innovation and technology hubs. >> Raleigh was recently named the fourth best city in the country for fostering entrepreneurial growth. With more than 500 startups, the region offers a deep talent pool thanks to the nearby universities that allow for a thriving and diverse economy. Raleigh is one of the top cities in the U.S. for generating high venture capital returns, as well as one of the best metros for business and careers. Relative to prior quarter Raleigh-Durham Q Raleigh-Durham Q NET ABSORPTION RENTAL RATE Summary Statistics Market Class A Vacancy Rate 8.6% 9.3% 8.1% Change From Q % 0.9% 0.1% YTD Net Absorption 890, , ,586 Under Construction , , ,076 $23.31 $26.38 $19.23 $1.38 $0.10 $0.29 Q Office Market Existing Inventory (Millions Square Feet) (Square Feet) (Millions Square Feet) Construction Deliveries (Square Feet) Class B Asking Rents Per Square Foot Per Year Average Quoted Change from Q2 2017

2 Absorption & Leasing Activity > > The office market reported over 266,000 square feet of total net absorption. Downtown Durham obtained the most positive net demand with over 152,000 SF of office space absorbed. The delivery of the 284,000-square foot Chesterfield Building in Downtown Durham brought Class A absorption totals in that submarket up to 160,050 square feet. Major tenants including Duke University, Nutanix and BioLabs preleased a significant amount of space (over 75%) at the former Liggett & Myers Tobacco warehouse before its recent delivery. > > The Cary submarket also reported strong office demand with over 122,700 total square feet absorbed after the delivery of CentreGreen III. The CentreGreen III building located at 5000 CentreGreen Way brought an additional 167,268 square feet to the Cary submarket. CentreGreen is occupied by major tenants such as Copernicus Group IRB, a world-leading clinical advisory research firm. > > Overall Class A net absorption in the reached 286,395 square feet during the third quarter, while the overall Class B market reported absorption of only 22,4 square feet in the third quarter. The s year-to-date Class A net demand reached 863,960 total square feet. > > The largest lease of the third quarter was the 81,032-square foot lease signed by WeWork, a business services firm, at One Glenwood in the Downtown Raleigh submarket. WeWork will occupy their new Class A space in January of Vacancy & Availability > > The overall vacancy rate remained low and stable at 8.6% for the third quarter, resulting in a 0.6% increase in vacancy percentage from the second quarter. The slight uptick in vacancy is a direct result of the anticipated office deliveries, particularly in Downtown Durham and Cary. The overall Class A vacancy in the office market was reported at 9.3% at the close of the third quarter with over 3.0M total square feet of vacant space. > > Downtown Durham reported the lowest vacancy rate in the office market for the eighth-consecutive quarter. While this submarket's vacancy rate increased by over 2.0% since the previous second quarter, it continues to report the lowest vacancy rate across all submarkets. The delivery of the Chesterfield Building brings an additional 284,000 total square feet, creating the 2.0% increase in vacancy. However, the lack of inventory in this relatively small central business district continues to create an aggressive market for tenants. Rental Rates > > Overall gross rents in the office market continue to increase. The market s overall Class A rents are experiencing the most growth as vacancies remain tight across the board. While several large buildings have recently delivered, the still awaits an impressive amount of supply and the leasing market heavily favors the landlord. Raleigh-Durham office rents are expected to continue their steady increase well into Rental Rates (cont.) > > Downtown Durham and Downtown Raleigh reported the highest rents of any submarket. The average Class A rental rate in Downtown Durham reached $30.79 per square foot during the third quarter. The average Class A rental rate in Downtown Raleigh reached $30.43 per square foot during the third quarter. > > Overall rents, particularly in the Class A office sector, will undoubtedly increase as the 2.0M square feet of space that is under construction delivers. As each new development enters the market, price points will inevitably become higher, giving owners the opportunity to increase their asking rates. $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 SF (Millions) Class A Class B Class C $ Source: Colliers Research, CoStar Group Vacancy Rates by Asset Class 9.3% 8.6% 4.3% Vacancy Occupancy Asking Rents by Asset Class Class A Class B Class C 2 Raleigh-Durham Research Report Q Office Market Colliers International

3 OVERALL SUBMARKET COMPARISONS SUBMARKET NAME EXISTING INVENTORY DIRECT SUBLET TOTAL PERCENTAGE (%) YTD NET ABSORPTION NEW DELIVERIES UNDER Cary 11,671, ,683 31, , , , ,000 $22.01 Downtown Durham 5,044, ,062 4, , , , ,956 $30.09 Downtown Raleigh 7,491, ,771 23,032 3, , ,688 $29.57 Glenwood Creedmoor 3,625, ,557 14, , (4,323) 0 28,500 $21.89 North Durham 1,942, , , , $14.96 Northeast Wake County 612,706 11, , , $15.37 Orange County 3,431, ,307 3, , (63,588) 0 206,106 $27.96 Research Park 11,586,023 1,807,598 22,442 1,830, , ,579 $20.98 RTP I- 8,815, , , , ,593 56, ,250 $23.50 Six Forks Falls of Neuse 9,596, ,396 17, , , $23.10 South Durham 5,219, ,552 13, , ,247 76, ,000 $22.89 Southern Wake County 2,323,916 77, , ,866 78,300 32,320 $16.71 US 1 Capital Blvd. 3,019, , , (35,810) 0 26,0 $19.51 West Raleigh 9,561, ,770 19, , , ,071 $24.63 MARKET TOTALS 69,076,558 5,673, ,712 5,937, % 890, ,376 2,025,650 $23.31 AVERAGE RENTAL RATE CLASS A SUBMARKET COMPARISONS EXISTING INVENTORY DIRECT SUBLET TOTAL PERCENTAGE (%) YTD NET ABSORPTION NEW DELIVERIES UNDER AVERAGE RENTAL RATE (WEIGHTED) SUBMARKET NAME Cary 4,866, ,126 25, , , , ,000 $24.44 Downtown Durham 2,874, , , , , ,501 $30.79 Downtown Raleigh 4,253, ,008 23, , , ,000 $30.43 Glenwood Creedmoor 1,393, ,162 14, ,844 14,1 (29,467) 116,500 0 $25.55 Orange County 1,384, ,583 3, , , ,106 $29.31 Research Park 3,750, ,845 12, , (8,657) 0 151,579 $23.87 RTP I- 4,417, ,643 67, , (7,948) $24.59 Six Forks Falls of Neuse 4,096, ,094 15, , , $26.09 South Durham 2,518, ,547 7, , ,707 76,446 0 $25.57 US 1 Capital Blvd. 1,069,179 54, , , $24.10 West Raleigh 4,947, ,533 18, , , ,071 $26.68 MARKET TOTALS 35,571,418 2,900, ,013 3,089, , ,100 2,198,507 $26.38 *NOTE: North Durham, NE Wake County and Southern Wake County submarkets do not have any Class A office inventory. Q NOTABLE LEASE TRANSACTIONS TENANT BUILDING SUBMARKET TOTAL SF LEASE TYPE ASKING RENT WeWork One Glenwood Downtown Raleigh 81,032 New Withheld First Citizens Bank Colonnade Center Six Forks Falls of Neuse 53,214 New $27.50 A2Z Colonnade Center Six Forks Falls of Neuse 51,363 New $27.50 Tachtest Pharma Regency Park Cary 50,000 New $27.95 Pendo Wells Fargo Capitol Center Downtown Raleigh 42,710 New $29.50 Sageworks Wade Park IV West Raleigh 33,885 New $28.50 Ashfield Pharma 5003 S. Miami Blvd. Research Park 26,575 Renewal Withheld Sepi Engineering & Construction One Glenwood Downtown Raleigh 25,750 New Withheld 3 Raleigh-Durham Research Report Q Office Market Colliers International

4 Construction & Investment Activity > > At the close of the third quarter, office deliveries totaled 584,376 SF in four buildings with an additional 2.03 million square feet that is currently under construction. In the Downtown Raleigh submarket, construction is underway for the new 228,000 square foot One Glenwood building with anticipated project delivery in early The proposed First National Bank tower, also in Downtown Raleigh, will provide an additional 150,000 square feet of Class A office space. Tower IV at North Hills will provide an impressive 450,000 square feet of mixed-use Class A space that will anchor an already flourishing development to the Six Forks Falls of Neuse submarket. > > The most notable office sales transaction of the third quarter was the seven-property portfolio exchange of Perimeter Park in September. The Perimeter Park buildings located in the RTP I- submarket sold for a total of $104.4M or $180 per square foot. Goldman Sachs purchased the portfolio from Starwood Capital with Vanderbilt Partners and Trinity Capital as joint venture partners. The properties were 91% occupied at the time of sale. > > The Raleigh-Durham market produced $279.3M in total sales volume of 29 office properties, with an average per square foot price of $160 in the third quarter. In the prior twelve months (through Q3 2017), the market produced $908.4 in total sales volume from 74 property sales, with an average square foot price of $ Q NOTABLE DEVELOPMENT ACTIVITY PROPERTY SUBMARKET SIZE PRE-LEASED % QUOTED RENTAL RATE BUILDING CLASS STATUS START / DELIV DATE Tower IV at North Hills Six Forks Falls of Neuse 344, $37.50 A Proposed Q The Dillon Downtown Raleigh 267, $34.50 A Under Construciton Q Perimeter Park Five RTP I- 258, Withheld A Under Construction Q Mangum Downtown Durham 2, $33.95 A Under Construction Q Brier Creek Town Center I RTP I- 2, Withheld A Proposed Q One Glenwood Downtown Raleigh 228, $32.95 A Under Construction Q Perimeter Park Six RTP I- 200, Withheld A Proposed Q One City Center Downtown Durham 150, $32.00 A Under Construction Q FNB Tower Downtown Raleigh 149, $33.50 A Proposed Q Glenwood Glenwood Creedmoor 115, $31.95 A Proposed Q Q NOTABLE SALES ACTIVITY PROPERTY SUBMARKET SALES MONTH SALES PRICE (MILLIONS) SIZE PRICE PER SF BUYER SELLER *Perimeter Park RTP I- September $ ,245 $179 Goldman Sachs Starwood Capital; JV: Vanderbilt Partners *Highwoods Portfolio Cary September $ ,000 $155 Adler Kawa Highwoods *Concourse Lakeside RTP I- September $ ,375 $156 Foundry Commercial; JV: Hart Realty Banyan Street Capital; JV: Oaktree Golden Belt Downtown Durham July $ ,982 $134 LRC Properties Scientific Properties Crossroads Center Cary July $ ,019 $153 Builders Mutual Insurance True North Mgmt Valley View South Durham September $8.2 54,2 $150 Hillel Bachrach Valley View LLC Colony Corporate Center Six Forks Falls of Neuse September $6.6 55,292 $119 Pergament Properties ROI Revolution 1565 Orchard Villas Southern Wake Cty August $5.6 12,238 $463 Bayrock Investment The Keith Corporation *NOTE: Part of a portfolio sale. 4 Raleigh-Durham Research Report Q Office Market Colliers International

5 North Durham TRIANGLE SUBMARKET MAP BURLINGTON Orange County Graham CHAPEL HILL Carrboro 85 ORANGE CO. DURHAM CO. 501 South Durham Downtown Durham CHATHAM CO. DURHAM Research Park RESEARCH TRIANGLE PARK RTP / I- Apex Morrisville RDU International Airport Cary 1 64 CARY West Raleigh DURHAM CO. Glenwood/ Creedmoor GRANVILLE CO. 5 Six Forks Rd 4 RALEIGH Downtown Raleigh Falls of the Neuse Rd Garner FRANKLIN CO. Wake Forest US 1 / Capital Blvd 264 Northeast Wake County 1 Southern Wake County Holly Springs East Raleigh 70 Clayton Fuquay-Varina. JOHNSON CO. Smithfield Sanford METHODOLOGY METHODOLOGY The Raleigh-Durham office reports calculate statistics using CoStar Group and Colliers International Raleigh-Durham s database of existing and under construction properties at market and submarket levels. Included in the pool of data are non-owner occupied Class A, B, and C office properties of 10,000+ SF. DOWNTOWN DURHAM AMERICAN TOBACCO CAMPUS 5 Raleigh-Durham Research Report Q Office Market Colliers International

6 396 offices in 60 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 192 EMEA: 112 $105 billion in annual revenue 2.0 billion square feet managed 15,000 professionals and staff OFFICE SERVICES CONTACT: Kathy Gigac Director of Leasing Raleigh Kathy.Gigac@colliers.com Baxter Walker Senior Vice President Raleigh Baxter.Walker@colliers.com Martie Serianni Senior Vice President Raleigh Martie.Serianni@colliers.com Thomas Kenna Vice President Raleigh Thomas.Kenna@colliers.com Lindsey Calverley Associate Raleigh Lindsey.Calverley@colliers.com REGIONAL AUTHORS: Emily W. Bostic Research Analyst, CPRC Emily.Bostic@colliers.com Hannah Hathaway Research Assistant, CPMC Hannah.Hathaway@colliers.com About Colliers International Group Inc Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry leading global real estate services company with 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 12 consecutive years, more than any other real estate services firm. Colliers also has been ranked the top property manager in the world by Commercial Property Executive for two years in a row. For the latest news from Colliers, visit Colliers.com or follow us on Twitter and LinkedIn. Colliers International has served clients in the Raleigh-Durham Eastern North Carolina market since Visit our website at colliers.com/rdu or follow us on 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.