Landlords Getting Aggressive

Research & Forecast Report GREENVILLE SPARTANBURG ANDERSON SOUTH CAROLINA OFFICE Q2 2017 Landlords Getting Aggressive Ron Anderson Vice President of Administration South Carolina Key Takeaways > > Landlords aggressively courting large tenants. > > Small tenants struggling to find space. Big and Small Tenants Getting Different Treatment Market Indicators Relative to prior period VACANCY NET ABSORPTION CONSTRUCTION Q2 2017 Q3 2017* Greenville has become a bifurcated tenant market, with those seeking 20,000 square feet or more in a strong negotiating position while smaller tenants are struggling to find adequate space. This has occurred for several reasons. First, many of the largest tenants have already either moved or renewed their leases in the past five years, leaving a small universe of available tenants who need 20,000 square feet or more. Second, the bulk of the vacant space is in a handful of buildings many of which will require significant capital upgrades to become competitive. The national economy is in the 96th month of economic expansion, the third longest since World War II, motivating landlords to secure income and lease renewals before the inevitable downturn. Another factor is the prospect of new construction, combined with the narrowing delta between rental rates of new construction and upgraded space in older buildings. Interest rates are beginning to rise, making capital improvements to both common areas and tenant upfits financially more expensive than they were one year ago. Combined, these factors will give large tenants in Greenville the upper hand for the next several years. Conversely, it also makes it difficult for smaller tenants who want affordable, quality space because their individual lease will not typically provide sufficient income to rationalize the economic investment necessary to finance the necessary building upgrades. While the Greenville market has reached historically high levels of occupancy, there are very few tenants 20,000 square foot or larger who haven t secured a long-term lease in the last few years, according to CoStar and Colliers International s research. According to CoStar, in July of this year, there were approximately 55 nonmedical office tenants in the Greenville market occupying more than 20,000 square feet. This creates a conundrum for landlords. If they 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 Q2 2017 Greenville Office Market Market CBD Suburban Vacancy Rate 15.9% 12.0% 18.2% Change From Q4 2016 (basis points) Absorption (Thousand Square Feet) New Construction* (Million Square Feet) Under Construction (Thousand Square Feet) *New construction is buildings delivered Asking Rents Per Square Foot Per Year -80-150 -40 82.2 55.8 26.3 - - - - - - Overall $19.81 $24.26 $17.99 Change From Q2 2016 2.4% -1.6% 2.8% Class A $23.03 $26.30 $20.95 Change From Q2 2016 - - -

divide a large contiguous space for a smaller tenant, they potentially eliminate the possibility of leasing to a large tenant that would want their space on as few floors as possible. Bank of America Greenville, South Carolina Complicating the division between large and small tenants, a great deal of the vacant space is concentrated in a small subset of the building inventory, much of which was built prior to 1987. Twothirds of the vacant space Downtown is located in seven buildings while 70% of vacant space in the suburban markets is located in seventeen buildings. Adding to this, a large portion of the suburban space is contained in four office parks (Independence Corporate Park, Patewood, Brookfield and Park 37). Many of the buildings with significant vacancy were built 30 or more years ago and will require significant capital investment to mechanical and building systems to make them competitive. Landlords are wary of the length of the current economic cycle. The U.S. economy began expanding after the Great Recession in June of 2009, according to the National Bureau of Economic Research. At 96 months, the current expansion is the third longest in the post-war period, with 120 months being the longest - meaning the next recession is likely on the horizon. This is making landlords wary of reinvesting in their buildings without sufficient lease commencements to recapture the cost. Source: RealOp Investments Wells Fargo Center Greenville, South Carolina Landlords are also weighing the impact of new construction on their ability to recapture their investment. The 125,000-squarefoot Camperdown building should break ground late in 2017 with delivery in 2019. There are proposals for a 100,000-square-foot building adjacent to the current AGFA building and the potential of several hundred thousand square feet of space at the University Ridge site. Owners have to be mindful of their deal economics and lease terms knowing that there could be competitive, higher-quality office space delivered in the next five to seven years just as leases renewed today will begin to expire. Finally, interest rates are rising. The Federal Reserve Bank recently raised the benchmark federal funds rate in June 2017 and announced that it will begin reducing the amount of Treasury Bills it owns by $600 million a year. The combined effect of these moves will increase borrowers cost of money, making borrowing today more attractive than two or three years from now. Once again, this incentivizes landlords to reinvest to secure a larger tenant, especially if they have strong credit and are an established business. However, it disincentives borrowing to upfit space for smaller tenants. In response to historically high occupancy rates, the concentration of vacancy in a small number of buildings, the length of the current economic expansion, the amount of planned new construction and a rising interest rate environment, landlords are carefully employing several strategies to maximize the long-term stability of their assets. First, they are evaluating the term, size requirement and proposed lease term of potential tenants against the cost to provide needed improvements to secure them. When necessary to secure larger leases, they are upgrading mechanical systems, public areas and amenities in their buildings while capital is relatively Source: Lucas Brown, Kickstand Studio Colliers International 110 East Court Street Greenville, South Carolina Source: Fred Rollison Photography 2 South Carolina Research & Forecast Report Q2 2017 Greenville-Spartanburg-Anderson Office Colliers International

Q2 2017 Office Market Summary Statistics Greenville, SC MARKET CENTRAL BUSINESS DISTRICT BUILDINGS INVENTORY DIRECT VACANT SUBLEASE VACANT TOTAL VACANT TOTAL VACANCY RATE (%) NET ABSORPTION AVERAGE ASKING RENTAL RATE (SF/YR) Class A 27 2,514,088 226,664 71,964 298,628 11.88% 42,444 $26.30 Class B 14 1,084,658 120,436 6,500 126,936 11.70% 12,274 $22.39 Class C 6 187,306 28,229 0 28,229 15.07% 1,130 $17.19 CBD Total 47 3,786,052 375,329 78,464 453,793 11.99% 55,848 $24.26 I-385/I-85 Class A 31 2,567,359 327,017 9,517 336,534 13.11% 2,206 $21.00 Class B 34 2,057,553 488,586 53,000 541,586 26.32% -3,977 $16.99 Class C 11 344,242 19,680 0 19,680 5.72% 12,924 $13.38 I-385/85 Total 76 4,969,154 835,283 62,517 897,800 18.07% 11,153 $18.51 SPARTANBURG Class A 8 500,681 17,720 4,922 22,642 4.52% 4,732 $19.83 Class B 12 692,327 194,477 0 194,477 28.09% 6,800 $14.06 Class C 7 227,692 48,176 0 48,176 21.16% 3,660 $12.22 Spartanburg Total 27 1,420,700 260,373 4,922 265,295 18.67% 15,192 $14.36 SUBURBAN TOTAL Class A 39 3,068,040 344,737 14,439 359,176 11.71% 6,938 $20.95 Class B 46 2,749,880 683,063 53,000 736,063 26.77% 2,823 $16.64 Class C 18 571,934 67,856 0 67,856 11.86% 16,584 $12.63 Suburban Total 150 10,175,906 1,470,985 145,903 1,616,888 15.89% 82,193 $19.81 MARKET Class A 66 5,582,128 571,401 86,403 657,804 11.78% 49,382 $23.03 Class B 60 3,834,538 803,499 59,500 862,999 22.51% 15,097 $17.80 Class C 24 759,240 96,085 0 96,085 12.66% 17,714 $14.16 Market Total 150 10,175,906 1,470,985 145,903 1,616,888 15.89% 82,193 $19.81 inexpensive, and actively encouraging tenants to renew their leases now with additional tenant improvement allowances financed in today s relatively low interest environment. Collectively, this is creating a tenant-friendly environment for tenants 20,000 square feet and larger while simultaneously making it more difficult for small tenants to secure space. The success of multi-use developments in Greenville has paved the way for the success of experiential workplaces with activated interiors and exteriors that are well integrated into the existing cohesive design of Main Street. The continued growth of the trend in Greenville will anchor the string of office buildings and vibrant storefronts along Main Street, creating a walkable and livable downtown. Market Conditions The vacancy rate was 16.6% at the end of the first quarter, down from 16.9% last quarter. The strengthening office market has led to a 5.15% increase in the overall full-service average asking rental rate since the first quarter of 2016, which is now $19.96 PSF/ YR. Activity from investors has increased in the Greenville market, driven by these increasing occupancy and rental rates. Downtown Conditions The full-service average asking rental rate for office space in the Central Business District was $24.63 PSF/YR at the end of the first quarter. Class A space has increased 3.1% in a year to $26.99 PSF/YR. The vacancy rate was 14.1% at the end of the first quarter, down from 14.5% a year ago. The absorption for the CBD was negative, but Class A space saw nearly 24,000 square feet of positive absorption, due to the delivery of the office space at Falls Park Place and the new Greenville News building at full occupancy. Suburban Conditions The suburban market has recently seen an increase in building purchases from value-add investors. The overall vacancy in the suburbs was 18.5% at the end of the fourth quarter, down from 19.5% a year ago. The full-service average asking rental rate was $17.81 PSF/YR. At the start of the year, the average asking rental rate was $17.09 PSF/YR, a 4.2% increase. 3 South Carolina Research & Forecast Report Q2 2017 Greenville-Spartanburg-Anderson Office Colliers International

Office-Using Employment Office-using employment, those jobs related to the professional and business services, financial activities and information sectors, is growing within the combined Greenville-Spartanburg-Anderson Combined Statistical Area (CSA). According to the most recent May 2017 data from the Bureau of Labor Statistics, there has been an increase of 500 office-using jobs over the last 12 months. Employment in the professional and business services sector has shown an uptick in jobs, increasing by 400 employees over the last 12 months. Although office-using employment has seen only a slight increase, non-farm employment in Greenville-Spartanburg- Anderson market has increased by 7,600 jobs over the last year, a 1.4% increase. Office-Using Employment Greenville and Spartanburg, MSAs Office-Using Jobs Added Over 12 Months 6,000 5,000 4,000 3,000 2,000 1,000 0-1,000-2,000 570 560 550 540 530 520 510 500 490 480 470 Total Non-Farm Employment (Thousands) Market Forecast May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Jobs Added Sep-14 Jan-15 May-15 Sep-15 Total Employment Jan-16 May-16 Sep-16 Jan-17 May-17 Rental rates will continue to increase over the next year as tenants are forced to pay more for either recently renovated or new space. The recent delivery of three new office buildings in the downtown submarket will impact the tenant mix in downtown office buildings as new tenants move to the market and existing tenants continue to search for higher-quality spaces. With few remaining developable sites on Main Street, development will continue to push towards the outer edges of downtown, particularly towards the West End and east of Main. Additionally, market conditions in the I-385/I-85 market are beginning to tighten. To remain competitive with other available spaces in the market, landlords of suburban office buildings will need to update entryways and amenities within their buildings. Spartanburg will be the area to watch over the next two years, as several new developments move through the pipeline and employers and residents start taking notice. Around South Carolina Source: Bureau of Labor Statistics, Colliers International Commercial Real Estate Growth Cycle: Where the market stands and where it is going NEW CONSTRUCTION RENTAL RATE EMPLOYMENT OCCUPANCY PHASE 1: RECOVERY COMMERCIAL REAL ESTATE GROWTH CYCLE PHASE 2: EXPANSION South Carolina s office markets are gaining attention from employers, investors and residents. This quarter, activity from investors increased and new tenants have moved in. PHASE 4: RECESSION PHASE 3: HYPERSUPPLY Charleston, South Carolina > > Strong residential growth, 2.5 million square feet of entitled buildings, a large number of single family home sites and a number of transportation improvements make Summerville the office submarket of the future. Tenants are actively seeking space in modern buildings in mixed-use environments that are regionally accessible by automobile. 22 West Edge Charleston, South Carolina Columbia, South Carolina > > Landlords are taking advantage of the market conditions and paucity of new construction to renew existing tenants, upgrade their properties and lock in long-term rental income to prepare for the next economic down cycle. For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights Source: Lee & Associates 4 South Carolina Research & Forecast Report Q2 2017 Greenville-Spartanburg-Anderson Office Colliers International

396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111 FOR MORE INFORMATION: David Feild, CCIM Market President Greenville +1 864 527 5428 David.Feild@colliers.com Liz H. McCary Vice President, Marketing South Carolina +1 803 401 4269 Liz.McCary@colliers.com Ron Anderson Vice President, Administration South Carolina +1 803 401 4234 Ron.Anderson@colliers.com $2.6 billion in annual revenue 2 billion square feet under management 15,000 professionals and staff GREENVILLE OFFICE PROFESSIONALS: Brantley Anderson Brokerage Associate +1 864 527 5440 Brantley.Anderson@colliers.com Taylor Allen Brokerage Associate +1 864 527 5423 Taylor.Allen@colliers.com Colliers International Greenville 55 E. Camperdown Way, Suite 200 Greenville, South Carolina USA +1 864 297 4950 About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 15,000 professionals operating from 396 offices in 68 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 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.