Silicon Harbor - The Port of Call for the 21 st Century

Research & Forecast Report CHARLESTON, SC OFFICE Q4 2016 Silicon Harbor - The Port of Call for the 21 st Century Bryana Mistretta Research Coordinator South Carolina Key Takeaways > > Silicon Harbor is rapidly expanding. > > Employers are creating more open, flexible and dense floorplans. The Silicon Harbor is Taking Off Market Indicators Relative to prior period VACANCY NET ABSORPTION Q4 2016 Q1 2017 Charleston s technology sector is growing rapidly, producing some of the nation s fastest growing companies, including Boomtown, Bibliolabs, Blue Acorn, Ceterus, Good Done Great and Phishlabs. It is growing so fast, in fact, that Fast Company has named Charleston the Silicon Valley of the East Coast, or Silicon Harbor. Charleston possesses the building blocks necessary for thriving technology companies: intellectual capital, monetary capital and a talent pool with executive experience. Claiming that trifecta, Charleston has become a burgeoning technology hub with four primary sectors: aerospace, cybersecurity, customer front-facing software and back-end management databases. There are currently more than 11,000 people employed in technology-related fields throughout the Charleston-North Charleston Metropolitan Statistical Area. Intellectual Capital Organizations such as Blackbaud, Benefitfocus, Boeing and SPAWAR (Space and Naval Warfare Command) have attracted a great deal of high-tech talent to the region, creating a critical mass that has fueled other technology companies that rely on similar skill sets. Employers have been willing to move to the region to take advantage of the low cost of living, high quality of life and a diversified economy with many opportunities. > > Aerospace Boeing anchors the cluster with its 8,000-person staff who develop and build 787 Dreamliners. Their campus includes a Research and Technology center focusing on engine design and fuselage manufacturing with advanced composites. > > Back-End Databases This sector is largely driven by Blackbaud, the leading provider of back-end software management systems and services for non-profits. Blackbaud is headquartered on Daniel Island and directly employs 1,300 people. 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 Q4 2016 Charleston Office Market Market CBD Suburban Vacancy Rate 8.5% 6.6% 9.0% Change From Q3 2016 (basis points) Absorption (Thousand Square Feet) New Construction (Thousand Square Feet) Under Construction (Thousand Square Feet) Asking Rents Per Square Foot Per Year Market $24.14 Change From Q4 2015 4.5% CBD Class A $36.51 Change From Q4 2015 4.0% -130-180 -50-86.3-43.1-43.3 - - - 451 88 363

> > Customer Interfaces With its headquarters on Daniel Island, Benefitfocus was founded in 2000, employs 1,000 people and is focused on providing cloud-based benefit management systems. > > Defense-Related Information Technology Cybersecurity is driven by SPAWAR, a division of the Department of Defense brought in to backfill space at the former North Charleston Naval Shipyard. SPAWAR focuses on managing specialized information technology systems and software necessary to support the armed forces. Monetary Capital Innovative products and services require funding to be commercialized. Charleston has the highest average net worth for metro areas in South Carolina at $500,696. This is important because most new businesses and ideas are initially funded by the friends and family of the business founder. Because of the regions relative wealth, there are more people with access to potential seed capital. More importantly, wealth is not evenly distributed throughout the three-county region. Seven of the 19 census tracts in the MSA with average household net worth of more than $1,000,000 are located east of the Cooper River, which includes Mt. Pleasant and Daniel Island. This means that entrepreneurs, employees at the leading tech industries and wealthy retirees are interacting daily in their stores, offices, social organizations and neighborhoods. Charleston is also home to an expanding network of venture capital firms; Silicon Harbor Ventures, Alerion Ventures, Capital A Partners and Canongate Capital Investment are all located in the region. With the continued influx of retirees and second home buyers from the North American financial centers of New York and Boston, it is reasonable to infer that additional connections will be made and more venture capital will find its way into the region over time. Managerial Experience In addition to monetary capital, there must be access to people with executive experience and knowledge to commercialize the products and turn them into a successful business. After a seed investment is made, startup companies oftentimes seek out venture capital firms to fund additional development of their product or business. With each new round of funding, it is likely that a venture capital firm will require startup companies to have an established executive team or provide guidance to hire such a team. Charleston s technology sector is stocked with talent, ideas and leaders with experience running a successful company. While there is access to local seed investments for startup companies, Charleston requires a larger supply of venture capital firms to fund the area s new businesses. As this happens, Charleston will be better positioned to foster the technology companies of tomorrow. Employers Maximize Space Companies looking to lease space in Charleston will find that traditional, large blocks are in short supply. Additionally, the cost to lease office space has steadily increased over the last several years, even more so for the highly desirable Central Business District. This has led many employers to find creative ways to utilize the space they occupy by creating more open, flexible and dense floorplans. This has lowered overall occupancy cost per employee and made the space more appealing to the workforce of the future, which values mobility, flexibility and collaboration in the workplace. The average asking rental rate for the market reached a record high of $24.14 per square foot per year (PSF/YR) at the end of the fourth quarter, an increase of 4.5% since the start of 2016. More impressively, the vacancy rate in the CBD has remained low, fluctuating between 4.8% and 6.6%, throughout 2016. Rising occupancy and higher demand in the CBD have increased the average asking rental rate by 4.4% to $32.73 PSF/YR over the last twelve months and by 13.6% over the last two years. This is driving tenants to utilize the space they occupy by removing executive suites, walls and cubicles and replacing them with communal spaces such as larger break rooms, collaborative areas, sitting areas and mobile workstations. In a related move, employers seek creative and collaborative work environments that are sought after by young professionals. These spaces typically have more natural light, inviting atmospheres and highly flexible furniture systems. This type of work environment fosters collaboration and allows employees to work together in a closer environment, boosting productivity. Open, flexible and high density office spaces will become more popular in the Charleston market as vacancy continues to fall and rents continue to increase. Although the initial cost to redesign the office may be high, an employer s investment in these spaces will pay dividends in recruitment and retention of their employees, particularly from the incoming workforce of young professionals. Charleston provides a higher quality of life at a reduced cost relative to large cities such as New York or Chicago, making it attractive to people of all ages. Due to Charleston s higher average net worth, it can be inferred that the population is comprised of a larger number of people from higher-paying occupations, such as managerial positions. Thus, there are more people available to guide entrepreneurs through the early stages of business development. Average Asking Rental Rates Market A B $22.81 $19.35 C $27.90 2 South Carolina Research & Forecast Report Q4 2016 Charleston Office Colliers International

Construction Pipeline Nearly 451,000 square feet of office space are under construction throughout the Charleston market. Strengthening market conditions will likely encourage more development in the coming year. Highlighted Construction > > Phase one is underway for Blackbaud s new 13-acre campus on Daniel Island and will include a four-story, 172,000-square-foot office building. > > 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. Planned > > Holder Properties plans to develop the River Oaks Center, a 106,000-square-foot office building located at the entrance to the Executive Park at Faber Place, just off Interstate 526. > > Rushmark Properties will build four 100,000-square-foot office buildings as part of a master planned office park in Upper North Charleston. The park will also include three hotels. > > Cadillac Commons is a planned 40,000-square-foot building at the corner of Mathis Ferry Road and Johnnie Dodds Boulevard. The first floor will be retail space and the second floor will be comprised of approximately 21,000 square feet of Class A office space. Recent Transactions > > 1951 Clements Ferry Road is a 20,000-square-foot Class B office building. The building sold to the Low Country Boys LLC for $2.75 million, or $137.5 PSF. Market Conditions The vacancy rate for the market has remained steady throughout 2016 at 7.8%, although the fourth quarter ended with a slightly higher vacancy rate of 8.5%. A vacancy rate below 10.0% is a sign of a strong and tight market. The increase in vacancy can be attributed to the closing of the ITT campus in Upper North Charleston and other tenants shifting in the market. The average asking rental rate at the end of the fourth quarter was $24.14 PSF/ YR. At the end of the fourth quarter of 2015, the average asking rental rate was $23.10, a 4.1% increase in one year. Tenant leases signed at eight to ten year terms between 2007 and 2008 will begin to roll over throughout 2017 and 2018. These tenants will find it challenging to relocate to new spaces in the market without paying a significant increase in rent. Downtown Conditions The vacancy rate in the CBD was 6.6% at the end of the fourth quarter. Office space in the downtown submarket is in such high demand that new spaces coming available are expected to be absorbed quickly. The full-service average asking rental rate in the CBD reached $32.73 PSF/YR at the end of the fourth quarter, up from $32.21 PSF/YR at the start of 2016. Class A space saw even higher asking rental rates with an average of $36.51 PSF/YR, an increase of 4.0% from a year ago. Suburban Conditions The suburban vacancy rate was 9.0% at the end of the fourth quarter and is continuing to trend down as the available space in the market is absorbed. Since the start of 2016, the full-service average asking rental rate has increased by 6.9% from $21.30 PSF/ YR to $22.78 PSF/YR. Blackbaud Campus Rendering Launch Office Building Rendering Source: ASD SKY via Holder Properties Source: Rushmark Properties 3 South Carolina Research & Forecast Report Q4 2016 Charleston Office Colliers International

Q4 2016 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 17 950,039 81,080 0 81,080 8.5% -25,295 $36.51 Class B 29 1,022,400 39,059 120 39,179 3.8% -12,541 $27.84 Class C 23 449,709 22,002 17,933 39,935 8.9% -5,219 $27.47 Downtown Total 69 2,422,148 142,141 18,053 160,194 6.6% -43,055 $32.73 LOWER NORTH CHARLESTON Class A 14 826,218 98,233 0 98,233 11.9% -12,690 $27.55 Class B 28 1,294,220 93,496 9,382 102,878 7.9% -40,538 $23.08 Class C 19 598,794 46,382 0 46,382 7.7% 15,736 $20.58 Lower North Charleston Total 61 2,719,232 238,111 9,382 247,493 9.1% -37,492 $24.42 UPPER NORTH CHARLESTON Class A 12 808,212 120,359 0 120,359 14.9% -38,667 $23.85 Class B 15 611,694 55,237 0 55,237 9.0% -5,784 $19.13 Class C 24 830,882 149,060 1,849 150,909 18.2% 1,724 $17.69 Upper North Charleston Total 51 2,250,788 324,656 1,849 326,505 14.5% -42,727 $20.42 DANIEL ISLAND Class A 16 875,937 10,957 0 10,957 1.3% -646 $28.23 Class B 18 443,780 28,919 0 28,919 6.5% 14,795 $23.32 Class C 3 78,716 12,172 0 12,172 15.5% -12,172 $23.25 Daniel Island Total 37 1,398,433 52,048 0 52,048 3.7% 1,977 $24.34 MT. PLEASANT Class A 20 623,426 8,476 0 8,476 1.4% 4,948 $28.31 Class B 56 1,023,800 24,306 7,936 32,242 3.1% 6,350 $25.43 Class C 9 177,864 3,400 0 3,400 1.9% 1,763 $17.75 Mt. Pleasant Total 85 1,825,090 36,182 7,936 44,118 2.4% 13,061 $25.38 WEST ASHLEY Class A 3 140,749 41,646 0 41,646 29.6% -9,963 $27.52 Class B 17 647,665 98,617 0 98,617 15.2% 14,731 $21.89 Class C 9 186,583 7,006 0 7,006 3.8% 14,571 $16.30 West Ashley Total 29 974,997 147,269 0 147,269 15.1% 19,339 $23.22 SUMMERVILLE/GOOSE CREEK Class A 2 175,000 57,500 4,875 62,375 35.6% -4,875 $26.50 Class B 20 323,740 11,116 0 11,116 3.4% 1,411 $21.87 Class C 16 265,181 4,180 0 4,180 1.6% 6,035 $17.80 Summerville/Goose Creek Total 38 763,921 72,796 4,875 77,671 10.2% 2,571 $25.29 SUBURBAN SUBMARKETS Class A 67 3,449,542 337,171 4,875 342,046 9.9% -61,893 $25.96 Class B 154 4,344,899 311,691 17,318 329,009 7.6% -9,035 $22.19 Class C 80 2,138,020 222,200 1,849 224,049 10.5% 27,657 $18.56 Suburban Submarkets Total 301 9,932,461 871,062 24,042 895,104 9.0% -43,271 $22.78 MARKET Class A 84 4,399,581 418,251 4,875 423,126 9.6% -87,188 $27.90 Class B 183 5,367,299 350,750 17,438 368,188 6.9% -21,576 $22.81 Class C 103 2,587,729 244,202 19,782 263,984 10.2% 22,438 $19.35 Market Total 370 12,354,609 1,013,203 42,095 1,055,298 8.5% -86,326 $24.14 4 South Carolina Research & Forecast Report Q4 2016 Charleston Office Colliers International

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). Per 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 office-using tenants locating to Charleston in the future. Construction levels are at record highs across all property types, 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 South Carolina s Central Business Districts are gaining attention from employers, investors and residents. This quarter, several office towers have sold and new tenants have moved in. Columbia, South Carolina > > Rising operational and construction costs are raising the asking rental rates for downtown office space. > > Columbia s Main Street District, the Vista and the central location of the Central Business District are attracting employers to locate to the CBD over the suburban office markets. Greenville, South Carolina > > Several office buildings in Greenville s CBD sold this quarter including the Wells Fargo Building, Bank of America Plaza and the two Liberty Square buildings. In the suburbs, the Park Central and Park East office parks sold to RealOp Investments. > > Mixed-use projects have seen more success on Greenville s Main Street than any other market in the state. Dense development has led developers to build office buildings off Main in the West End. For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights Office-Using Employment Charleston-North Charleston, MSA Office-Using Jobs Added Over 12 Months 5,500 4,500 3,500 2,500 1,500 500-500 Nov-11 Mar-12 Jul-12 Nov-12 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 4: RECESSION Mar-13 Source: Caprocq Greenville, LLC Jul-13 Nov-13 PHASE 1: RECOVERY Mar-14 Jobs Added Jul-14 Nov-14 Mar-15 Jul-15 Total Employment COMMERCIAL REAL ESTATE GROWTH CYCLE Wells Fargo Center Greenville, SC Nov-15 PHASE 2: EXPANSION PHASE 3: HYPERSUPPLY Mar-16 Jul-16 Nov-16 360 350 340 330 320 310 300 290 280 270 Total Non-Farm Employment (Thousands) 5 South Carolina Research & Forecast Report Q4 2016 Charleston Office Colliers International

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 +1 803 401 4269 Liz.McCary@colliers.com Bryana L. Mistrettta Research Coordinator South Carolina +1 803 401 4252 Bryana.Mistretta@colliers.com CHARLESTON OFFICE PROFESSIONALS: Peter Fennelly, MCR, SIOR, SLCR Market President +1 843 720 7500 Peter.Fennelly@colliers.com Mark Mattison, CCIM, SIOR Principal Charleston +1 843 720 7505 Mark.Mattison@colliers.com Mike Palmer Brokerage Associate +1 843 518 6087 Mike.Palmer@colliers.com Colliers International Charleston 25 Calhoun Street, Suite 220 Charleston, South Carolina USA +1 843 723 1202 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.