2016 COMMERCIAL REAL ESTATE FORECAST Louis Stephens, CCIM, SIOR | March 30, 2016 CHARLOTTE REGION

TODAY’S TOPICS Market status Occupancy Rent growth Absorption New developments Capital markets Cap rates 2016 outlook

Consistent national job growth and unemployment at 4.9% 1-month net change (thousands) Unemployment Rate (%) Charlotte’s unemployment rate of 4.5% is below the national average. Charlotte, along with the US, is seeing the unemployment rate dip back down into pre-recession lows. Source: JLL Research, Bureau of Labor Statistics Market Status

Where are we now in the cycle? Contribution to % change in real GDP National GDP growth remaining steady over the past five years Gross Domestic Product growth is measured from the value of all the finished goods and services produces within a country over a specific period of time. National Average GDP Growth 2.50% Years Market Status

How does Charlotte stack up against the rest of the Southeast? City Office under construction Office vacancy rate Unemployment rate high* rate low** Change in UR Population growth since 2010 Charlotte 1,987,222* 9.7% 12.6% 4.5% 8.1% 12.1% Raleigh 1,247,753 8.8% 7.9% 3.2% 4.7% 9.1% Atlanta 3,145,740 12.9% 11.7% 4.6% 7.1% 8.7% Jacksonville 76,803 10.2% 11.3% 5.4% 5.9% 3.6% Orlando 283,469 11.4% 11.5% 7.0% Miami / Ft. Lauderdale 1,711,391 13.1% 5.2% 6.5% 6.7% Nashville 3,208,404 10.3% 3.7% 6.6% #1 #1 Charlotte’s 4.5% is the lowest unemployment rate the City has seen in the past five years. Charlotte comes in third behind Atlanta and Nashville in regard to new construction for office space. With the highest rate in unemployment rate change and population growth, Charlotte is an attractive location for companies looking to take advantage of a young workforce. The Charlotte metro has also yielded the largest population growth of the above comparable cities over the last five years, with a large part of this being the millennial generation. Charlotte, with a change in unemployment rate of 8.1%, has recovered a greater percentage of jobs than its competing Southeastern markets since the recession. *Charlotte currently under construction: 300 S Tryon (638,459 SF) 615 S College St. (381,263 SF) Capitol Towers Phase II (480,000 SF) Source: JLL Research, BLS, US Census Bureau | **Unemployment rates start from January 2010 to YTD 2016 Market Status

Urban cores growing at a fast pace Throughout the Southeast, previously neglected urban cores are seeing strong population growth since 2010. Downtown Raleigh: +18.2% Downtown Nashville: +7.4% Charlotte CBD population growth includes everything inside of I-277 corridor. The boom in multi-family development has helped Charlotte grow rapidly, since 2013 there has been just over 2 million square feet of multi-family developed in Charlotte. The Lynx Blue Line (light rail) has helped office submarkets like South End and NODA to emerge. ADD POPULATIONS Midtown Atlanta: +51.9% Charlotte CBD: +138.5%* 8,324+ total population growth inside I-277 loop since 2010 Market Status

Preleasing keeps vacancy low Vacancy continues to slide vs. supply increasing, percentage change, major deals through organic growth and groups expanding. Lash, Red Ventures, 100,000 +. Although the CBD has controlled the majority of projects with new construction, adjacent markets like South End have become popular due to the ability to attract and retain the large millennial workforce moving to Charlotte. Dimensional Fund Advisors HQ moving to South End is a perfect example. Occupancy/Rent Growth

Class A and B rents increasing as vacancy declines Class A rents have started to take off, could be peaking in the market. Class B rents either trend down, or flat line historically. Recently Class B has not, when development occurrs, Class B increase. As asking rates in Class A product increases, Class B in turn get’s pulled along for the ride. AT&T Plaza refurbishing is a good example. Occupancy/Rent Growth

LARGE BLOCKS DWINDLING Bulk of available blocks in CBD & Airport (≥ 50,000 SF) SouthPark 8% Submarket Blocks* by count Blocks by SF Airport 7 926,868 CBD 8 1,964,398 University 1 196,990 Highway 51/Ballantyne 4 499,263 SouthPark 3 398,022 North I-77 East Charlotte 66,000 Southeast Charlotte Midtown 165,000 Total 25 4,216,541 Metro large blocks by submarket New availability in the CBD comes in the form of just under 2 million square feet of construction. New construction in suburban submarkets Hwy 51 / Ballantyne and SouthPark are caused by Capitol Towers Phase II (SouthPark) and The Brigham Building (Hwy 51 / Ballantyne). The lone project in Midtown, being developed by Beacon Partners, is expected to see strong signs of leasing moving forward. Large Block Absorption

LARGEST RECENT LEASES 300K SF 160K SF 200K SF 144K SF 200K SF 94K SF 2014 VS. 2015 leases 84K SF 82K SF 61K SF Occupancy

Since 2010, Charlotte has seen total net absorption remain relatively strong. As companies in the market continue to expand organically, look for this trend to continue in the foreseeable future. Average Total Net Absorption – 194,876 Red Ventures, Lash, LPL, AvidXchange expanding. Absorption

Charlotte Job Growth vs. Population Growth As population increases, unemployment decreases Due to it’s low cost of living, international Airport hub, and urban core, Charlotte is an attractive city for millennials graduating from college. Companies recognize that the population is increasing at a rapid pace and unemployment is going down. Lack of jobs in a city growing as fast as Charlotte is an great recruiting tool for organizations. Growth Demographics

CHARLOTTE NEW DEVELOPMENTS Proposed New Construction Capitol Towers II Size: 480,000 SF Tenant: N/A Delivery Date: 2016 300 S Tryon Size: 634,000 SF Tenant: Babson Capital Delivery Date: 2017 Build-to-suit Red Ventures Size: 215,000 SF Expansion Tenant: Red Ventures Delivery Date: 2017 AvidXChange Size: 200,000 SF Tenant: AvidXChange LPL Financial Size: 400,000 SF Tenant: LPL Financial Delivery Date: 2016/2017 Sealed Air Size: 300,000 Tenant: Sealed Air 2nd Generation AT&T Plaza Size: 350,000 SF Tenant: AT&T Delivery Date: 2016 NASCAR Plaza Size: 138,000 SF Tenant: Chiquita LakePointe CC Size: 158,000 SF (2 Blgs) Tenant: Lash Group Coliseum Center Size: 160,000 SF Tenant: LPL Financial Toringdon 7 Size: 175,000 SF Tenant: N/A Delivery Date: Planned DFA HQ Size: 285,000 SF Tenant: Dimensional Fund Advisors Delivery Date: Planned 500 E Morehead Size: 180,000 SF Tenant: N/A Delivery Date: 2016 1213 W Morehead Size: 65,000 SF Tenant: N/A Delivery Date: Planned With strong signs of preleasing in the market, both CBD and Suburban development have picked up in the previous quarters. Capitol Towers strong preleasing helped justify the kicking off of Capitol Towers Phase II. 300 South Tryon landed Babson Capital as an anchor tenant. Baxter Place Size: 200,000 SF Tenant: N/A Delivery Date: Planned 615 S College Size: 381,263 SF Tenant: N/A Delivery Date: 2017 New Developments

Value-per-transaction is increasing $216 $308 121 West Trade Sale Date: December 2015 Price: $71,600,000 Price per square foot: $216.00 Carillon Tower Sale Date: January 2016 Price: $147,000,000 Price per square foot: $308.00 $240 $219 One Wells Fargo Center Sale Date: December 2015 Price: $245,000,000 Price per square foot: $240.64 Toringdon Office Park Contract Date: December 2015 Size: 519,602 SF Price per square foot: $219.00 Capital Markets

CBD dominates majority of sales transactions Submarket Volume ($) Total SF Count Urban CBD $826,866,667 3,664,551 8 Midtown Suburban Airport $37,500,000 335,830 2 East Charlotte Highway 51 / Ballantyne $137,399,938 789,717 4 Northeast I-77 $27,000,000 135,757 3 Park Road $15,431,667 117,479 Southeast Charlotte SouthPark $90,474,971 496,655 University $43,849,992 339,141 Grand Total $1,178,466,235 5,879,130 23 SF traded in each submarket One Wells Fargo, Carillon Tower, and 121 West Trade all recently traded. This helped CBD garner the most SF traded for the Charlotte market. Since 2010 the CBD has had 11 buildings trade, four of those buildings have traded more than once (NASCAR Plaza, Ally Center, Fifth Third Center, 121 West Trade) Source: JLL Research, , Real Capital Analytics Methodology: Data includes Closed and pending transactions valued at approximately $5.0M and greater. Capital Markets

U.S. core product office CBD cap rates Sub 5-6% level in most primary and rising secondary markets Seattle 4.50 – 5.50% Portland 5.75 – 6.75% Minneapolis 7.00 – 8.00% Boston 4.75 – 5.25% Detroit 9.50 – 10.50% Pittsburgh 8.00 – 9.00% New York 4.00 – 4.50% Sacramento 7.00 – 7.50% Chicago 5.70 – 6.25% Cleveland 7.50 – 8.50% Philadelphia 7.00 – 7.50% Columbus 8.00 – 9.00% San Francisco 4.00 – 4.50% Indianapolis 7.00 – 8.00% Denver 5.50 – 5.75% Washington, DC 4.90 – 5.50% Cincinnati 8.50 – 9.50% East Bay 6.00 – 7.00% Los Angeles 5.25 – 6.00% Raleigh 6.00-7.50% Charlotte 5.50– 7.50% Phoenix 6.50 – 7.50% San Diego 6.00 – 7.00% Atlanta 6.25 – 7.25% Dallas 5.50 – 6.50% 4.00 – 5.00% 5.00 – 6.00% Austin 5.25 – 6.25% 6.00 – 7.00% Houston 5.25 – 6.00% Orlando 6.00 – 7.00% 7.00 – 8.00% Tampa 6.50 – 7.50% 8.00 – 9.00% 9.00% + Miami 5.50 – 6.50% Source: JLL Research Cap Rates

OCCUPANCY RENT GROWTH ABSORPTION NEW DEVELOPMENTS CAP RATES OUTLOOK 2016 Forecast OCCUPANCY RENT GROWTH ABSORPTION NEW DEVELOPMENTS CAP RATES OUTLOOK Outlook

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