Partnership. Performance. avisonyoung.com

2 MSFSF under construction in the fourth quarter, 50% of which is preleased

$27.34 PSFAverage Class A asking rate up 5% in the last 12 months

The Charlotte office market witnessed another year of strong absorption and rising rental rates in 2016, giving developers the confidence to fill the construction pipeline with both build-to-suit and speculative projects. The addition of new space will be a welcome development for tenants, who currently face the tightest market conditions in nearly 10 years.

Vacancy and AbsorptionNet absorption in Charlotte’s office market totaled 349,499 sf in the fourth quarter, bringing the annual total to 1.1 msf. Overall vacancy ended the year at 11.6%, down 80 basis points (bps) year-over-year. The Class B segment witnessed the most dramatic improvement, with vacancy falling by 290 bps year-over-year to 12.9%. Class A vacancy fell 10 bps to 10.8% in the same period. Quarterly absorption was strongest in the Highway 51 and the

Southwest/I-77 submarkets, where new

projects were delivered 100% leased. The

Brigham Building, the newest building

at Ballantyne Corporate Center, added

287,507 sf to the Highway 51 submarket.

The property was built on a speculative

basis but was preleased to Wells Fargo

prior to delivery. Just south of the border

in Fort Mill, SC, the first of two buildings

for LPL Financial was completed, adding

250,000 sf to the Southwest/I-77 corridor.

On the down side, absorption fell into the

red in the CBD and Airport submarkets as

a result of two large tenant relocations.

In the Airport submarket, LPL Financial

vacated 155,707 sf at Five Coliseum

Centre following completion of one of

its new buildings in the I-77/Southwest

corridor. In the CBD, WECTEC vacated

180,000 sf at First Citizens Bank Plaza

following its relocation to LakePoint

Corporate Center.

Market Overview

Fourth Quarter 2016 / Office Market Report

Charlotte

Market Facts

11.6%Total market vacancy down 80 bps

year-over-year

10.8%Class A vacancy down 10 bps

year-over-year

Partnership. Performance. avisonyoung.com

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2010 2012 2014 2016

Absorption Completions

5.0%

10.0%

15.0%

20.0%

YE10 YE12 YE14 YE16

Total Class A

Fourth Quarter 2016 / OfficeCharlotte

Leasing ActivityThere were three leases exceeding 100,000 sf in the fourth quarter, and all were for space in new buildings. As previously mentioned, Wells Fargo preleased all 287,507 sf at the Brigham Building shortly before its completion in the Highway 51 submarket. In the Airport submarket, Jeld-Wen preleased all 120,000 sf at One Silver Crescent, slated to begin construction in the Airport submarket in the first quarter of 2017. CompuCom Systems preleased a 150,000-sf building that broke ground in the fourth quarter at Bailes Ridge Corporate Park in Lancaster County, SC. CompuCom will relocate its headquarters to the property from Dallas, bringing approximately 1,500 new jobs to the market.

New ConstructionThree buildings totaling 787,507 sf were completed in 2016, all of which were fully preleased upon completion. In the fourth quarter, the first of two buildings was delivered for LPL Financial in the Southwest/I-77 corridor, adding 250,000 sf to the submarket. The second building, totaling 200,000 sf, is scheduled for completion in the first quarter of 2017. In the Highway 51 submarket, the 287,507-sf Brigham building was delivered fully leased to Wells Fargo. A 150,000-sf building broke ground for CompuCom in the Southwest/I-77 corridor in the fourth quarter, bringing the total amount of space underway at the end of the year to 2 msf, 50% of which is preleased.

Rental RatesAverage asking rental rates continued to experience strong upward pressure in 2016, although the rate of increase slowed over the gains witnessed in

2015. The overall asking rate ended the year at $24.14 psf, up 4% year-over-year. The average Class A asking rate breached the $27.00 psf mark for the first time in 2016, rising 5% year-over-year to $27.34 psf. The average Class B asking rate rose 1% to $19.25 psf.

Investment SalesOffice sales totaled $241 million in the fourth quarter, bringing total 2016 volume to a new post-recession high of $1.3 billion. In the largest transaction of the quarter, the Design Center of the Carolinas, located in Midtown, was sold to Asana Partners for $42.5 million ($226 psf ). Asana Partners plans to convert the property to primarily retail use, while the previous owner, Ram Realty Services, retained ownership of three acres with plans to develop a new mixed-use property on the site. In the Southpark submarket, AEW Capital paid $40.2 million ($287 psf ) for Carnegie VII and X, and LendingTree purchased Rexford Park I and II for $24.9 million ($169 psf ) with plans to renovate and occupy the properties.

Outlook While construction deliveries may drive an uptick in Class A vacancy in the near term, the Charlotte office market is poised to remain strongly in favor of landlords in 2017. Developers have exercised more discipline in recent years than in previous cycles, and preleasing activity is strong. Additional leasing options on the ground will be a positive for the market in helping to attract new businesses to the region. Tenants will continue to face rising rental rates but may find a little additional leverage with concessions in select submarkets as new supply is delivered.

Charlotte office investment sales totaled $241 million in the fourth quarter, bringing total 2016 volume to a new

post-recession high of $1.3 billion.

Vacancy Trends

Absorption vs. Completions

SF Under Construction

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

YE10 YE12 YE14 YE16

Partnership. Performance. avisonyoung.com

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2010 2012 2014 2016

$14.00

$19.00

$24.00

$29.00

YE10 YE12 YE14 YE15

Total Class A Class B

Charlotte Fourth Quarter 2016 / Office

Average Asking Rental Rate (psf/year/full service)

Office Investment Sales (in millions)

Charlotte Employment (November of each year)

Select Lease Transactions

Select Sale Transactions

Select Construction Projects

0.0%

4.0%

8.0%

12.0%

0

500,000

1,000,000

1,500,000

2010 2012 2014 2016

Employed % Unemployed

Tenant Property Type Submarket SF

Wells Fargo Brigham Building Prelease Highway 51 287,507

CompuCom Bailes Ridge Corporate Park Prelease Southwest/I-77 150,000

Jeld-Wen One Silver Crescent Prelease Airport 120,000

BB&T BB&T Center Renewal/Downsizing CBD 120,000

Windstream Communications Three Morrocroft Centre Renewal Southpark 63,889

Rentokil North America Carmel Crossing Office Park New Lease Highway 51 22,836

American Tire Distributors The Park - Huntersville Expansion Northeast/I-77 18,527

MassMutual Capitol Towers - South Tower New Lease Southpark 17,295

Apex Tool Group The Park - Huntersville New Lease Northeast/I-77 15,735

Property Submarket Projected Completion Total Office SF % Preleased Asking Rate PSF

300 South Tryon CBD Third Quarter 2017 638,459 41% $35.50 - $36.50 FS

615 South College CBD First Quarter 2017 375,002 17% $34.00 - $35.00 FS

LPL Financial Headquarters II Southwest/I-77 Fourth Quarter 2017 200,000 100% N/A

Capitol Towers - North Southpark First Quarter 2017 236,250 0% $32.00 - $36.00 FS

AvidXchange Headquarters CBD First Quarter 2017 200,000 100% N/A

500 East Morehead Midtown First Quarter 2017 178,259 68% $35.00 FS

Bailes Ridge Corporate Park Southwest/I-77 Fourth Quarter 2017 150,000 100% N/A

Property Submarket Buyer Total SF Sale Price Price/SF

Design Center of the Carolinas Midtown Asana Partners 188,146 $42.5 million $226

Carnegie VII and X Southpark AEW Capital 139,858 $40.2 million $287

Rexford Park I and II Southpark LendingTree 147,074 $24.9 million $169

Mallard Creek Center University Stream Realty Partners 260,703 $19.8 million $76

Grinnell Water Works Midtown Northridge Capital 52,538 $11.8 million $225

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© 2017 Avison Young Atlanta, LLC. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.

A.J. WhiteheadVice President 704.412.5608aron.whitehead@avisonyoung.com

Elizabeth GatesPrincipal, Senior Vice President of Research 919.420.1563elizabeth.gates@avisonyoung.com

VACANCY NET ABSORPTION AVERAGE ASKING RENT

By Submarket Inventory Total Class A Class B 4Q16 YTD SF Underway Total Class A Class B

CBD 17,861,867 9.6% 10.0% 8.4% (131,074) (14,684) 1,213,461 $29.77 $30.66 $23.71

Midtown 2,190,234 5.2% 4.7% 5.4% (34,770) 25,231 178,259 $29.09 $32.62 $25.22

Urban Total 20,052,101 9.2% 9.6% 7.7% (165,844) 10,547 1,391,720 $29.70 $30.79 $23.95

Airport 8,458,010 17.2% 17.3% 17.9% (67,575) (52,497) - $19.19 $21.49 $16.61

East Charlotte 2,002,517 17.2% 13.6% 18.5% 10,234 41,006 - $15.03 $23.50 $15.35

Highway 51 5,920,788 9.5% 8.0% 14.5% 356,447 442,462 - $24.93 $27.37 $19.80

North Charlotte 1,824,610 13.0% 11.5% 16.1% 6,177 79,665 - $21.25 $22.17 $19.91

Park Road/Cotswold 893,231 10.0% 12.3% 12.1% (7,124) (15,853) - $21.71 $30.33 $18.16

Southpark 4,345,949 9.7% 9.0% 12.9% 4,851 125,115 236,250 $27.84 $31.21 $24.39

Southwest/I-77 2,503,458 6.0% 9.3% 2.2% 236,989 449,558 350,000 $22.94 $23.90 $20.11

University 4,223,739 17.1% 17.0% 17.1% (24,656) 8,967 - $20.73 $21.10 $20.49

Suburban Total 30,172,302 13.2% 12.0% 15.2% 515,343 1,078,423 586,250 $21.32 $24.41 $18.55

Total Market 50,224,403 11.6% 10.8% 13.4% 349,499 1,088,970 1,977,970 $24.14 $27.34 $19.25

Charlotte Fourth Quarter 2016 / Office

Market By The Numbers

BY CLASS Inventory Vacancy 4Q Absorption YTD Absorption SF Under Construction Sublease SF

Class A 32,098,940 10.8% 311,573 723,723 1,977,970 486,809

Class B 16,784,530 13.4% 10,095 301,159 - 260,832

Class C 1,340,933 6.8% 27,831 64,088 - -

Total Market 50,224,403 11.6% 349,499 1,088,970 1,977,970 747,641