Q4 2015 | Office Research & Forecast Report EASTERN PENNSYLVANIA SOUTHERN NEW JERSEY DELAWARE

MARKET INDICATORS PA/NJ/DE PA/NJ/DE Positive Trajectory Relative to prior period Q2 2015 Q2 2016* VACANCY

Regional Overview NET ABSORPTION

CONSTRUCTION >> The vacancy rate decreased from 12.6 to 11.06 percent during the last two quarters of 2015. RENTAL RATE >> Absorption, at 3.1 million square feet, was at the highest level *Projected Arrows compare current period to the previous period and forecast the next period. since before the recession in 2007. >> Speculative development is being explored, but current construction projects were build-to-suit and retrofits only. NEW SUPPLY, VACANCY AND ABSORPTION >> Asking rents increased by almost 2.0 percent from the end of the 4.0 20% second quarter as an influx of new ownership increased rates.

>> The high volume of investment sales was boosted by large 3.0 15% portfolio trades.

The momentum built during the first half of the year carried into the last 2.0 10% two quarters, and the regional markets ended 2015 on a strong note with decreased vacancy and increased demand. Single digit Class A vacancy 1.0 5% has increased demand for Class B space.

The overall weighted average asking rent increased by $0.45 per square 0.0 0% foot from Q2 and by $0.73 per square foot from the end of 2014. It was MSF 12 13 14 15 not unusual for landlords to raise rents by $1.00 per square foot. Class Absorption Construction Vacancy Rate B rents increased by $0.76 per square foot since Q2 and by $1.63 per square foot since the end of 2014. The exit of the occupancy-focused REITs from the suburban markets and entrance of new landlords has MAJOR OFFICE MARKET VACANCY 20% been a major factor in rent increases. While Class B rents have been CBD Philadelphia spiking, new landlords vying for tenants has resulted in a competitive PA Suburbs leasing environment in the suburban markets. 15% Southern NJ

Development and redevelopment activity in urban locations outpaced Wilmington / suburban construction. In addition to the new Comcast and FMC towers 10% New Castle in Philadelphia, Subaru’s headquarters in Camden will be fully underway Lehigh Valley in early 2016 and a new office building will be starting in Bethlehem. 5%

0% 12 13 14 15 Regional Overview (continued) More companies were expanding in 2015, but the list of largest REIT divestitures continued to dominate the investment market. leases for the final two quarters reflected the persistent downsizing Private entrepreneurial ownership groups have stepped up to establish and consolidation still occurring in the market. a presence or increase holdings in the region. Liberty Property Trust divested over 2.6 million square feet of suburban office space in Cigna renewed longterm at Two Liberty Place, but will be giving Wayne and office/flex in Horsham. Brandywine Realty Trust sold back floors. Independence Blue Cross is expanding its overall CBD assets in Wayne and Mount Laurel with additional properties under Philadelphia footprint, but will be vacating other CBD and suburban agreement. Equity Commonwealth sold One Franklin Plaza and has offices. Cerner signed a full building lease in Malvern, but will also put 1525 Locust Street on the market. Tier REIT is selling additional be consolidating space. CBD Philadelphia and South Jersey buildings. Recent Transactions Q3 and Q4 2015 NOTABLE SALES ACTIVITY PROPERTY ADDRESS LOCATION BUYER SIZE SF SALES PRICE / SF TYPE Liberty Horsham Portfolio Horsham Workspace Property Trust 2,375,919 $103 Investor DRA Portfolio Multiple Brookwood Financial Partners 1,615,595 $114 Investor One Franklin Plaza Phila CBD Maket West PMC Property Group 607,474 $71 Developer Midlantic Drive, 1000 Bishops Gate Southern New Jersey Zamir Equities 560,147 $101 Investor Public Ledger Building Phila CBD Maket East Carlyle Development 533,945 $109 Investor 401 Market Street Phila CBD Maket East Miller Investment Management 507,214 $155 Investor CrossPoint at Valley Forge King of Prussia/Wayne KBS Realty Advisors 272,360 $329 Investor 1170-1190 Devon Park Drive King of Prussia/Wayne CMS/MainLine Investment 250,185 $254 Investor Bay Colony Executive Park King of Prussia/Wayne Equus Capital Partners 203,611 $184 Investor 100, 200, 400 White Clay Center Suburban Wilmington Shelbourne Global Solutions, LLC 202,364 $52 Investor 20 Montchanin Road Suburban Wilmington Pettinaro 138,000 $147 Investor 1760 Market Street Phila CBD Maket West Stockton-Alterra JV 128,128 $156 Investor 777 Township Line Road Central/Lower Bucks Pembroke Hobson 110,000 $205 Investor 1000 Howard Boulevard Southern New Jersey CMS/MainLine Investment 105,312 $157 Investor 2 Executive Campus Southern New Jersey Zamir Equities 102,591 $57 Investor 211 S. Gulph Road King of Prussia/Wayne Roseview Group 102,204 $205 Investor 704 N. King Street Downtown Wilmington Alpha Technologies 86,910 $21 User Riverview Corporate Plaza Southern New Jersey Cooper Health System 81,500 $49 User 3001 Leadenhall Road Southern New Jersey Cole Real Estate Income Strategy 81,069 $190 Investor

NOTABLE LEASE ACTIVITY

PROPERTY ADDRESS LOCATION TENANT SIZE SF TYPE Two Liberty Place Phila CBD Market West Cigna 322,000 Renewal 725 Chesterbrook Boulevard King of Prussia/Wayne Comcast Spotlight 219,934 New 1900 Market Street Phila CBD Market West Independence Blue Cross 202,555 New 1500 Market Street Phila CBD Market West Radian 152,000 New 40 Liberty Boulevard Malvern-Exton Cerner 126,000 New 228 Strawbridge Drive Southern New Jersey Carekinesis 74,609 New 1635 Market Street Phila CBD Market West MakeOffices 56,776 New 400 Commerce Drive Suburban Wilmington Prosper 52,000 New 601 Office Center Drive Fort Washington Lincoln Financial Planning 46,930 New 401 White Horse Road Southern New Jersey Comcast 42,000 Expansion 1500 Market Street Phila CBD Market West Benefits Data Trust 39,600 New 601 Lee Boulevard King of Prussia/Wayne Dealcom 37,157 New 4000 Midlantic Drive Southern New Jersey Gallagher Benefit Services 34,868 New 74 E. Swedesford Road Malvern-Exton Dollar Financial 33,892 New 650 Naamans Road Suburban Wilmington Zenbanx 27,653 New

2 Research & Forecast Report | Q4 2015 | Pennsylvania, New Jersey, Delaware | Colliers International Market Comparison Update

OFFICE MARKET

NET AVG. DIRECT SUBLET TOTAL VACANCY ABSORPTION COMPLETIONS UNDER ASKING SUBMARKET INVENTORY VACANT VACANT VACANT RATE ANNUAL YTD CONSTRUCTION RENT CBD Philadelphia A 30,085,258 2,425,371 138,950 2,564,321 8.5% (34,294) 0 1,971,682 $29.46 B 12,299,742 1,065,386 36,416 1,101,802 9.0% 316,219 0 0 $24.80 Total 42,385,000 3,490,757 175,366 3,666,123 8.6% 281,925 0 1,971,682 $28.06 Pennsylvania Suburbs A 25,938,829 2,069,537 117,942 2,187,479 8.4% 1,360,934 364,285 0 $27.72 B 32,673,469 4,807,919 172,347 4,980,266 15.2% 467,330 0 0 $23.19 Total 58,612,298 6,877,456 290,289 7,167,745 12.2% 1,828,264 364,285 0 $24.57 Southern New Jersey A 8,188,011 738,383 16,479 754,862 9.2% 210,636 0 0 $22.50 B 8,700,595 1,188,392 7,427 1,195,819 13.7% 340,952 0 0 $19.92 Total 16,888,606 1,926,775 23,906 1,950,681 11.6% 551,588 0 0 $20.92 Wilmington-New Castle, DE A 12,930,684 1,277,558 8,608 1,286,166 9.9% 151,296 0 209,372 $26.69 B 5,372,650 1,091,678 0 1,091,678 20.3% 38,745 0 0 $22.08 Total 18,303,334 2,369,236 8,608 2,377,844 13.0% 190,041 0 209,372 $24.57 Lehigh Valley, PA A 5,867,861 629,843 1,806 631,649 10.8% 112,620 210,000 281,680 $21.36 B 3,374,860 252,078 34,169 286,247 8.5% 163,432 0 0 $17.60 Total 9,242,721 881,921 35,975 917,896 9.9% 276,052 210,000 281,680 $20.19 MARKET TOTAL A 83,010,643 7,140,692 283,785 7,424,477 8.9% 1,801,192 574,285 2,462,734 $27.07 B 62,421,316 8,405,453 250,359 8,655,812 13.9% 1,326,678 0 0 $22.62 Total 145,431,959 15,546,145 534,144 16,080,289 11.06% 3,127,870 574,285 2,462,734 $24.67

SUBMARKET VACANCY RATES

Main Line/Radnor 4.4% Conshohocken 6.4% DEFINITIONS Market West 8.2% Absorption (Net): The net change in occupied space over a Bala Cynwyd 8.2% given period of time.

Delaware County 8.2% Vacancy Rate: A percentage of the total amount of physically Burlington County 8.4% vacant space divided by the total amount of existing inventory. Market East/Independence Mall 9.9% Space that is not currently occupied by a Horsham/Jenkintown 10.4% Vacant Space: tenant, regardless of any lease obligation on the space. Wilmington-Suburban 11.8% Norristown/Valley Forge 11.9% Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by Wilmington-Downtown 14.3% the tenant with the lease obligation. Plymouth Meeting/Blue Bell 14.5% Under Construction: Counted when steel is up, King of Prussia/Wayne 14.7% not at the commencement of site work. Camden County 17.1% Build-to-Suit: A term describing property that was developed Malvern/Exton/West Chester 18.5% specifically for a certain tenant to occupy. Can be either Ft. Washington 18.5% leased or owned by the tenant. Central/Lower Bucks 22.6%

Source: Colliers International 0% 10% 20% 30%

3 Research & Forecast Report | Q4 2015 | Pennsylvania, New Jersey, Delaware | Colliers International Submarket Reviews 502 offices in

CBD Philadelphia New Castle County, DE 67 countries on The downtown market had a solid performance in 2016 The vacancy rate decreased in both despite a few bumps. While the vacancy rate was at its Suburban and downtown Wilmington 6 continents lowest level in fifteen years, absorption for the fourth in the third and fourth quarters. $2.3B in annual revenue quarter dipped after three strong quarters. This was The northern suburban market had mainly due to Bank of New York Mellon’s contraction 1.7B square feet under management strong absorption from organic tenant from six floors at 1735 Market Street. However, the Over 16,300 professionals growth. Downtown tenants continued to conversion of a portion of One Franklin Tower to make lateral moves to better buildings, apartments, and the deferment of the balance of the and law firms were still shrinking their office space for retrofit, removed over a half-million footprints. However, the financial square feet of vacancy. technologies sector was expanding. There will be additional spaces vacated in 2016 by Dow, PA-based Alpha Technologies bought One Cigna and FMC, and 200,000-square-feet of renovated Customs House. FinTech companies space at One Franklin that will be available in Q3. Prosper and Zenbanx signed large leases However, it is likely that a portion of these vacancies in the suburban market. will be leased. Demand for loft-style offices is New Castle County’s major employers will influencing the retrofit and conversion of traditional FOUNDING GLOBAL PARTNER office space. impact the office market over the next year. CSC is building a new 148,000-square-foot Suburban Pennsylvania headquarters, consolidating multiple

The 1.8 million square feet of absorption was at its locations. JPMorgan Chase plans to expand WORLD GREEN BUILDING COUNCIL highest level since 2007. Class B absorption had its Technology Center on Concord Pike, outpaced Class A during the first half of the year, but another sign of Delaware FinTech growth. Class A occupancy was boosted in the last two quarters Incyte has filed plans for a new building, while by multiple large lease deals and the completion of new leasing space across the state line in Delaware buildings for IFM Efector and Saint Gobain. County. However, the future of DuPont’s and UNITED STATES: Colliers International | Philadelphia Limited Class A space choices will increasingly drive Dow’s occupancy in New Castle County is a potential concern. tenants to Class B buildings in 2016. With no spec Philadelphia, PA (headquarters) construction on the immediate horizon, more aging TEL +1 215 925 4600 buildings will be retrofitted and repositioned. There are Lehigh Valley, PA still no signs of any developer starting a purely The vacancy rate in the Lehigh Valley was down Allentown, PA TEL +1 610 770 3600 speculative building, but there is the potential for a a full percentage point from the end of 2014, but flat during the last two quarters of 2015 at 9.9 partially preleased project to start in the next year. Conshohocken, PA percent. Neighborhood and city improvement TEL +1 610 684 1850 Southern New Jersey zone incentives have increased new office Southern New Jersey rebounded strongly in 2015. construction in Allentown and Bethlehem, but also Harrisburg, PA More tenants were upgrading locations and expanding resulted in conversions of office buildings to TEL +1 717 730 3752 within the market. Companies such as Carekinesis used multi-family, such as 65 E. Elizabeth Avenue in Wilmington, DE economic incentives to grow significantly. With Class A Bethlehem. TEL +1 302 425 4000 vacancy below 10 percent, Class B vacancy is likely to Lehigh University and St. Luke’s Health Network will Mount Laurel, NJ decrease further in 2016. be the lead tenants in a new 125,000-square-foot TEL +1 856 234 9300 office building in south Bethlehem. Construction is The ownership mix continues to change. Brandywine scheduled to commence in early 2016. Realty Trust and Liberty Property Trust have been

d divesting suburban buildings, but both have Guardian Life’s 281,680-square-foot office building is ce us u in d g o r p development plans in the city of Camden. Brandywine scheduled for 3rd quarter 2016 completion.

p r recently broke ground on Subaru USA’s new e e co w po headquarters. wind

Colliers International Ten Penn Center 1801 Market Street, Suite 550 Philadelphia, Pennsylvania, 19103 Copyright © 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. +1 215 925 4600 While every reasonable effort has been made to ensure its accuracy, we cannot colliers.com/philadelphia 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 4containedNorth in this report.American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International