Research & Forecast Report NASHVILLE | OFFICE 2nd Quarter 2018

Strong Leasing Activity Keeps Demand for Class A Space Elevated at Mid-Year 2018 Nashville Market SUMMARY STATISTICS 2Q 2018 Nashville Office Market Entire Market Downtown Suburban Nashville has thrived on corporate expansions and relocations across a diverse industry base in this real estate cycle. The market’s steady Vacancy Rate 7.8% 6.8% 8.0% job growth, solid pipeline of talent, favorable business costs and quality of life has resulted in a confident market for developers and Change From 1Q 2018 (basis points) -40 -20 -30 businesses. 2Q Absorption 215,416 109,002 106,414 The Nashville Market has experienced large deals during the first half of 2018 including Baker Donelson’s 91,904 square foot lease that will YTD Absorption 432,885 179,532 253,353 kick off a 450,000 square foot building downtown; AllianceBernstein New Construction 250,000 250,000 0 will relocate its headquarters, bringing 1,000 jobs to Nashville; Philips will occupy 107,700 square feet in two phases at Bank of America Under Construction 2.29M 1.04M 1.25M Plaza, and will relocate its headquarters to a new 479,000 (Square Feet) square foot development downtown. ASKING RENTS Multiple companies expanded during 2Q as well, a testament to the Per Square Foot Per Year health of the business climate and market. Companies including Market Average $26.97 HealthStream, SmileDirectClub, Eventbrite, Louisiana Pacific, and Market Class A $30.48 Warner expanded their footprints by a combined 63,200 square feet.

Positive net absorption of 215,416 square feet at the close of 2Q OFFICE-USING EMPLOYMENT 2018 brings the year-to-date absorption to 432,885 square feet. Overall vacancy declined slightly at the end of Q2 2018 as tenants 260 absorb new space following a record year of deliveries.

Demand for Class A space remains strong, fueling 2.29 million 220 square feet across the region. Over 5.4 million are on the drawing board, and developers are expecting to break ground on 2.4 million square feet in the next 18 months. 180 Job growth is a leading indicator for the continued health of the real estate market, and Nashville is averaging 3% year over year job growth. Job creation was strongest in the Professional and Business (Thousands) Employment Total 140 sector, which added 8,400 net for a 5.3% increase from May 2017 to May 2018. Nashville accounted for nearly 50% of ’s job growth in that same time frame, equating to 23,100 jobs. The 100

market’s unemployment rate dropped to a historic low of 2.2% in

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May-13 May-14 April, the lowest rate of any major metro area in the U.S. May-15 Vacancy & Availability CBD VS SUBURBAN CLASS A VACANCY RATES Following a record year of deliveries, and subsequent move-ins of 12% tenants into this new supply during the first half of 2018, Nashville’s market-wide vacancy rate closed 2Q at 7.8%. This is a decrease of 10% 70 basis points over last quarter, with the greatest drop in vacancy occurring in the Downtown submarket at negative 20 basis points. 8% Overall Class A vacancy decreased in Q2 2018 for a second consecutive quarter, as Downtown tenants continue to expand and relocate into new 6% office space. Class A suburban vacancy levelled off this quarter, though vacancy may increase slightly over the second half of 2018 as nearly 4% 400,000 square feet of multi-tenant Class A space is scheduled to deliver in the Green Hills/Music Row and Green Hills/Music Row submarkets. 2% Nashville experienced a 13.6% uptick in sublease vacancy over last 0% quarter, with the majority of new vacancies located in the Cool Springs Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 (210,609 SF) and Brentwood (143,965 SF) submarkets. Nashville had 936,412 square feet of available sublease space being marketed for lease CBD Vacancy Suburban Vacancy at the close of Q2, with 77% located in Class A buildings. Source: CoStar & Colliers Research

HISTORICAL AVAILABLE SUBLEASE CBD VS SUBURBAN CLASS A RENTAL RATES

1,000,000 $35

800,000 $30

600,000 $25 Square Feeet

400,000

$20

200,000

$15 Q2-09 Q2-10 Q2-11 Q2-12 Q2-13 Q2-14 Q2-15 Q2-16 Q2-17 Q2-18 0 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 CBD Rental Rate Suburban Rental Rate

CBD Suburban Nashville Total Source: CoStar & Colliers Research Rental Rates HISTORICAL VACANCY A slight dip in Class A vacancy at mid-year 2018 was met with a 2.5% & AVERAGE RENTAL RATES increase in the average Class A rental rate for existing properties. The market $35 12% Class A rate has surpassed the $30 mark for the first time, closing 2Q at an average of $30.48 per square foot. $30

10% Nashville’s overall rental rate is at its highest point to date, closing out 2Q $25 2018 at $26.97 per square foot. Market rents may have begun level off, but Vacancy Rate growth remains steady. Downtown’s rate of $33.56/SF is the highest in $20 Rental Rate Rental the market, with an increase of 4% over last quarter. Urban rates can be 8% expected to stay elevated, as the next wave of new supply totaling 1.15M $15 square feet that will deliver over the next 2 years has asking rates upwards of $40 per square foot. $10 6%

Submarkets with the highest rents are Green Hills ($32.94), West End $5 ($31.65), and Cool Springs ($30.55).

$0 4% According to Colliers International’s 1Q 2018 U.S. Office Market Report, Nashville’s 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 average Class A downtown annual change in rent of 8.4% was second to Atlanta Market Rent Class A Rent Class B Rent Market Vacancy (9.0%), followed by Charlotte (4.6%), Austin (3.6%), and Tampa (2.9%).

2 : Nashville Research & Forecast Report | 2Q 2018 | Office | Colliers International Absorption & Leasing Activity NASHVILLE MARKET Nashville’s office market posted 215,416 square feet of positive net absorption NEW SUPPLY, ABSORPTION, & VACANCY during 2Q 2018 bringing the YTD net absorption to 432,885 square feet, 15.0% keeping pace with the average 5-year mid-year absorption of 393,000 SF. 3,000,000

Class A product made up 57% of the total absorption for the quarter, with 2,500,000 half of the absorption clustered in the Downtown submarket. Sizable 2Q 12.5% occupancies included Merrill Lynch, CBRE, and Frazier & Deeter at 222 2nd 2,000,000 Vacancy Rate Avenue, totaling roughly 70,000 square feet. Square Feet Square 1,500,000 10.0% Leasing activity in the Downtown submarket was prevalent in 2Q 2018.

10-year average absorption Notable deals include new leases signed by Philips (107,700 SF) at Bank 1,000,000 of America Plaza; ASI at 601 Bakertown; Ernst & Young (38,031 SF) and 7.5%

UMG Nashville (38,000 SF) at 222; and Southwestern Investment Services 500,000 (25,865 SF) at Five Corporate Centre in Cool Springs. Big-name tenants in the market that expanded this quarter downtown include HealthStream 0 5.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD (20,783 SF), Louisiana-Pacific (19,000 SF), andEventbrite (9,000 SF). 2018 New Supply Net Absorption Vacancy Office Development

Nashville MSA has over 2,290,126 square feet under construction. Demand for Class A office space remains a primary driver for new development, and NASHVILLE MARKET NEW DELIVERIES developers are expected to break ground on multiple projects over the next few quarters. By the end of 2019, over 1.16M additional square feet will be 3,000,000 delivered in the suburban submarkets and 9,000 square feet will be added to the Downtown submarket. 2,500,000

DOWNTOWN 2,000,000

>> Construction began this quarter on Eakin Partners’ Peabody Place a Class 8 MILLION SF PLANNED 4. Square Feet Square A 250,000 square foot building in Rolling Mill Hill. This building brings the 1,500,000 total number of square feet under construction downtown to 1,044,000.

>> In the North Gulch, Capitol View Block E (300,000 SF) and Block D 1,000,000 (44,000 SF) are under construction, with the latter scheduled to complete next quarter. Capitol View Block E is slated to deliver during 1Q 2019. 500,000 HealthStream signed a deal in April 2017 to occupy 65,548 square feet at this location, and expanded its future footprint by 20,783 square feet 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021-2022 in April 2018. Deliveries 10-Year Average Deliveries >> Construction continues on 501 Commerce, the 385,000 square foot building that is located at the Fifth + Broadway development in the heart of downtown. The 26-story office tower will be accompanied by the National Museum of African American Music, 180,000 square feet of retail/entertainment, and 380 residential units. UNDER CONSTRUCTION

SUBURBAN Airport South >> Office development in the suburban submarkets reached a post-recession high in 2017, delivering 1.3M square feet of space. Airport South, Brentwood Brentwood, Cool Springs, and the Green Hills/Music Row submarkets have a combined 1,264,126 square feet under construction and 56% is Cool Springs pre-leased. 2,290,126 SF Downtown >> Future home of BMG Rights Management, One Music Circle South is under construction in the Green Hills/Music Row submarket. Targeted Green Hills completion is 2Q 2019. >> Developers are likely to break ground on 1.08M square feet of new projects in late 2018/early 2019.

3 : Nashville Research & Forecast Report | 2Q 2018 | Office | Colliers International 2Q 2018 Office Transactions

LEASING ACTIVITY

PROPERTY TENANT LEASE TYPE SF SUBMARKET

Carothers Building CHS Renewal 178,000 Cool Springs

Bank of America Philips New 107,700 Downtown

601 Bakertown ASI - Progressive Insurance New 47,200 Airport South

222 2nd Ave Ernst & Young New 38,031 Downtown

222 2nd Ave UMG Nashville New 38,000 Downtown

Cummins Station Eventbrite Renewal/Expansion 26,172 Downtown

Cool Springs Corporate Center 5 Southwestern Investment Services New 25,865 Cool Springs

Capitol View HealthStream Expansion 20,783 Downtown

Vantage Way AO Smith New 20,358 MetroCenter

Bank of America Plaza Louisiana-Pacific Corporation Renewal/Expansion 19,000 Downtown

*Bold text denotes Colliers International transaction.

INVESTMENT ACTIVITY

PROPERTY BUYER SF PRICE PRICE/SF SUBMARKET

8 & 9 Corporate Centre KBS Strategic Opportunity REIT 311,000 $73,000,000 $234 Cool Springs

ServiceSource Tower Stoltz RE Partners 306,628 $43,850,000 $143 Downtown

2953 Elm Hill Pike RW Holdings NNN REIT 81,950 $15,500,000 $189 Airport North

741 Cool Springs Boulevard TA Realty 57,252 $14,350,000 $251 Cool Springs

331 Mallory Station Road Prime Health Services 47,636 $7,975,000 $167 Cool Springs

DEFINITIONS Colliers Inventory - Statistical set consists of all office properties of more than 20,000 SF, including owner-occupied. The data set excludes properties that are for educational, medical and government use. While Colliers attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.

Class A Building - Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state-of-the-art systems, exceptional accessibility and a definite market presence.

Class B Building - Buildings competing for a wide range of users with average rents. Building finishes are fair to good for the area, and systems are adequate; but the building does not compete with Class A at the same price.

Class C Building - Buildings competing for tenants requiring functional space at rents below the average for the area.

Net Absorption - The net change in occupied space between the current quarter and the previous quarter, calculated by summing all the positive changes in occupancy and subtracting all the negative changes in occupancy.

SF - Square Feet

Vacancy Rate - Percentage rate of the total amount of physically vacant space divided by the total amount of existing inventory.

4 : Nashville Research & Forecast Report | 2Q 2018 | Office | Colliers International NASHVILLE OFFICE MARKET TOTAL AVG RENTAL INVENTORY DIRECT SUBLEASE 2Q YTD UNDER MARKET BUILDINGS VACANCY RATE PSF (SF) VACANT (SF) VACANT (SF) ABSORPTION ABSORPTION CONSTRUCTION RATE (GROSS) AIRPORT NORTH Class A 12 2,306,281 302,327 50,612 15.3% -3,310 18,885 0 $25.00 Class B 37 2,467,328 56,247 0 2.3% -7,604 4,023 0 $18.40 Class C 5 156,844 1,859 0 1.2% -832 0 0 $16.81 TOTAL 54 4,930,453 360,433 50,612 8.3% -11,746 22,466 0 $21.75 AIRPORT SOUTH Class A 3 357,835 6,906 0 1.9% 0 0 24,286 $26.66 Class B 52 3,338,476 277,221 83,744 10.8% 50,548 93,974 0 $22.10 Class C 28 1,138,104 122,421 0 10.7% 20,765 19,765 0 $20.69 TOTAL 83 4,834,415 406,548 83,744 10.1% 71,313 113,739 24,286 $21.98 BRENTWOOD Class A 31 3,444,946 410,188 34,097 12.9% 3,866 18,854 190,000 $30.39 Class B 52 3,338,476 277,221 83,744 10.8% 11,846 -3,053 0 $25.77 Class C 6 239,924 24,372 0 16.3% 1,322 -3,000 0 $21.58 TOTAL 89 7,023,346 711,781 117,841 11.8% 17,034 12,801 190,000 $28.15 COOL SPRINGS Class A 42 6,310,011 573,539 210,609 12.4% 30,438 153,850 729,000 $30.55 Class B 52 1,808,920 47,308 0 2.6% -4,255 -14,005 0 $25.82 Class C 5 152,365 0 0 0.0% 2,400 2,400 0 $22.84 TOTAL 99 8,271,296 620,847 210,609 10.1% 28,583 142,245 729,000 $30.25 DOWNTOWN Class A 19 6,284,338 322,197 102,744 6.8% 96,550 174,450 1,044,000 $33.56 Class B 48 4,574,661 382,769 4,497 8.5% 14,021 7,791 0 $26.94 Class C 28 3,110,238 47,604 0 1.5% -1,569 -2,709 0 $18.16 TOTAL 95 13,969,237 752,570 107,241 6.2% 109,002 179,532 1,044,000 $28.79 GREEN HILLS/MUSIC ROW Class A 10 1,340,044 34,029 37,101 5.3% -27,893 -29,218 302,840 $32.94 Class B 39 1,634,496 61,138 0 3.7% 5,700 -9,619 0 $30.25 Class C 15 670,748 5,408 2,762 1.2% 25 5,790 0 $25.98 TOTAL 64 3,645,288 100,575 39,863 3.9% -22,168 -33,047 302,840 $31.46 METROCENTER Class A 2 346,235 23,308 0 6.7% 0 -3,527 0 $24.00 Class B 14 1,076,520 47,101 0 4.4% 4,158 11,077 0 $20.77 Class C 5 289,442 3,700 0 1.3% 0 -3,700 0 $17.00 TOTAL 21 1,712,197 74,109 0 4.3% 4,158 3,850 0 $21.75 RIVERGATE/HENDERSONVILLE Class A 10 661,512 66,468 0 10.0% 26,549 13,919 0 $28.00 Class B 20 973,338 38,580 0 4.0% 5,601 178 0 $19.65 Class C 16 842,843 45,501 0 5.4% -13,624 -42,251 0 $13.84 TOTAL 46 2,477,693 150,549 0 6.1% 18,526 -28,154 0 $20.69 WEST END Class A 18 3,059,602 189,576 8,957 6.5% -2,297 30,579 0 $31.65 Class B 27 1,806,724 43,543 0 2.4% 6,862 -16 0 $27.69 Class C 13 647,750 34,223 0 5.3% -3,851 -11,110 0 $24.68 TOTAL 58 5,514,076 267,342 8,957 5.0% 714 19,453 0 $30.58 MARKET Class A 147 24,110,804 1,928,538 444,120 9.8% 123,903 377,792 2,290,126 $30.48 Class B 341 21,018,939 1,231,128 171,985 6.7% 86,877 90,350 0 $24.49 Class C 121 7,248,258 285,088 2,762 4.0% 4,636 -35,257 0 $18.76 MARKET TOTAL 609 52,378,001 3,444,754 618,867 7.8% 215,416 432,885 2,290,126 $26.97

5 : Nashville Research & Forecast Report | 2Q 2018 | Office | Colliers International MARKET CONTACT: Janet Miller CEDC FM offices in CEO & Market Leader 554 +1 615 850 2704 countries on [email protected] 69 REGIONAL AUTHOR: Katie Barton CPRC 6 continents Director of Research +1 615 850 2758 : 153 [email protected] : 34 Latin America: 24 Colliers International | Nashville Asia Pacific:231 615 3rd Avenue S | Suite 500 EMEA: 112 Nashville, TN 37210 +1 615 850 2700 www.colliers.com/nashville $2.7 billion in annual revenue

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Copyright © 2018 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.