Research & Forecast Report GREENVILLE, SC | OFFICE Q1 2016

Greenville Office Tenants Face Rising Costs and Limited Options for Space

Jessica Rahal Director of Research |

Key Takeaways >> Robust interest in the Greenville, SC office market is contributing Market Indicators to low vacancy rates and limited quality options for large blocks Relative to prior period Q1 2016 Q2 2016* of contiguous space. VACANCY >> Rising rental rates and construction costs are resulting in record- high occupancy costs for office tenants throughout the market. NET ABSORPTION >> Downtown construction activity is booming and visible, as several CONSTRUCTION projects are well underway. RENTAL RATE**

>> The market will continue to strengthen through 2016 with Note: Construction is the change in Under Construction. high occupancy, premium rental rates and favorable cap rates, *Projected attracting out-of-market investors. **Rental rates for current quarter are for CBD. Rent forecast is for metro-wide rents. Low Vacancy Rate Leaves Few Quality Options

Healthy demand for space throughout the Greenville, SC office Summary Statistics market is contributing to declining vacancy rates, leaving users with Q1 2016 Greenville Office Market Market CBD Suburban limited options for quality space. At the end of the first quarter Vacancy Rate 17.4% 14.7% 18.9% of 2016, the total vacancy rate for the market was down to 17.4% from 17.8% the previous quarter and 17.9% one year ago. Space Change From Q4 2015 -40 -10 -60 continues to be absorbed throughout the market, and larger blocks (basis points) of contiguous, Class A space, larger than 20,000 square feet Absorption 125.7 20.5 105.2 are difficult to find. As a result, tenants are finding themselves (Thousand Square Feet) competing for space, and oftentimes, remaining in the space they New Construction Delivery 100 20 80 currently occupy. (Thousand Square Feet) Under Construction Greenville’s Central Business District (CBD) has shown great (Thousand Square Feet) 213 143 70 improvement and has strengthened over recent years. The submarket’s total vacancy rate was down to 14.7% at the end of the Asking Rents Per Square Foot Per Year first quarter of 2016, down from 15.3% one year ago and 17.2% two years ago. Class A and B space is in highest demand, as tenants Market $19.08 seek high quality space with attractive amenities for employees. Market Class A $23.45 The vacancy rates for Class A and B CBD office space were 16.1% and 10.8%, respectively, at the end of the first quarter. Downtown Class A $25.99 Suburban Class A The ONE development in Greenville’s CBD is successfully attracting $21.26 tenants and quickly backfilling the former CertusBank space. Just recently, Endeavor announced plans to locate at the development and occupy 20,000 square feet. Endeavor, led by Joe Erwin, will Total Vacancy Rate by Submarket be the largest co-working space in Greenville and will cater to the creative services industry. The news follows WYNIT Distribution’s 23.1% 23.4% announcement late in 2015 to relocate its headquarters from to the ONE development, occupying 57,000 square feet. 18.2% 17.6%

The suburban submarkets are also attracting tenants, given their 15.3% lower rental rates and greater options for space. Additionally, the 14.7% suburbs offer free parking and feature recently renovated buildings. The total vacancy rate for the suburban submarkets was down to 18.9% from 19.5% at year-end 2015. The total vacancy rate for the I-385/85 suburban submarket was down to 17.6% from 18.2% one year ago. Activity was limited during the quarter in the Spartanburg submarket, ending the first quarter of 2016 with a total vacancy rate of 23.4%. CBD I-385/85 Spartanburg One of the remaining large blocks of suburban office space was Q1 2015 Q1 2016 leased during the quarter. Concentrix is moving into Building III at Source: Colliers International the 2000 Wade Hampton Boulevard Office Park in the I-385/85 submarket. The company plans to expand its call center operations in the market and occupy the entire five-story, 143,833 square-foot building. CBD Average Asking Rental Rates (PSF/YR)

$25.99 $25.00 Historically High Rental Rates $23.24 $22.17

$19.48 Given the market’s declining vacancy rate and strong demand for $18.70 space, the market is currently in favor of landlords who are raising $15.69 $15.57 rental rates to levels never before seen in the market. Tenants $14.98 are showing desire for space and willingness to pay higher rent to secure their space in the market. Additionally, recently delivered Class A office space is leasing at higher rates, pushing up the market average. Asking rental rates for Class A space in the market averaged $23.45 per square foot per year (PSF/YR), increasing from

$20.90 PSF/YR one year ago. ABC Q1 2015 Q4 2015 Q1 2016 The Central Business District is home to the highest rental rates in the market with asking rental rates averaging $24.46 PSF/ Source: Colliers International YR, increasing 25.0% in just two years. Class A and B space in the submarket averaged $25.99 PSF/YR and $22.17 PSF/YR, respectively, at the end of the first quarter of 2016. I-385/85 Submarket Average Asking Rental Rates (PSF/YR)

Rental rates in suburban submarkets are also increasing, averaging $21.26 $19.90 $17.24 PSF/YR at the end of the first quarter of 2016. Asking rental $19.16 rates for the I-385/85 and Spartanburg submarkets averaged $17.45 $16.59 PSF/YR and $15.51 PSF/YR, respectively. $15.95 $15.97 $14.12 $14.05 Increasing Occupancy Costs for Tenants $12.92

Tenants are facing higher occupancy costs as rental rates and construction costs increase. Tenant improvement (TI) costs are rising, while landlords’ TI allowance often remains unchanged. Consequently, construction costs are being passed on to the tenants who are paying the difference out of pocket. Some tenants, however, ABC expect the landlord to pay for costs associated with upfitting second Q1 2015 Q4 2015 Q1 2016 generation space and are seeing higher rental rates in return. Source: Colliers International

2 South Carolina Research & Forecast Report | Q1 2016 | Greenville Office | Colliers International Additionally, downtown tenants are experiencing higher rates for parking, placing additional costs on the tenant. Concessions have One Research Drive also diminished downtown, as landlords are able to secure deals without offering tenant incentives. Construction is Visible

Developers have taken note of the demand for space and responded with new speculative office construction. Several speculative office buildings are underway, particularly in the CBD market. Some tenants, looking for larger space, are opting for build-to-suit construction. >> Construction is complete on One Research Drive at International Center for Automotive Research (CU-ICAR) in the I-385/85 submarket. The approximately 80,000 square-foot, speculative Class A office building adds approximately 27,000 square feet of Class A space to the market’s existing inventory. The new building is home to JTEKT’s North American headquarters. >> Downtown, construction is underway on Erwin Penland 360, Erwin Penland 360 Rendering a 6-story, 125,000 square-foot, Class A office building. The building is welcoming strong preleasing activity. Future tenants include Erwin Penland, Parker Poe, Cherry Bekaert Accounting, Hughes Commercial, Centennial American Properties and Hughes Agency. An adjacent parking deck will feature 629 parking spaces for office tenants. >> Camperdown, the Greenville News site redevelopment downtown, is set to break ground soon. The mixed-use development will include speculative office space, a Marriott-branded AC Hotel, apartment units, and a parking deck, among other development. >> Falls Park Place is under construction downtown at Falls Source: Upstate Business Journal Park Drive and S. Main Street. The mixed-use development will include 12,000 square feet of Class A office space and is expected to be completed in August 2016. >> 504 Rhett, located one block from South Main Street and Fluor Field, is an adaptive-reuse project that offers approximately Annual Change in Office Sector Employment 6,000 square feet of office space for lease. The 14,000 square- by Month | Greenville-Anderson-Mauldin, SC foot building has already secured tenants Up & Up Agency and MSA RealOp Investments. 4,500 >> CH2M’s new 70,000 square-foot, build-to-suit office building is

under construction on Verdae Boulevard in suburban Greenville. 3,500

Office-Using Employment 2,500

Office-using employment in the Greenville-Anderson-Mauldin, SC 1,500

metropolitan statistical area (MSA) has risen over recent years and Number of Jobs Added is contributing to a larger portion of the area’s total non-agricultural employment. According to the Bureau of Labor Statistics, the 500 office-using employment sector accounted for approximately 23.4% of total non-agricultural employment in January 2016, increasing -500 from 16.3% in 1990. Approximately 2,900 jobs were added to the Jan-13 Jan-15 Jan-16 Jan-12 Jan-14 Sep-13 Sep-15 Sep-12 Sep-14 May-13 May-15 sector between January 2015 and January 2016, a 3.1% increase. May-12 May-14 Source: Bureau of Labor Statistics, St. Louis Federal Reserve, Colliers International

3 South Carolina Research & Forecast Report | Q1 2016 | Greenville Office | Colliers International Q1 2016 Office Market Summary Statistics Greenville, SC

Q1 2016 AVERAGE ASKING INVENTORY DIRECT VACANT SUBLEASE VACANT TOTAL VACANT TOTAL VACANCY MARKET BUILDINGS ABSORPTION RENTAL RATE (SF) (SF) (SF) (SF) RATE (%) (SF) (SF/YR) CENTRAL BUSINESS DISTRICT Class A 23 2,310,167 372,938 0 372,938 16.1% 16,676 $25.99 Class B 14 1,084,658 109,146 8,519 117,665 10.8% 9,765 $22.17 Class C 6 187,306 32,988 3,262 36,250 19.4% -5,873 $15.57 CBD Total 43 3,582,131 515,072 11,781 526,853 14.7% 20,568 $24.46 I-385/85 Class A 31 2,536,280 296,169 0 296,169 11.7% 60,129 $21.26 Class B 34 2,057,553 481,316 0 481,316 23.4% 74,394 $15.97 Class C 11 344,242 91,197 0 91,197 26.5% -30,625 $14.05 I-385/85 Total 76 4,938,075 868,682 0 868,682 17.6% 103,898 $17.45 SPARTANBURG Class A 8 500,681 22,576 4,922 27,498 5.5% -4,922 $21.24 Class B 12 692,327 200,795 0 200,795 29.0% 8,989 $15.58 Class C 7 227,692 103,637 0 103,637 45.5% -2,800 $12.52 Spartanburg Total 27 1,420,700 327,008 4,992 331,930 23.4% 1,267 $15.51 SUBURBAN TOTAL Class A 39 3,036,961 318,745 4,922 323,667 10.7% 55,207 $21.26 Class B 46 2,749,880 682,111 0 682,111 24.8% 83,383 $15.95 Class C 18 571,934 194,834 0 194,834 34.1% -33,425 $13.56 Suburban Total 103 6,358,775 1,195,690 4,922 1,200,612 18.9% 105,165 $17.24 MARKET Class A 62 5,347,128 691,683 4,922 696,605 13.0% 71,883 $23.45 Class B 60 3,834,538 791,257 8,519 799,776 20.9% 93,148 $16.46 Class C 24 759,240 227,822 3,262 231,084 30.4% -39,298 $13.96 Market Total 146 9,940,906 1,710,762 16,703 1,727,465 17.4% 125,733 $19.08 The tracked Greenville, SC office inventory was expanded during the first quarter of 2016 to include office buildings in Spartanburg, SC.

Commercial Real Estate Growth Cycle: Where the market stands and where it is going.

NEW CONSTRUCTION RENTAL RATE GREENVILLE’S OFFICE MARKET is EMPLOYMENT currently in the early stages of the OCCUPANCY PHASE 1: expansion phase. Rental rates, occupancy RECOVERY and employment are all strong and continue to increase. New construction is PHASE 2: EXPANSION beginning to gain momentum but remains COMMERCIAL limited to a few projects. REAL ESTATE GROWTH CYCLE

PHASE 4: RECESSION

PHASE 3: HYPERSUPPLY

4 South Carolina Research & Forecast Report | Q1 2016 | Greenville Office | Colliers International Market Outlook

The Greenville office market is poised for continued improvement Courier Square Rendering | Charleston through 2016. Several office properties are expected to trade ownership given the market’s tight conditions, favorable cap rates and low interest rates. Sales prices will be higher than those of the past, mirroring the national trend. The vacancy rate will continue to trend downwards, as demand for space remains strong throughout the market. Asking rental rates will escalate, given tight market conditions and growth in construction costs. New construction will meet some of the demand for space, but additional construction projects are likely. Around South Carolina

A growing demand for office space throughout South Carolina is contributing to tightening markets and soaring rental rates. Market Source: The Post and Courier via Michael McCann conditions are optimal for investment as occupancy rates are high and interest in the market remains strong.

Charleston, South Carolina

Tenants continue to show interest in the Charleston office market First Base Building at BullStreet | Columbia and demand for space is evident. However, a limited existing and vacant supply is creating challenges for tenants looking for space. Leasing activity was very limited during the first quarter of 2016, ending with a total vacancy rate of 7.8%. Several office and mixed- use developments are currently proposed and under construction and will add much needed Class A space to the market’s inventory. The buildings are successfully preleasing and attracting tenants. Courier Square is one of the larger mixed-use developments currently under construction and will include an 87,500 square- foot, Class A office building. Charleston is home to the highest rental rates in South Carolina with asking rental rates for Class A office space averaging $27.18 PSF/YR.

Columbia, South Carolina

Market conditions are tighter than ever in the Columbia, SC office market as occupancy and rental rates remain solid. Activity was limited to smaller lease executions during the first quarter, Innovation Center | Columbia beginning 2016 at a slow pace. Limited options for space and a stagnant office-using labor force contributed to the slow quarter that ended with a total vacancy rate of 15.7%. The Central Business District and suburban St. Andrews submarket continue to be focal points for the market.

Construction remains limited to two projects in the CBD. Upon completion, Innovation Center in the University of South Carolina’s Innovista District and the First Base Building at BullStreet will collectively add 182,000 square feet of Class A office space to the market’s existing inventory. Both buildings are expected to be completed during the second quarter of 2016.

For more statewide commercial real estate news check out our Source: Holder Properties market reports at: www.colliers.com/southcarolina/insights

5 South Carolina Research & Forecast Report | Q1 2016 | Greenville Office | Colliers International FOR MORE INFORMATION: 502 offices in David Feild, CCIM Market President | Greenville countries on +1 864 527 5428 67 [email protected] 6 continents Liz H. McCary Director of Marketing | South Carolina United States: 140 +1 803 401 4269 Canada: 31 [email protected] Latin America: 24 Jessica D. Rahal, CPRC Asia Pacific:199 Director of Research | South Carolina +1 803 401 4264 EMEA: 108 [email protected]

GREENVILLE OFFICE PROFESSIONALS:

$2.3 Brantley Anderson | Brokerage Associate billion in +1 864 527 5440 annual revenue [email protected]

Taylor Allen | Brokerage Associate +1 864 527 5423 1.7 [email protected] billion square feet under management Colliers International | Greenville 55 E. Camperdown Way, Suite 200 Greenville, South Carolina | USA 16,300 +1 864 297 4950 professionals and staff

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