Research & Forecast Report Q1 2018 | Retail

Atlanta Retail Adjusts to Changing Demands Market Indicators ATL ATL Relative to prior period Q1 2018 Q2 2018* Key Takeaways VACANCY - NET ABSORPTION >>Wages are up 3.3% year-over-year and Atlanta’s unemployment rate remains at 4.3%. CONSTRUCTION >>Leasing activity has slowed as asking rates reach the RENTAL RATE highest point in over 5 years due to a tighter market. CAP RATES >>The Atlanta vacancy rate has dropped to 7.2%, which is the lowest for the market in the last 10 years. *Projected Driving Factors >> The continued evolution of retail, which increasingly prioritizes selling services over products, is on further display this quarter with Historical Absorption, Deliveries and Vacancy Rates a frenzy of restaurant leases and openings in nontraditional retail 3.5 12% space. Office landlords, condos, new mixed-use developments and 3.0 even industrial landlords are all creating fine dining experiences. The 10% 2.5 following discussion may make you hungry... 2.0 8% >> A host of restaurant tenants will soon occupy a few Class A office 1.5 6% towers in Buckhead. Little Alley’s second location in Atlanta will 1.0 open May 7th at One Alliance Center, while Mission + Market has 4%

Square Feet (millions) Feet Square 0.5 already begun serving guests at the new Three Alliance Center. Alma Cocina, Fifth Group Restaurants Latin concept, will occupy the 0.0 2% 2014 2015 2016 2017 1Q18 ground floor of nearby Terminus 100 in 2019. Absorption Deliveries Vacancy >> Another high-rise, Midtown’s Metropolis condo building, has also signed Burgerim, a build-your-own mini burger concept that is new to Atlanta. Summary Statistics Asking Rents Atlanta Retail Market Per Square Foot Per Year >> As for the mixed-use scene, Garden & Gun is coming to The Battery at SunTrust Park. Additionally, Hodgepodge Coffeehouse joins nine Total Square Feet 171,955,053 Average Quoted other retailers that have been announced for Summerhill’s new Vacancy Rate 7.2% $13.30/SF NNN commercial district near the old Turner Field; and four eateries are set to join City Springs in Sandy Springs, including American, Change From Q4 2017 -0.2% Change From Q4 2017 Vietnamese and French concepts. Absorption YTD 899,023 1.4% >> The Lee + White adaptive reuse development on the West End will add Hop City to their food and beverage district which has brought Construction Deliveries YTD 108,677 Year-Over-Year Change new life to 426,000 square feet of industrial space. Under Construction 1,305,494 2.9%

NOTE: Statistical Set Includes Power Ctr, Shopping Ctr, Specialty Ctr; 10,000 SF and up (excludes Malls) SOURCE: CoStar Property, Colliers Research >> Atlanta has shown that food halls are a great way to reuse space and attract a variety of tenants looking to sell quality food. Paces Properties first discovered this with its Krog Street Market redevelopment on the Betline and is now looking to sell the highly successful project along with Atlanta Retail Rental Rates Stove Works, its other adaptive reuse project. The developer plans to Overall Market (per sq. ft. NNN) invest profits from these transactions to grow their food hall pipeline in $13.50 Georgia, Alabama, South Carolina and Tennessee. Other interpretations of food halls have since arrived in Atlanta, such as ,

with several others in the works. The Marietta Square Market, The $13.00 Daily and 360 Tech Village will test the market for food halls in the suburbs; while Bank of America Plaza’s newly opened Market 600 will determine whether or not the business crowd has an acquired taste for $12.50 these concepts. Atomic Entertainment is looking to join the action with the most intriguing food plans yet. Former train bays that will surround the Pullman Yards green space will be transformed for vendors to sell $12.00 offerings to people outside during concerts and movie nights, all while connected to a planed boutique hotel.

>> Grocers have mostly been immune to Amazon’s purchase of Whole $11.50 Foods last year. Popular chains have been increasing their in-store technology and service capabilities ever since this announcement. 2013 2014 2015 2016 2017 Kroger has ramped up their in-store experience with a technology they AVG Rental Rate NNN developed called Enhanced Display for Grocery Environment, or Edge. Source: CoStar Property In an effort to provide ease to customers, the high-tech pricing display can do everything from provide nutritional information to on-demand pricing. Walmart, the world’s largest retailer of groceries, has begun its Atlanta-MSA | Annual Housing Permits partnership with food deliverer DoorDash as well. 30,000 >> Obviously, there are some grocers unable to acclimate to the new norm including Winn-Dixie and Earth Fare. Winn-Dixie plans to close 25,000 over 100 underperforming stores across the country including three in Georgia. Meanwhile, natural foods grocer Earth Fare has announced 20,000 plans to close their and Peachtree Corners locations here in the Atlanta market. 15,000 >> Experience-based retailers are the new anchor tenants as landlords look to provide offerings not found online. It also should come as no 10,000 surprise that the major announcements from the first quarter occurred in a bevy of nontraditional retail space. Colony Square secured a lease with new-to-market iPic Theaters to anchor the redevelopment upon 5,000 completion in 2020. Cumberland’s The Battery also signed an upscale cinema, Premium Theater, to occupy 38,000 square feet. In addition, 0 the Battery opened Punch Bowl Social in the first quarter for their more 2012 2013 2014 2015 2016 2017 2018 active patrons. New bowling and parlour games can also be found at the Painted Duck which opened at the Stockyards adaptive re-use Single-Unit Multi-Unit development. Lastly, Solis Two Porche Drive opened Overdrive Lounge Source: U.S. Census Bureau for those interested in watching airplanes and fast cars while they wine and dine. Atlanta Retail | Investment Cap Rates Retail Development 7.8% >> Halcyon, the next big mixed-use complex for the northern suburbs, has 7.6% officially announced the project will open March 2019. The Georgetown 7.4% and RocaPoint Partners project is following the same formula as The 7.2% Battery and Colony Square with a focus on chef-driven restaurants, a 7.0% premium movie theater, and hotels. Halcyon will also include a Market 6.8% Hall that already has six tenants signed on. 6.6% >> Colony Square also has plans for a food hall as construction continues to 6.4% advance on Peachtree and 14th Street. A former two-story structure has 6.2% been cleared to make way for a new six-story building in its place. The new mid-rise will contain restaurants, retail, a FitLab Fitness Club and office 6.0% space. Progress has also been made on the ground floor of Building 100 2012 2013 2014 2015 2016 2017 2018 where new retail space is expected to make its debut later this summer. Atlanta Qrtly AVG US Qrtly AVG Source: Real Capital Analytics

2 Research & Forecast Report | Q1 2018 | Atlanta Retail | Colliers International UPDATE - Recent Transactions in the Market Notable Leasing Activity

Tenant Property Submarket Landlord Size (SF) Type

Sam’s Club 2901 Clairmont Road Buckhead Retail Walmart Inc. 128,776 Freestanding Retail Renewal Floor and Decor Atlantic Shopping Center Dekalb Retail Paces Properties 85,623 Neighborhood Center Lease Hobby Lobby 1295 Iris Drive South Metro Retail Tri-land Holdings 55,000 Neighborhood Center Lease Cobb Antique Mall Piedmont Village Shopping Center North Cobb Retail AMERCO 45,000 Community Center Lease

Notable Sales Activity

Property Submarket Sales Date Sale Price Size (SF) Price / SF Buyer

Peachtree Station Dekalb Retail 12/28/2017 $67,100,000 116,212 $577.39 Sarofirm Realty Advisors Parkaire Landing North Cobb Retail 1/17/2018 $42,100,000 171,514 $245.46 Jamestown L.P. Shops at Towne Lake North Cobb Retail 1/18/2018 $29,700,000 101,526 $292.54 Lincoln Property Group Stonecrest Marketplace South Metro Retail 2/6/2018 $24,000,000 258,584 $92.81 US Bank National Association

Source: CoStar Property Investment Sales Activity >> The amount of money spent on retail properties in the first quarter in Atlanta is down 41.6% year-over-year. Even so, the $282 million in transactions is higher than the starts of previous years. >> There were a few large transactions that took place this quarter including 2 grocery-anchored centers in the North Cobb submarket. >> Cap rates notched up slightly to 7.3% as the national and local market have continued to see a slow and steady trend upward over the last four quarters.

FOR MORE INFORMATION Tosh Wolfe Scott Amoson Joe Kenney Senior Vice President | Atlanta VP, Director of Research | Atlanta Senior Research Associate | Atlanta +1 404 888 9000 +1 404 877 9286 +1 404 781 0227 [email protected] [email protected] [email protected]

Colliers International | Atlanta Promenade | Suite 800 1230 Peachtree Street, NE Atlanta, Georgia, 30309 Copyright © 2017 Colliers International. +1 404 888 9000 The information contained herein has been obtained from sources deemed reliable. While colliers.com/atlanta 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 professional3 advisorsNorth priorAmerican to acting onResearch any of the material & Forecast contained Report in this report. | Q4 2014 | Office Market Outlook | Colliers International