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Charlotte Office Market Report4Q’16

Charlotte ends with a strong 2016 2.9 % GDP Growth Above the National Average

Charlotte’s Local Economy

Charlotte and North Carolina took a few economic hits from the HB2 controversy in 2016, but the overall environment was positive. A commercial real estate analysis published in the Charlotte Observer noted that Charlotte’s GDP grew 2.9% in 2016, which was well above the national average of 1.6%.

Charlotte added 22,700 jobs in 2016. That helped keep its unemployment rate below the national average and continued a downward trend in the city’s unemployment. The expected population growth in Charlotte, through 2021, is approximately 2% a year, which should contribute to continued job growth. The Charlotte Chamber reports that Charlotte’s average home price in 2016 rose 7% year-over-year to $277,267. That was on top of a 4% annual gain in 2015. Meanwhile, Apartment List rated Charlotte the top city in the country for millennial growth, while Forbes ranked Charlotte No. 5 among the 10 U.S. cities with the fastest growing economies.

Charlotte Market Overview

The 2016 fourth quarter witnessed a slight increase in vacancy rates from previous quarters in the same year, leveling out to match the end of 2015, but still saw lower vacancies than years prior to 2015. The lack of higher positive absorption, coupled with new deliveries in the market, kept the vacancy rate levels the same year-over-year from 2015, allowing for a flat 13.1% availability in office space at a 9.5% vacancy rate.

Major deliveries during the quarter included Sealed Air’s 300,000-square-foot corporate headquarters near the Airport; and the 287,507-square-foot Brigham Building in South Charlotte. Meanwhile, a pair of even larger projects broke ground Uptown in Q4: one at 300 South Tryon, and the other at 615 South College Street.

Charlotte, Mecklenburg County2016 Year End Totals

Total Number of Buildings 3,250

Total Square Feet 83,097,131

Average Asking Rates $22.82

Overall Vacancy 9.4%

Net Absorption 481,632 SF

Deliveries 911,887 SF

Under Construction 2,022,970 SF

Charlotte, North Carolina

4Q / End of YearOFFICE Market Report

5%

7%

9%

11%

13%

15%

17%

12.2% Average Vacancy Rate

Vacancy Rates

$14.00$15.00$16.00$17.00$18.00$19.00$20.00$21.00$22.00$23.00$24.00

-400,000-200,000

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

Absorption (RSF) / Asking Rates

4Q15 vs. 4Q16

DELIVERIES ASKINGRATES

VACANCYRATE

NETABSORPTION

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%Charlotte UnEmployment Rate

Avg. Asking Rate Absorption SF

Copyright: NAI Southern Real Estate 2017 Sources: CoStar, NAI Southern Real Estate

Those projects added to an already busy 2016 in the greater Charlotte market. The Fort Mill area is seeing increased activity as well. In addition to Sealed Air, tenants that moved into large blocks of space in 2016 included LPL Financial, which took over 240,000 square feet at LPL Financial Headquarters in Kingsley Park; and Lash Group, which moved into 206,525 square feet at Lash Group Headquarters in Fort Mill.

The biggest lease signing during the year was the 470,000-square-foot renewal signed by Belk at Belk Headquarters in the Southwest Charlotte market. Other top leases were the 287,507-square-foot deal signed by Wells Fargo at the Brigham Building; and the 120,000-square-foot deal signed by Jeld Wen at One Silver Crescent in Southwest Charlotte. Another major transaction was the March sale of One Wells Fargo Center in the Central Business District. That facility, which covers more than 1 million square feet, sold for $284 million, or $278.95 per square foot.

A total of 10 buildings were delivered to the Charlotte market during the fourth quarter, totaling 963,116 square feet. Another 2.2 million square feet were under construction at the end of the quarter. The Central Business District, Airport market and South Charlotte market all saw large projects either delivered or started during the quarter.

Although absorption was positive in 2016 by year end, vacancy rates stayed level due to new deliveries in the market. This kept the vacancy rate at 9.5%, the same as 2015 year end. Vacancy rates dipped in the middle of the year, from Q1 to Q3, due to positive absorption. But with new deliveries later in the year, rates increased back to 2015 levels. Class A properties had a vacancy rate of 11.9% at the end of the fourth quarter – the highest percentage in more than two years. Vacancy rates for Class B and C properties both moved lower.

Overall net absorption during the fourth quarter was down to a negative -30,612 square feet, meaning more space came on the market during the final quarter. New deliveries also affected these vacancy rates. Even though Q4 was down on absorption, the absorption rate was still positive on an annualized basis in 2016.

Fourth-quarter average rental rates remained steady, with rates inthe $22.82 range. These rates were consistent throughout eachquarter in 2016, with Q1 being the lowest at $22.79. Though ratesremained steady in 2016, 2015 rates averaged lower, from $22.20down to as low as $21 in Q1.

The Charlotte market closed the year with total office inventory of 83.09 million square feet in 3,250 buildings. That compares to 82.5 million square feet in 3,235 buildings at the end of 2015.

Central Business DistrictA couple of major projects got underway in the Central Business District during the fourth quarter. One of them, 300 South Tryon, is a 638,459-square-foot facility with 41% of its space pre-leased. The other, at 615 South College Street, is a 375,002-square-foot building that was 18% pre-leased.

Airport The Airport market reported one of the fourth-quarter’s largest deliveries: Sealed Air’s 300,000-square-foot facility at LakePointe Corporate Center, which is 100% occupied. The site houses Sealed Air’s global headquarters.

$12

$14

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$18

$20

$22

$24

$26

$28

2008 2009 2010 2011 2012 2013 2014 2015 2016Class A Class B Class C



South CharlotteAnother major delivery during the fourth quarter was the Brigham Building in South Charlotte’s Ballantyne Corporate Park. The 287,507-square-foot facility is 100% occupied thanks to a deal inked by Wells Fargo during Q4, which also ranked as one of the quarter’s top lease signings. Wells Fargo will use the facility to combine existing teams and accommodate future growth.

SouthparkThe Southpark market’s top lease signing during the fourth quarter was a 63,889-square-foot deal inked by Windstream Communications at Three Morrocroft Centre. During the third quarter, PNC Financial Services Group renewed a 26,990-square-foot lease at One Piedmont Town Center.

Outlook An increasing supply of office space in Charlotte could contribute to a slowdown in rental rates in 2017. However, that risk might be offset by an influx of new tenants drawn to Charlotte’s comparatively low rates vs. comparable markets.

Charlotte’s annual “Outlook on the Commercial Real Estate Market” forum, reported on in the Charlotte Observer, offered a “guardedly optimistic” take on the 2017 environment based on input from local experts. They cited a generally bullish outlook on the global and U.S. economies as well as steady population, job and wage growth in the Charlotte market.

At the same time, concerns have been raised about the maturity of the current commercial real estate boom, and how much longer it can last. Experts noted that some institutional investors might be hesitant to pursue new projects as the cycle grows more mature.

Asking Rates by Building Class

$9 $11 $13 $15 $17 $19 $21 $23 $25 $27 $29 $31

Plaza Midwood / NodaEast Charlotte

MatthewsPark Road

Northwest CharlotteNortheast/I-77

UniversityAirport

South CharlotteMidtown-Randolph

CotswoldMidtown-SouthEnd

SouthParkSouth/485

CBD

Averaged* Rates by Submarket

Copyright: NAI Southern Real Estate 2017Sources: CoStar, NAI Southern Real Estate



Total SFTotal #

of BuildingsTotal

Vacant SFVacancyRate %

Annual NetAbsorption

2016Deliveries

UnderConstructionEnd of Year

Average Rental Rate

Class A 36,028,373 229 4,198,835 11.7 91,197 713,037 1,997,970 $26.62

Class B 34,066,722 1,228 2,997,843 8.8 285,788 198,580 45,000 $18.58

Class C 13,002,036 1,793 611,450 4.7% 104,647 0 0 $16.70

CBD 20,797,006 122 1,953,232 9.4% (408,354) 12,912 1,013,461 $29.07

South/485 6,763,066 168 808,241 12.0% 74,609 306,227 194,000 $28.37

SouthPark 5,478,355 99 508,934 9.3% 89,347 0 236,250 $27.28

Midtown-SouthEnd 5,915,120 395 275,099 4.7% 120,123 36,000 178,259 $25.37

Cotswold 450,104 37 10,921 2.4% 9,655 0 0 $23.88

Midtown-Randolph 3,542,029 260 214,664 6.1% 31,517 0 35,000 $22.26

South Charlotte 2,789,119 175 312,938 11.2% 80,406 3,500 0 $20.13

Airport 12,044,766 263 1,340,007 11.1% 244,200 377,300 136,000 $19.88

University 8,382,785 151 800,463 9.5% 19,064 0 0 $19.69

Northeast/I-77 5,665,121 385 433,780 7.7% 235,748 111,505 0 $19.20

Northwest Charlotte 1,309,712 191 31,881 2.4% 25,200 0 0 $18.13

Park Road 2,475,556 166 519,298 21.0% (24,066) 4,957 0 $15.52

Matthews 2,782,279 236 439,408 15.8 (41,256) 50,390 0 $15.38

East Charlotte 2,968,313 316 207,707 7.0% 10,818 9,096 30,000 $13.91

Plaza Midwood / Noda 1,728,708 286 53,695 3.1% 9,316 0 200,000 $10.96

Class A, B & C OfficeSubmarket Statistics

Major Lease TransactionsBuilding Submarket SF Qtr Tenant Name

1 Belk Headquarters Airport 470,000 2nd Belk

2 Brigham Building Highway 51 287,507 4th Wells Fargo

3 One Silver Crescent Airport 120,000 4th Jeld Wen

4 4240 Sandy Porter Rd Airport 120,000 2nd CPI Security Systems, Inc.

5 LakePointe 5 Airport 111,847 2nd WECTEC

6 615 S College St CBD 64,375 3rd Regions Bank

7 Three Morrocroft Centre Southpark 63,889 4th Windstream Communications

8 500 E Morehead St Midtown/South End 63,120 3rd Chicago Brige & Iron

9 500 E Morehead St Midtown/South End 58,594 2nd Elliott Davis

10 Woodward Building Highway 51 56,742 1st MetLife

11 One Wells Fargo Center CBD 38,132 4th N/A

12 Three Coliseum Centre Airport 35,233 3rd Belk

13 BB&T Center CBD 32,108 1st American International Group

14 Forest Park III Airport 31,035 2nd Lash Group

15 Alexander Building Northeast/I-77 30,870 1st Ensemble Health Partners

16 588 N New Hope Rd Gaston County 27,009 1st KEDPlasma

17 One Piedmont Town Center Southpark 26,990 3rd PNC Financial Services Group

18 Three Coliseum Centre Airport 25,000 2nd Compass Group

19 South Tryon Square CBD 24,124 1st US Bank

20 Hearst Tower CBD 24,055 1st Bradley Arant Boult Cummings LLP

21 Whitehall Corporate Center VI Airport 23,517 1st Home Point Financial Corporation

22 Morrison Bldg Southpark 23,109 2nd South State Bank




Major Lease TransactionsBuilding Submarket SF Qtr Tenant Name

23 The Davie Building Highway 51 22,836 3rd Rentokil North America

24 5200 77 Center Dr Airport 21,533 2nd MapAnything, Inc.

25 Pine Brook XIV Airport 20,000 3rd N/A

26 Three Coliseum Centre Airport 19,480 3rd Circle K

27 One Wells Fargo Center CBD 19,066 2nd N/A

28 Quail Plaza Highway 51 18,769 2nd Steritech Group

29 Lakepointe Corporate Center Two Airport 18,132 2nd CalAtlantic Mortgage

30 Chandler Building Highway 51 17,304 2nd N/A

31 Capitol Towers - South Office Tower Southpark 17,295 4th MassMutual

32 236 Barium Springs Dr Iredell County 17,131 1st TheLemonadeStandChildcareandPreschool

33 BB&T Center CBD 16,880 1st Clear Blue Insurance Company

34 9815 David Taylor Dr University 16,693 4th N/A

35 Fairview Plaza III Southpark 16,510 2nd Wyndham Capital Mortage

36 525 N Tryon St CBD 16,268 4th Bank of America Corporation

37 Cedar Hill CBD 16,221 4th N/A

38 123 N White St York County 16,000 2nd UC Synergetic

39 1800 Continental Blvd Airport 15,978 1st N/A

40 Alexander Building Northeast/I-77 15,735 4th Apex Tool Group

Major Sales TransactionsBuilding Price SF Seller Buyer

One Wells Fargo Center $284,000,000 1,018,120 Starwood Capital Group Vision Properties

Carillon Tower $147,000,000 476,308 Hines KBS REIT III

Water Ridge Office Park $115,000,000 845,059 Goldman Sachs New York Life Real Estate Investors

Trade & Tryon $71,600,000 337,483 The Dilweg Companies Lincoln

South Tryon Square $69,500,000 237,186 LP Aims RE / Mayfield Gentry Goldman Sachs

Lash Group Headquarters $67,097,393 247,834 Childress Klein 90 North Real Estate Partners LP

SouthPark Center $46,500,000 238,018 The Dilweg Companies Continental Capital Partners, LLC

1800 Camden Road $42,500,000 185,469 Ram Realty Services Asana Partners

5605 Carnegie Blvd $40,150,000 139,858 Bissell Companies AEW Capital Management


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Office Submarkets1 CBD2 Midtown-Randolph3 Midtown-Southend4 Park Road5 SouthPark6 Cotswold7 South Charlotte8 South / 4859 Matthews10 Mint Hill11 Plaza Midwood / NoDa12 University13 Northeast I-7714 Northwest Charlotte15 Airport

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NAI Southern Real Estate4201 Congress StreetCharlot te, NC 28209

704-375-1000www.srenc.com

Scott [email protected]

704-632-7604

Vince [email protected]

704-632-7635

Mike [email protected]

704-632-7633

Mar tin [email protected]

704-632-7619

Caldwell [email protected]

704-632-7630

NAI Southern Real Estate-Charlotte, NC. We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty, or representation about it. No part of this document is to be reproduced without our written permission. This document has been prepared and issued by NAI Southern Real Estate on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. NAI Southern Real Estate or its affiliates does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions provided herein. Any expressions of opinions are subject to change without notice. This document does not constitute an offer or an invitation to invest, lease, rent, purchase or conduct any real estate activity, business activity, or personal activity based upon its data or purpose. No party should treat any of the contents herein as advice.


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