1. 2016 COMMERCIAL REAL ESTATE FORECAST
Louis Stephens, CCIM, SIOR | March 30, 2016
CHARLOTTE REGION

2. TODAY’S TOPICS Market status Occupancy Rent growth Absorption
New developments
Capital markets
Cap rates
2016 outlook

3. Consistent national job growth and unemployment at 4.9%
1-month net
change (thousands)
Unemployment
Rate (%)
Charlotte’s unemployment rate of 4.5% is below the national average. Charlotte, along with the US, is seeing the unemployment rate dip back down into pre-recession lows.
Source: JLL Research, Bureau of Labor Statistics
Market Status

4. Where are we now in the cycle?
Contribution to %
change in real GDP
National GDP growth remaining steady over the past five years
Gross Domestic Product growth is measured from the value of all the finished goods and services produces within a country over a specific period of time.
National Average GDP
Growth 2.50%
Years
Market Status

5. How does Charlotte stack up against the rest of the Southeast?
City
Office under construction
Office vacancy rate
Unemployment
rate high*
rate low**
Change
in UR
Population growth
since 2010
Charlotte
1,987,222*
9.7%
12.6%
4.5%
8.1%
12.1%
Raleigh
1,247,753
8.8%
7.9%
3.2%
4.7%
9.1%
Atlanta
3,145,740
12.9%
11.7%
4.6%
7.1%
8.7%
Jacksonville
76,803
10.2%
11.3%
5.4%
5.9%
3.6%
Orlando
283,469
11.4%
11.5%
7.0%
Miami / Ft. Lauderdale
1,711,391
13.1%
5.2%
6.5%
6.7%
Nashville
3,208,404
10.3%
3.7%
6.6% #1 #1
Charlotte’s 4.5% is the lowest unemployment rate the City has seen in the past five years. Charlotte comes in third behind Atlanta and Nashville in regard to new construction for office space. With the highest rate in unemployment rate change and population growth, Charlotte is an attractive location for companies looking to take advantage of a young workforce.
The Charlotte metro has also yielded the largest population growth of the above comparable cities over the last five years, with a large part of this being the millennial generation.
Charlotte, with a change in unemployment rate of 8.1%, has recovered a greater percentage of jobs than its competing Southeastern markets since the recession.
*Charlotte currently
under construction:
300 S Tryon (638,459 SF)
615 S College St. (381,263 SF)
Capitol Towers Phase II (480,000 SF)
Source: JLL Research, BLS, US Census Bureau | **Unemployment rates start from January 2010 to YTD 2016
Market Status

6. Urban cores growing at a fast pace
Throughout the Southeast, previously neglected urban cores are seeing
strong population growth since 2010.
Downtown Raleigh:
+18.2%
Downtown Nashville:
+7.4%
Charlotte CBD population growth includes everything inside of I-277 corridor. The boom in multi-family development has helped Charlotte grow rapidly, since 2013 there has been just over 2 million square feet of multi-family developed in Charlotte. The Lynx Blue Line (light rail) has helped office submarkets like South End and NODA to emerge. ADD POPULATIONS
Midtown Atlanta:
+51.9%
Charlotte CBD:
+138.5%*
8,324+ total population growth inside I-277 loop since 2010
Market Status

7. Preleasing keeps vacancy low
Vacancy continues to slide vs. supply increasing, percentage change, major deals through organic growth and groups expanding. Lash, Red Ventures, 100, Although the CBD has controlled the majority of projects with new construction, adjacent markets like South End have become popular due to the ability to attract and retain the large millennial workforce moving to Charlotte. Dimensional Fund Advisors HQ moving to South End is a perfect example.
Occupancy/Rent Growth

8. Class A and B rents increasing as vacancy declines
Class A rents have started to take off, could be peaking in the market. Class B rents either trend down, or flat line historically. Recently Class B has not, when development occurrs, Class B increase. As asking rates in Class A product increases, Class B in turn get’s pulled along for the ride. AT&T Plaza refurbishing is a good example.
Occupancy/Rent Growth

9. LARGE BLOCKS DWINDLING
Bulk of available blocks in CBD & Airport (≥ 50,000 SF)
SouthPark 8%
Submarket
Blocks*
by count
Blocks by SF
Airport 7
926,868
CBD 8
1,964,398
University 1
196,990
Highway 51/Ballantyne 4
499,263
SouthPark 3
398,022
North I-77
East Charlotte
66,000
Southeast Charlotte
Midtown
165,000
Total 25
4,216,541
Metro large blocks by submarket
New availability in the CBD comes in the form of just under 2 million square feet of construction. New construction in suburban submarkets Hwy 51 / Ballantyne and SouthPark are caused by Capitol Towers Phase II (SouthPark) and The Brigham Building (Hwy 51 / Ballantyne). The lone project in Midtown, being developed by Beacon Partners, is expected to see strong signs of leasing moving forward.
Large Block Absorption

10. LARGEST RECENT LEASES 300K SF 160K SF 200K SF 144K SF 200K SF 94K SF
2014 VS leases
84K SF
82K SF
61K SF
Occupancy

11. Since 2010, Charlotte has seen total net absorption remain relatively strong.
As companies in the market continue to expand organically, look for this trend to continue in the foreseeable future.
Average Total Net Absorption – 194,876
Red Ventures, Lash, LPL, AvidXchange expanding.
Absorption

12. Charlotte Job Growth vs. Population Growth
As population increases, unemployment decreases
Due to it’s low cost of living, international Airport hub, and urban core, Charlotte is an attractive city for millennials graduating from college. Companies recognize that the population is increasing at a rapid pace and unemployment is going down. Lack of jobs in a city growing as fast as Charlotte is an great recruiting tool for organizations.
Growth Demographics

13. CHARLOTTE NEW DEVELOPMENTS
Proposed
New Construction
Capitol Towers II
Size: 480,000 SF
Tenant: N/A
Delivery Date: 2016
300 S Tryon
Size: 634,000 SF
Tenant: Babson Capital
Delivery Date: 2017
Build-to-suit
Red Ventures
Size: 215,000 SF
Expansion
Tenant: Red Ventures
Delivery Date: 2017
AvidXChange
Size: 200,000 SF
Tenant: AvidXChange
LPL Financial
Size: 400,000 SF
Tenant: LPL Financial
Delivery Date: 2016/2017
Sealed Air
Size: 300,000
Tenant: Sealed Air
2nd Generation
AT&T Plaza
Size: 350,000 SF
Tenant: AT&T
Delivery Date: 2016
NASCAR Plaza
Size: 138,000 SF
Tenant: Chiquita
LakePointe CC
Size: 158,000 SF (2 Blgs)
Tenant: Lash Group
Coliseum Center
Size: 160,000 SF
Tenant: LPL Financial
Toringdon 7
Size: 175,000 SF
Tenant: N/A
Delivery Date: Planned
DFA HQ
Size: 285,000 SF
Tenant: Dimensional
Fund Advisors
Delivery Date: Planned
500 E Morehead
Size: 180,000 SF
Tenant: N/A
Delivery Date: 2016
1213 W Morehead
Size: 65,000 SF
Tenant: N/A
Delivery Date: Planned
With strong signs of preleasing in the market, both CBD and Suburban development have picked up in the previous quarters. Capitol Towers strong preleasing helped justify the kicking off of Capitol Towers Phase II. 300 South Tryon landed Babson Capital as an anchor tenant.
Baxter Place
Size: 200,000 SF
Tenant: N/A
Delivery Date: Planned
615 S College
Size: 381,263 SF
Tenant: N/A
Delivery Date: 2017
New Developments

14. Value-per-transaction is increasing
$216
$308
121 West Trade
Sale Date: December 2015
Price: $71,600,000
Price per square foot: $216.00
Carillon Tower
Sale Date: January 2016
Price: $147,000,000
Price per square foot: $308.00
$240
$219
One Wells Fargo Center
Sale Date: December 2015
Price: $245,000,000
Price per square foot: $240.64
Toringdon Office Park
Contract Date: December 2015
Size: 519,602 SF
Price per square foot: $219.00
Capital Markets

15. CBD dominates majority of sales transactions
Submarket
Volume ($)
Total SF
Count
Urban
CBD
$826,866,667
3,664,551 8
Midtown
Suburban
Airport
$37,500,000
335,830 2
East Charlotte
Highway 51 / Ballantyne
$137,399,938
789,717 4
Northeast I-77
$27,000,000
135,757 3
Park Road
$15,431,667
117,479
Southeast Charlotte
SouthPark
$90,474,971
496,655
University
$43,849,992
339,141
Grand Total
$1,178,466,235
5,879,130 23
SF traded in each submarket
One Wells Fargo, Carillon Tower, and 121 West Trade all recently traded. This helped CBD garner the most SF traded for the Charlotte market. Since 2010 the CBD has had 11 buildings trade, four of those buildings have traded more than once (NASCAR Plaza, Ally Center, Fifth Third Center, 121 West Trade)
Source: JLL Research, , Real Capital Analytics
Methodology: Data includes Closed and pending transactions valued at approximately $5.0M and greater.
Capital Markets

16. U.S. core product office CBD cap rates
Sub 5-6% level in most primary and rising secondary markets
Seattle
4.50 – 5.50%
Portland
5.75 – 6.75%
Minneapolis
7.00 – 8.00%
Boston 4.75 – 5.25%
Detroit
9.50 – 10.50%
Pittsburgh
8.00 – 9.00%
New York
4.00 – 4.50%
Sacramento 7.00 – 7.50%
Chicago
5.70 – 6.25%
Cleveland
7.50 – 8.50%
Philadelphia
7.00 – 7.50%
Columbus
8.00 – 9.00%
San Francisco 4.00 – 4.50%
Indianapolis
7.00 – 8.00%
Denver
5.50 – 5.75%
Washington, DC
4.90 – 5.50%
Cincinnati
8.50 – 9.50%
East Bay 6.00 – 7.00%
Los Angeles 5.25 – 6.00%
Raleigh %
Charlotte
5.50– 7.50%
Phoenix
6.50 – 7.50%
San Diego
6.00 – 7.00%
Atlanta
6.25 – 7.25%
Dallas 5.50 – 6.50%
4.00 – 5.00%
5.00 – 6.00%
Austin 5.25 – 6.25%
6.00 – 7.00%
Houston 5.25 – 6.00%
Orlando
6.00 – 7.00%
7.00 – 8.00%
Tampa
6.50 – 7.50%
8.00 – 9.00%
9.00% +
Miami
5.50 – 6.50%
Source: JLL Research
Cap Rates

17. OCCUPANCY RENT GROWTH ABSORPTION NEW DEVELOPMENTS CAP RATES OUTLOOK
2016
Forecast
OCCUPANCY
RENT GROWTH
ABSORPTION
NEW DEVELOPMENTS
CAP RATES
OUTLOOK
Outlook

18. THANK
YOU