Market Summary

Current Conditions

Market Analysis

CHARLESTON3Q16 OFFICE MARKET

Ease of Access, Low On-Market

Times Drive Vacancy Down

Charleston continues to grow and absorb vacancy. Overall vacancy

declined one point to 10.6% in the third quarter from 11.6% previously. Of

particular notice is the I-526 corridor branching off from I-26 to Mt.

Pleasant. Vacancy along the Mark Clark Expressway stands at 1.3%, down

from 1.4% in the prior quarter. While vacancy on the peninsula continues

to decline as well, many companies are finding the ease of access along the

corridor to be very beneficial as opposed to the highly congested CBD.

Lease rates along this major artery are also competitive compared to the

CBD, standing at $21.44/SF to $31.56/SF. I-526 provides significant access

to Charleston International Airport as well as major residential areas such

as Hanahan, Wando, and Summerville with its connection to I-26.

The most notable planned activity along the corridor is the 360,000 SF

office development being constructed by Blackbaud. The company is the

leading global non-profit software developer. The new facility is expected

to provide over 300 new jobs in the area.

Rates in the overall market were only down a slight $0.35 as new deliveries

continue to come on market. Over 109,000 square feet was leased during

the quarter, making the total leasing activity for the year over half a

million. Over 122,000 SF was positively absorbed in the market, with the

bulk of absorption arising out of the CBD.

Rapid Leasing Could Lead to Future Investment

Charleston’s relatively low on-market time is an attractive feature to the

capital markets. Not only is it a positive sign of a growing economy, it can

command a higher dollar from institutional investors if the right conditions

are met. Rapid lease turn around times and five to seven year terms can

make new and old office buildings very attractive in the market. Three of

such investment deals were completed during the quarter; The Atrium on

Rivers Avenue, The Oaks on Centre Pointe Drive, and 288 Meeting Street

were all purchased for a combined $29.9 million dollars. Between the

three investment purchases, the average price per square foot was

$255.00.

Research

• Class A vacancy: 7.7% - $28.02/SF

• Class B vacancy: 13.4% - $17.18/SF

• Class C vacancy: 5.2% - $14.24/SF

• Total vacancy stands at 10.6%

• Asking rates down to $19.80/SF overall

-250,000

-150,000

-50,000

50,000

150,000

250,000

1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16

Net Absorption

Square Feet

5%

7%

9%

11%

13%

15%

17%

$16

$17

$18

$19

$20

$21

$22

1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16

Average Asking Rent (Price/SF) Vacancy (%)

Asking Rent and Vacancy

Current

Quarter

Prior

Quarter

Year Ago

Period

12 Month

Forecast

Total Inventory 12.1 MSF 12.1 MSF 11.8 MSF

Vacancy Rate 10.6% 11.6% 10.9%

Quarterly Net Absorption 122,641 148,680 -239,002

Average Asking Rent $19.80 $20.15 $19.44

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Research

CHARLESTON3Q16 OFFICE MARKET

As Office Sizes Shrink, Can the Office

Market Keep Up?

According to CoreNet Global, a leading international corporate real estateadvisory firm, the average individual office in North America shrank from225 square feet in 2010 to 176 square feet in 2012. By 2017, CoreNetanticipates that by 2017, the average amount of space needed peremployee will measure 151 square feet, equating to a reduction of 33.0%in floor space across only seven years. CoreNet cites technology as one ofthe driving forces behind this rapid decline in space. From smallercomputing devices to the mobility of the modern workforce, employees inthe increasingly connected 21st century are by and large not bound to theirdesks except by corporate policy.

Office rents, calculated per square foot, could potentially suffer from asimple lack of necessitated use. In a 10,000-square-foot office building, 225square feet per employee warrants an average of 44 employees. In thesame building with an average of 151 square feet per employee, 44.0% ofthe building’s space would become vacant. The same company could dothe same amount of business with a mere 6,666 square feet.

Paths and Possibilities

CoreNet also points out the increased reliance on technology in the

workplace is almost certain to eliminate payroll from the human workforce.

However, that may allow companies to hire more specialized employees or

more valuable positions down the line that would occupy some or all of the

newly vacated floor space. If office using companies do not choose to go

down that latter road, it falls to landlords and their representatives to fill

that space with paying customers. New tenants bring certain demands to

the marketplace, and while brokerage on the tenant side may not suffer

greatly, landlord representatives may find themselves with a harder job.

Renovations are expensive and normally unpopular with landlords;

subdividing office space can be as equally painful and time-consuming, and

future new construction fitted to a slimmer workforce does not bode well

for the existing large office spaces in the market today. If office users

choose to put more money in their pockets rather than expand their

workforces, the office market could have lots of space to fill .

South Carolina Market Trends and Indicators

Since Since 2007, the average office space square footage underconstruction in South Carolina has trended upward by approximately 44.0%to 47,000 square feet in third-quarter 2016. Deliveries of office spacematch that trend accordingly. Leasing activity has declined on average overthe same time. In third-quarter 2016, office space leased was downapproximately 56% from 2007. During that time, leasing went from anaverage of 6,900 square feet per transaction to 3,900 square feet pertransaction.

With construction and deliveries following an upward trend and averageleasing activity on the decline, it is possible for the market to reach atipping point in the future by becoming oversaturated. Oversaturation ofthis kind would be a direct result of declining demand in existing officespace combined with new oversized deliveries.

Complicating the issue is the fact that office users must keep up the pacethat is currently maintaining tight vacancy levels as space is filled. If officeusage declines as technology advances, a perfect storm of unnecessaryspace may fall on the market as a whole.

Currently, there are positive signs in the form of stable rents, low vacancyrates and the volume of square footage currently under construction.What the market must be wary of is over-delivering while trending towardsmaller space. Companies that once needed 10,000-square-foot spaces arebeginning to realize that they can operate on smaller scales and will seekthe space to suit their needs.

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Research

Dorchester 343,420 20.3% 20.3% -13,403 -14,412 $19.19 - $19.19

Downtown - CBD 2,538,822 4.1% 4.5% 86,706 114,534 $31.65 $26.93 $31.56

E Charleston / Mt. Pleasant 1,688,607 1.7% 3.8% 9,441 11,033 $26.63 $20.26 $25.24

Greater Charleston 2,421,469 8.1% 9.9% 8,240 -42,723 $19.98 $32.00 $19.99

North Charleston 4,578,200 16.5% 18.0% 31,657 191,042 $17.01 $15.43 $17.01

Outlying Berkley County 619,497 21.5% 22.1% - -5,125 $18.19 $26.50 $18.46

Suburban Total 9,633,193 12.3% 13.7% 35,935 139,815 $18.35 $23.20 $18.60

CBD Total 2,538,822 4.1% 4.5% 86,706 114,534 $31.65 $26.93 $31.56

Market 12,190,015 10.6% 11.6% 122,641 254,349 $19.54 $24.01 $19.80

Total Total Total Qtr YTD Direct Sublet Total

Inventory Vacancy Availability Absorption Absorption Asking Rent Asking Rent Asking Rent

(SF) Rate Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

Submarket Statistics

CHARLESTON3Q16 OFFICE MARKET

Lease/User Transactions

Select Sales Transactions

Charleston School of Law 385 Meeting Street Downtown Charleston Renewal 20,000

Hall Booth 101 Coleman Boulevard E Charleston/Mt. Pleasant Move-In 10,805

Robertson Hollingsworth & Flynn 550 King Street Downtown Charleston Move-In 4,400

Tenant Building Submarket Type Square Feet

Building Submarket Sale Price Price/SF Square Feet

288 Meeting Street Downtown Charleston $11,750,000 $375.39 31,300

4969 Centre Point Drive North Charleston $10,600,000 $252.86 41,920

7301 Rivers Avenue North Charleston $7,525,000 $137.79 54,600

4

Consumer Price Index (CPI) Employment Growth by Industry

Unemployment Rate Payroll Employment

Employment By Industry

Economic Conditions

For the fifth straight month, unemployment has receded in South Carolina.August saw unemployment numbers fall to 5.1%, a record low for thePalmetto State. The national average for unemployment remained steadyat 4.9%. Trade, government, and professional services continue todominate the state’s employment sectors, as companies continue tomigrate into and grow with South Carolina.

South Carolina was ranked second overall by Area Development, a leadingbusiness publication, as a state in which to do business. The publicationalso praised the state as the number-one place in business for incentivesand speed of permitting. The continued growth in South Carolinaemployment across all industries is easily attributable to those workforceincentives, low cost of living and business-friendly governance.

In Columbia, trade/transportation/utilities has outpaced government bytwo points, rising to 19.0% of total employment. Trade is also the leadingindustry in Charleston with 19.0%, and Greenville follows that trend with19.0% of nonfarm employment as well. Continued investment ininfrastructure, the Port of Charleston and the inland port in the upstate hasgreatly benefitted the state.

Research

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0%

5%

12%

19%

1%

5%

13%

12%

12%

4%

17%

Mining/Logging

Construction

Manufacturing

Trade/Transportation/Utilities

Information

Financial Activities

Professional and Business Services

Education and Health Services

Leisure and Hospitality

Other Services

Government

South Carolina, August 2016

Source: U.S. Bureau of Labor Statistics

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

United States South Carolina

Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics

Total Nonfarm

Mining/Logging

Construction

Manufacturing

Trade/Transportation/Utilities

Information

Financial Activities

Professional and Business Services

Education and Health Services

Leisure and Hospitality

Other Services

Government

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

South Carolina, August 2016, 12-Month % Change, Not Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics

-2%

0%

2%

4%

6%

8%

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

United States South Size Class B/C

All Items, 12-Month % Change, Not Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics

-5%

-3%

-1%

1%

3%

5%

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

United States South Carolina

Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

Source: U.S. Bureau of Labor Statistics

SOUTH CAROLINA3Q16 LABOR STATISTICS

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications.

Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.

Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has

been revised. With this expansion and refinement in our data, there may be adjustments in historical

statistics including availability, asking rents, absorption and effective rents.

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research

Newmark Grubb Knight Frank United States Office Locations

Research

John Anderson

Research Director

803.779.8600

John.Anderson@wilsonkibler.com

Columbia, SC

1111 Laurel Street

Columbia, SC 29201

803.779.8600

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