M A R K E T B E AT

Office Q4 2019CHARLOTTE

ECONOMIC OVERVIEW2019 was a memorable year for Charlotte’s commercial real estate industry as the city continued to be at the forefront of economic expansion in the Southeast. The MSA added 30,500 jobs in 2019 and more are to come. Newly formed Truist Bank announced that the company will be moving its HQ to the Queen City. Other major job corporations already added or announced new jobs, led byHoneywell, Lowe’s, Lending Tree, and Microsoft. The outlook for 2020 does not show any signs of a slowdown. According to Tracy Dodson, Assistant City Manager, the newly formed Charlotte Regional Alliance is currently pursuing 10,000 new jobs. The unemployment rate rose slightly by 20 basis points (bps) in 2019 to 3.6%, aligning with the U.S. national average. Unemployment is expected to decrease over the next year as Charlotte continues to experience a burgeoning economy.

SUPPLY AND DEMANDCharlotte experienced a record-setting year, culminating the highest amount of absorption and deliveries in any given year by anoverwhelming margin. A total supply of 2.6 million square feet (msf) delivered in 2019, while demand kept pace, accruing slightly under 2.6 msf of absorption during that time frame. There is currently 5.1 msf under construction that will continue to supply Class A office to the region as well as drive rental rate growth.

Major construction starts such as the Design Center Tower anchored by Lowe’s, Legacy Union – Phase III anchored by Honeywell and Metro Tower anchored by Duke Energy commenced construction in the fourth quarter 2019. Given the heavy preleasing of trophy-Class A office buildings, additional construction starts are plausible, as long as construction costs remain manageable and tenants are willing to pay premium rents. The sole competition in the last quarter of 2019 was Two Silver Crescent, an 88,000-square-foot (sf) office building developed by New Forum in the Airport submarket. This delivery marked the continued trend of speculative development occurring in suburban submarkets. Looking forward to first quarter 2020, Arrowood South (114,469 sf) and 2001 S Tryon St (31,713 sf) are expected to deliver, further increasing the suburban market supply.

PRICINGOverall gross asking rents increased to $30.04 per square foot (psf) at the end of fourth quarter 2019, up 6.3% from $28.26 psfyear-over-year. Class A rents reached another historic high, posting $32.34 psf, a 5.7% increase year-over-year. The Airport and University submarkets comprise 27% of the markets total inventory and achieved 5.7% and 4.8% rent growth respectively in 2019. Suburban submarkets are anticipated to flourish as the result of a clear flight to value as other urban submarkets begin to mature.

11.5%Vacancy Rate

138KNet Absorption, SF

$30.04Asking Rent, PSF

(Overall, All PropertyClasses)

3.6%CharlotteUnemployment Rate

1.2MCharlotteEmployment

3.6%U.S.Unemployment Rate

Source: BLS

-500

0

500

1,000

1,500

2,000

2,500

3,000

2015 2016 2017 2018 2019

Thou

sand

s

Net Absorption, SF Construction Completions, SF

0%

4%

8%

12%

16%

20%

$20

$22

$24

$26

$28

$30

$32

2016 2017 2018 2019

Asking Rent, $ PSF Vacancy Rate

ECONOMIC INDICATORS Q4 2019

12-Mo.Forecast

12-Mo.Forecast

YoY Chg

YoY Chg

SPACE DEMAND / DELIVERIES OVERALL VACANCY & ASKING RENT

“Market Data is not reflective of U.S Overview Tables”

M A R K E T B E AT

Office Q4 2019CHARLOTTE

CAPITAL MARKETS/SALES ACTIVITYIn 2019, 11.4 msf of office traded in Charlotte, setting a record-high of almost $3.0 billion ($261 psf) in total sales transaction volume in 2019. The next highest year was in 2017 with a total of $2.1 billion. Suburban submarkets totaled $1.7 billion ($220 psf) in total sales volume while the CBD posted the highest annual transaction volume of $1.3 billion ($345 psf) for the year. Multiple record-breaking transactions occurred during the fourth-quarter including Highwood’s purchase of the Bank of America Tower (Legacy Union – Phase I) for $436.0 million ($517 psf) from Goldman Sachs & Lincoln Harris. The sale was eclipsed in December by Truist Financial’s purchase of Hearst Tower (rebranded to Truist Center) from Cousins Properties. Even with these two record setting deals, the imminent purchase of the new Duke Energy Tower (525 S Tryon) by CGA Capital and Childress Klein will mark the highest real estate transaction ever in Charlotte.

CBD AND SURBURBANOverall asking rents in the CBD/Uptown increased 3.1% year-over-year to an average of $34.04 psf. Legacy Union –Phase I (841,000 sf) was the only new office building delivered during the year. Currently, there is 2.5 msf under construction, heavily preleased. Year-to-date, the CBD/Uptown submarket absorbed 1.3 msf of office space bringing the vacancy rate down to 5.7% from the prior year-end vacancy rate of 9.7%.

Asking rents for the entire suburban market increased to $28.50 psf, an 8.1% increase year-over-year. The Suburban vacancy rate increased slightly during that same period and is currently at 13.1% due to a record high 1.8 msf of newly delivered office space during the year. Under construction currently stands at 2.5 msf, and is predominantly taking place in the Midtown, South/485 and Plaza Midwood/NoDa submarkets. Absorption for the year is just over 1.2 msf, a key indicator of the strong demand for suburban office space. A notable sale for suburban adaptive reuse in fourth quarter was (Bowers Fiber) RMR Group’s purchase of Bowers Fiber (4025 Yancey Rd) for $31.5 million ($428 psf) from White Point Partners.

CLASS A ASKING RENT

SUBMARKET COMPARISON

NEW SUPPLY

Outlook

• Suburban submarkets will continue to flourish comparatively to Charlotte’ CBD as real estate investors and tenants continue the “flight to quality” for value, affordability and convenience.

• Investors will continue to pour capital into secondary markets like Charlotte at higher investment volumes than gateway markets as investors continue to chase yields at this stage in the cycle.

• Developers will focus on highly sought after urban infill (Midtown) areas.

• Developers’ ability to launch ground up construction may begin to get impacted as construction costs rise faster than rental rates.

$15

$20

$25

$30

$35

Q415

Q416

Q417

Q418

Q419

$ PS

F

Class A Class B

0

4

8

12

16

20

24

MSF

Occupied Vacant

0

1

2

3

4

2015 2016 2017 2018 2019 2020 2021 2022

MSF

5-Year Historical Average = 1.2 MSF

M A R K E T B E AT

Office Q4 2019CHARLOTTE

*Rental rates reflect full service asking

MARKET STATISTICS

SUBMARKET TOTAL BUILDINGS

INVENTORY(SF)

DIRECT VACANT (SF)

TOTAL VACANT (SF) OVERALL VACANCY % YTD NET ABSORPTION

(SF)YTD DELIVERIES

(SF)UNDER CNSTR

(SF)

OVERALL AVG ASKING RENT

(ALL CLASSES)*

Airport 117 10,195,455 1,512,056 1,592,537 15.6% 153,615 212,896 114,469 $24.22

CBD / Uptown 45 19,829,925 1,409,506 1,487,700 7.5% 1,332,572 841,000 2,547,915 $34.04

East Charlotte 16 870,346 186,687 186,687 21.4% -34,427 0 0 $15.91

Matthews 25 1,070,519 204,983 256,633 24.0% 788 0 0 $18.92

Midtown 52 3,266,338 207,950 229,065 7.0% 747,127 932,153 1,398,044 $37.43

Northeast/I-77 28 1,827,686 245,113 288,885 15.8% -2,687 0 0 $26.01

Northwest 1 23,278 0 0 0.0% 0 0 0 $0.00

Park Rd 7 659,465 208,448 208,448 31.6% -144,476 0 0 $30.11

Plaza Midwood/NoDa 6 529,151 188,444 188,444 35.6% 139,257 287,701 680,739 $34.29

South 19 1,060,562 87,629 91,752 8.7% 6,144 0 0 $25.28

South/485 52 5,857,857 556,214 666,392 11.4% 46,142 352,831 328,000 $33.50

SouthPark 38 4,520,617 310,875 374,031 8.3% 154,234 0 0 $33.64

University 42 4,112,198 545,471 621,524 15.1% 166,665 0 0 $24.72

SUBURBAN TOTALS 403 33,993,472 4,253,870 4,704,398 13.8% 1,232,382 1,785,581 2,521,252 $28.50

CBD / UPTOWN TOTALS 45 19,829,925 1,409,506 1,487,700 7.5% 1,332,572 841,000 2,547,915 $34.04

Class A 213 38,153,609 3,407,902 3,750,458 9.8% 2,596,359 2,484,884 4,159,259 $32.34

Class B 235 15,669,788 2,255,474 2,441,640 15.6% -31,405 141,697 909,908 $24.99

CHARLOTTE TOTALS 448 53,823,397 5,663,376 6,192,098 11.5% 2,564,954 2,626,581 5,069,167 $30.04

KEY SALES TRANSACTIONS Q4 2019

KEY LEASE TRANSACTIONS Q4 2019

*Renewals not included in leasing statistics

PROPERTY SUBMARKET TENANT RSF TYPE

2550 W Tyvola Rd Airport AmWINS 35,233 New Deal

2401 Sardis Rd Matthews Maestro Health 31,475 New Deal

525 N Tryon CBD Commercial Credit Group 27,455 New Deal

PROPERTY SUBMARKET SELLER / BUYER SF PRICE/$ PSF

Metro Tower (525 S Tryon St) CBD Duke Energy Corp. / CGA Capital & Childress Klein 1,000,000 TBD

Truist Center (214 N Tryon St) CBD Cousins Properties / Truist Financial Corp 972,000 TBD

Legacy Union (620 S Tryon St) CBD Goldman Sachs & Lincoln Harris / Highwoods 843,000 $436.0M/$517

“Market Data is not reflective of U.S Overview Tables”

M A R K E T B E AT

Office Q4 2019CHARLOTTE

OFFICE SUBMARKETS

A CUSHMAN &WAKEFIELD RESEARCH PUBLICATIONCushman & Wakefield (NYSE: CWK) is a leading globalreal estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2020 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

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Will PropstResearch AnalystTel: +1 704 335 4435will.propst@cushwake.com

Brett GrayManaging PrincipalTel: +1 704 335 4442brett.gray@cushwake.com