Q4 2020

APG ADVISORS1201 Edwards Mill Rd, Ste 300Raleigh, NC 27607www.apgcre.com

OFFICE MARKET REPORT Raleigh-Durham

Raleigh-Durham CSA Office Market

The Raleigh-Durham CSA has a combined 46.8 million square feet of existing Class A and Class B general office space (1); 7.7 million square feet situated in central business districts and 39.2 million square feet in suburban submarkets. Class A inventory features 29.5 million square feet across 254 buildings of an average of 116,500 square feet. Class B inventory includes 17.2 million square feet across 246 buildings of an average of 70,000 square feet.

The market realized 734,534 square feet of positive net absorption for the year. Though there was a slight decrease in asking rents quarter over quarter, the Q4 average Class A direct asking rate of $28.83 represents a 4% increase year-over-year, and an 18% increase over the region’s five-year average.

Approximately 1.3 million square feet of Class A non-medical office space was added to the market in 2020, which collectively was 55% leased by year end. Another 2.9 million square feet is under construction, comprised of 18 buildings of an average of 162,000 square feet. Combined, projects under construction are currently 28% pre-leased. Estimated delivery dates span 2021, with 1.7 million square feet on target for delivery in Q1 2021. The Q4 Class A direct vacant available space rate of 9.0% is a 20-basis point decrease from Q3, but represents a 23% increase year-over-year, as well as a 22% increase over the market’s five-year average. As mentioned in previous reports, we are monitoring leasing velocity and its impact on the market’s vacancy rate. Through 2020, the negative impact on new deliveries was minimal; however, given the volume of the 2021 class of new deliveries, this could change.

2020 in Review

Class A (1)

Market Indicators Q4 2020 QOQ Change YOY Change

Vacancy - Direct 9.00%

WA Asking Rent - Direct $28.83

Market Rent $31.21

Direct Net Absorption (SF) 251,647

Under Construction (SF) 2,912,123

Under Const. WA Asking Rate $36.49

“It all depends on what you visualize.” - Ansel Adams

Despite the pandemic’s impact on leasing velocity, statistically the Raleigh-Durham CSA office market remains remarkably stable at the close of 2020, and the long-term outlook is positive given the market’s diverse tenant base, affordability, access to the region’s high-performance workforce, and overall jobs outlook.

Leasing Velocity New Deliveries

A quarterly rent change of ±1% or less is deemed to be flat.A quarterly vacancy rate change of ±10 basis points or less is deemed to be flat.

Direct Vacancy

Q4 2020 OFFICE REPORT

2020 in Review (continued)

Leasing velocity remains low. Transaction volume in Q4 was 25% below that of Q1 (pre-COVID), and 35% below the quarterly average transaction volume of the previous five years. Many leases are paused or are progressing slowly, while the volume of short-term lease renewals continues to rise. Renewals of six months to three years represented 40% of all direct renewal activity for the year; illustrating the demand for flexibility as tenants consider future space needs.

A high-level trend line view of leasing velocity in new deliveries since 2015, reveals projects on average are 37% pre-leased at the time of delivery, and 89% leased one year after delivery. The 2020 new deliveries fared well against long-term averages, having benefitted from pre-COVID leasing. Combined, 2020 deliveries were 55% leased by year-end. The 2019 new deliveries demonstrated impressive resilience to the pandemic’s impact, achieving 82% lease-up by year-end 2020.

In the coming months we will take a deeper dive into the 2015-2021 trends and leasing velocity.

Defining the New NormalNorth Carolina’s “Safer at Home Phase 3” of reopening and lifting restrictions has been extended to March 31, 2021, and most office employees continue to be restricted to working remotely.

A now common phrase, “July is the new January”, alludes to the growing number of companies opting to delay any decision-making until at least the summer of 2021, as to the timing or extent to which they will return to the office. Extensive use of Zoom, Teams, Webex or similar platforms has allowed businesses to maintain productivity and communicate effectively in a virtual environment. There remains a concern, however, as to the long-term impact remote work has on collaboration, innovation, training and company culture.

It will be another 12 to 15 months before we can identify early trends in space utilization, as tenants lease up and occupy the under-construction pipeline. We expect more companies to adopt the structure of existing hybrid companies, designating certain days for in-office meetings and collaboration, and remote days for work involving individual focus. And we expect more companies to opt for a hub and spoke format of operations, whereby a main office (hub) is served by multiple satellite offices or workspaces (spokes); professional work spaces located within easy reach of the employees’ homes.

Although corporate America has yet to prove universally that it can maintain the highest level of productivity with a 100% remote workforce, the shift is cultural. The work is following the workers for the first time and communities are not only competing for companies; they are competing for remote workers.

We anticipate a beneficial impact on coworking space as a result of an increased remote workforce, and will provide further insights on this topic in the months ahead.

All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Rental Rates

How do you anticipate your total office space needs wll be different three

years from now?

Reduce by more than 25%

Reduce between 16 and 25%

Reduce between 5 and 25%

Stay about the same

Increase between 5 and 15%

Increase between 16 and 15%

InIncrease more than 25%

3%

12%

15%

19%

26%

16%

9%

Source: PwC US Remote Work SurveryJune 25, 2020. Base: 113 Executives

Q4 2020 OFFICE REPORT

All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

The TOP 3’s of 2020

Sales - Individual Buildings (ranked by sales)

Sales Price Price/SF

Durham: 4820 Emperor Blvd $89.7M $345.62

Durham: 86 TW Alexander Dr $53.7M $352.36

Raleigh: 4401 Creedmoor Rd $22.0M $138.33

Lease (ranked by SF) Total Sq. Ft . Price/SF

Durham: 2400 Ellis Rd 322,384 IQVIA

Raleigh: 4123 Parklake Ave 125,000 Martin Marietta

Chapel Hill: 1830 Fordham Blvd 55,000 Undisclosed

Developers (ranked by off ice SF delivered)

Total Sq. Ft . Investor Group

Kane Realty Corporation 330,380 Private

Akridge 252,905 Private

Grubb Properties 223,961 Private

Sellers (ranked by total SF sold)

Sales Price Price/SF

Karlin Real Estate 1,779,875 Private

Goldman Sachs 688,675 Institutional

Starwood Capital Group 508,897 Institutional

Buyers (ranked by total SF purchased)

Total Sq. Ft . Investor Group

Alexandria Real Estate Equities 1,779,875 Public, REIT

Mapletree Investments Ptd Ltd 1,196,572 Institutional

Longfellow Real Estate Partners 443,763 Private

Office Landlords (ranked by SF under mgmt)

Total Sq. Ft .# Industrial

Bldgs

Highwood Properties, Inc 5,374,901 45

Alexandria Real Estate Equities, Inc 1,791,796 12

The Dilweg Companies 1,117,805 11

Office-Using Job Creators Jobs Industry

Bandwidth 1,165 Technology

Pendo 590 Technology

Microsoft 500 Technology

Outlook

The Raleigh-Durham metro area is well positioned to rebound after the COVID-19 pandemic. The region’s three tier-one research universities, connectivity via RDU International Airport, affordability, low population density, moderate climate, scenic beauty and amazing amenities all make this area an exceptional place to live and do business.

Office-Using Employment is UpFor the twelve months ending September 30, 2020, Wake County shared 81 announcements for new and expanding businesses, a $406M combined investment bringing an estimated 6,620 jobs. The top two sectors, accounting for 64% of the upcoming investment are: Software/IT bringing 2,516 new jobs and Life Sciences bringing 994 new jobs.

The 2021 Emerging Trends in Real Estate report, the 42nd annual edition jointly researched and produced by Urban Land Institute and PwC (PricewaterhouseCoopers), named the Raleigh-Durham metro area:• #1 Market to Watch in 2021 for Overall Real Estate

Prospects• #1 Market to Watch in 2021 for Homebuilding Prospects• #2 Metro for Office Property Buy Recommendations• #3 Metro for Local Economy• #7 18-Hour Magnet Cities (magnet for both people and

companies)

#1Real Estate Market to

Watch Across Virtually All

Product Types

#1Mid-Sized Metro

for GPDLeaders

#3Best Place for Business and

Careera

#1Upcoming IT cityin the US (other

than Silicon Valley)

#1Best Places

to Live

#1Real Estate

Market for 2021(RDU)

“I think if we look back through the history of pandemics and infectious disease, they are never major disruption. They are always accelerators of

change already underway.” - Richard Florida

Sources: The Raleigh-Durham office report reflects statistics calculated using CoStar and APG Advisors’ internal database of existing and under construction properties. Additional information sources include, Real Capital Analytics, Wake County Economic Development, NC Commerce, Urban Land Institute, PwC, and Chris Lee & Associates.

Q4 2020 OFFICE REPORT

All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Class A (1) Vacant Available Net Absorption - SF

Submarket BldgsInventory

(SF)Direct % Total % Q4 Total YTD Total

Rent - Direct

Asking (2)

Rent - Direct

Market (3)

Under Construction

SF

Under Construction

Asking

Downtown Raleigh 10 2,814,197 6.80 9.20 8,778 (20,205) $33.95 $35.25 547,543 $40.00

Downtown Durham 21 3,008,384 10.70 11.00 2,788 121,229 $31.02 $32.37 - -

Subtotal CBD 31 5,822,581 8.80 10.10 11,566 141,434 $32.54 $33.71 547,543 $40.00

W Raleigh / SW Wake 43 4,296,914 13.00 14.70 (50,092) (72,762) $29.96 $32.86 498,941 $35.67

RTP-RDU 36 4,393,063 7.90 10.90 (74,001) (44,657) $27.03 $29.71 340,000 $30.50

Cary 35 4,202,155 12.00 13.60 6,802 212,580 $27.62 $29.88 225,350 $38.50

Research Triangle 32 3,112,982 6.70 8.40 3,961 236,399 $23.56 $27.69 913,000 Undisclosed

6 Forks - Falls of Neuse 22 3,010,399 2.20 3.70 314,151 355,915 $29.90 $34.28 35,000 $34.50

S. Durham 21 1,787,761 15.10 15.10 23,318 (25,681) $27.34 $28.71 111,871 $31.95

Glenwood/Creedmoor 15 1,504,852 10.50 11.10 13,342 (5,842) $33.49 $30.79 130,000 Undisclosed

Orange County 14 1,104,651 6.60 7.00 (2,122) 37,839 $30.74 $30.80 110,418 Undisclosed

E. Ral / Rt 1 / NE Wake 7 698,049 0.00 0.00 4,722 (3,166) - $29.18 - -

Class A Totals 256 29,933,407 9.00 10.50 251,647 791,639 $28.83 $31.21 2,912,123 $36.49

Class B (1) Vacant Available Net Absorption - SF

Submarket BldgsInventory

(SF)Direct % Total % Q4 Total YTD Total

Rent - Direct

Asking (2)

Rent - Direct

Market (3)

Under Construction

SF

Under Construction

Asking

Downtown Raleigh 13 1,110,983 2.50 6.30 (13,247) (8,911) $30.41 $28.80

Downtown Durham 12 744,779 10.30 10.30 (5,477) (10,165) $30.94 $24.31

Subtotal CBD 25 1,855,762 4.90 4.90 19,543 1,254 $30.68 $27.00

W Raleigh / SW Wake 29 1,818,699 8.40 11.50 (25,292) (71,124) $26.38 $27.02

RTP-RDU 14 1,204,059 12.00 14.60 (10,544) (15,643) $26.80 $27.76

Cary 24 1,560,372 2.10 5.30 - (21,433) $20.20 $24.19

Research Triangle 45 4,450,824 11.90 13.80 (779) 58,513 $23.75 $23.13

6 Forks - Falls of Neuse 39 2,376,382 10.10 10.30 9,715 120,047 $24.98 $26.36

S. Durham 16 927,197 15.60 15.60 (5,723) (10,122) $20.48 $21.96

N. Durham 8 563,248 31.90 31.90 - (500) $16.47 $19.79

Glenwood/Creedmoor 15 768,711 10.10 10.40 (54,327) (47,779) $22.98 $21.89

Orange County 4 257,610 4.00 4.00 (5,360) 13,490 $21.00 $25.67

E. Ral / Rt 1 / NE Wake 20 1,118,657 11.40 16.90 9,844 (70,017) $21.77 $23.40

South Wake 7 346,323 5.10 5.90 (5,500) 6,539 $17.00 $22.08

Class B Totals 246 17,247,844 10.20 12.20 (106,690) (57,105) $23.64 $24.63 n/a

(1) Office buildings of 30K SF or greater, non-government, non-medical, non-owner occupied(2) Weighted Average Asking Rents based on current availability(3) Costar derived Market Rents - modeled gross asking rents, informed by current asking rents and lease comps; taking into consideration the entire inventory rather than current availabilities only

Class A&B (1) Vacant Available Net Absorption - SF

Submarket BldgsInventory

(SF)Direct % Total % Q2 Total YTD Total

Rent - Direct

Asking (2)

Rent - Direct

Market (3)

Under Construction

SF

Under Construction

Asking

Combined 502 47,181,251 9.40 11.10 144,957 734,534 $27.00 $28.79 2,912,123 $36.49

(4) All CSA office buildings (no minimum square footage applied): non-condiminium, non-government, non-medical, non-owner occupied

Class A & B (4) Vacant Available Net Absorption - SF

Submarket BldgsInventory

(SF)Direct % Total % Q2 Total YTD Total

Rent - Direct Asking

Rent - Direct Market

Combined 1,522 59,247,411 8.70 10.00 57,962 482,545 $25.40 $27.58

Q4 2020 OFFICE REPORT

All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Under ConstructionBuilding Name Address City Submarket Est. Delivery RBA % Leased

Smoky Hollow 421 N Harrington St Raleigh Downtown Raleigh 2021 Q1 255,000 7.29

Tower 2 at Block [83] 621 Hillsborough St Raleigh West Raleigh 2021 Q1 281,634 43.21

The Junction at Five Points 1501 Sunrise Ave Raleigh 6 Forks Falls of Neuse 2021 Q1 35,000 0.00

The Stitch 1001 Airport Blvd Morrisville RTP/RDU 2021 Q1 250,000 0.00

Perimeter Park 4000 Paramount Pky Morrisville RTP/RDU 2021 Q1 90,000 64.98

8 Davis Dr Durham Research Triangle 2021 Q1 220,000 47.91

The Gwendolyn at Glen Lennox 101 Glen Lennox Dr Chapel Hill Orange County 2021 Q1 110,418 11.00

9 Laboratory Dr Durham Research Triangle 2021 Q1 159,999 0.00

Glenlake Seven 4123 Parklake Ave Raleigh Glenwood/Creedmoor 2021 Q1 130,000 100.00

Forty540 Phase II 710 Slater Rd Morrisville Research Triangle 2021 Q1 205,000 40.00

Palisades 5401 Trinity Rd Raleigh West Raleigh 2021 Q2 167,307 0.00

Park Point - Edge (West) 4001 E NC Highway 54 RTP Research Triangle 2021 Q3 149,000 50.00

Park Point - Edge (East) 4001 E NC Highway 54 RTP Research Triangle 2021 Q3 179,000 0.00

Raleigh Crossing 301 Hillsborough St Raleigh Downtown Raleigh 2021 Q4 292,543 45.35

Fenton - Bldg 10 855 Cary Towne Blvd Cary Cary 2021 Q4 161,087 22.91

Fenton - Bldg 12 855 Cary Towne Blvd Cary Cary 2021 Q4 64,263 20.76

1309 Annapolis Dr Raleigh West Raleigh 2021 Q4 50,000 52.00

2540 Meridian Pky Durham South Durham 2021 Q4 111,871 0.00

Total Square Feet 2,912,122 27.87

DeliveriesBuilding Park Address City Submarket Delivered RBA % Pre-Leased

Advance Auto Parts Tower 4200 Six Forks Rd Raleigh 6 Forks Falls of Neuse Q4 330,380 100.0

Innovation I 831 Slater Rd Durham Research Triangle Q3 139,163 74.0

Twenty Three 33 2333 Walnut St Cary Cary Q3 133,628 0.0

INQ 1101 Shiloh Glenn Dr Morrisville RTP/RDU Q3 140,302 20.0

Wade V 5438 Wade Park Blvd Raleigh West Raleigh Q2 210,630 36.0

555 Mangum 555 S Mangum St Durham Downtown Durham Q2 252,905 47.6

3800 Glenwood 3800 Glenwood Ave Raleigh West Raleigh Q1 113,543 56.5

Totals 1,320,551 54.7

Q4 2020 OFFICE REPORT

All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Scenic beauty, a moderate climate, a culture rich in history and the arts, world-class sports and recreational opportunities all make North Carolina an exceptional place to live and do business. The Raleigh-Durham CSA, commonly referred to as The Triangle, spans seven counties in the central region of North Carolina. The “Triangle” reference was first coined in the late 1950’s with the creation of Research Triangle Park, named for its location relative to three tier-one research universities - North Carolina State University, Duke University, and the University of North Carolina at Chapel Hill, and the cities in which they are located - Raleigh, Durham and Chapel Hill.

Raleigh-Durham MSA Overview

Higher education is considered the cornerstone of the Triangle region. With three tier-one research universities and twelve additional colleges and universities that have a combined enrollment of 131,000, all are a major contributor to the region’s high-performance workforce. The region sees an average of 42,000 graduates with bachelor’s degrees or higher annually. The Raleigh-Durham CSA has a total population of 1.9 million, of which 49% hold bachelor’s degrees or higher. Companies relocate and expand here because of the quality and depth of the existing talent pool and the pipeline of graduates coming from these educational facilities.

Education & High-Performance Workforce

Field of Study, Bachelor’s Degree & Higher

“The Triangle is at an exciting crossroads, continuing to lead the country in nearly every measure of economic success. Our talent bench is already quite deep, especially when compared with many other metropolitan areas of our size across the nation.”Raleigh Chamber of Commerce

“Durham is in the midst of an entrepreneurial boom. Entrepreneurs and startups are attracting national attention from the public sector, Silicon Valley investors, and talented individuals worldwide. From its beginnings in tobacco and textiles to Black Wall Street and the Research Triangle Park, Durham is a community of entrepreneurs who value creative ideas, asking “What if?” and bringing talented people together to answer that very question.”Greater Durham Chamber of Commerce

David AdamsPresident919 582 3110 dadams@apgcre.com

Please feel free to contact us.

MJ Parker Vice President | Research919 582 3136mjparker@apgcre.com

Raleigh-Durham Educational Attainment

Professional School Degree

Associates Degree

Doctorate Degree

Masters Degree

Bachelors Degree

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Education

Business

Arts, Humanities, Other

STEM