RICHARD BOWERS CO. The Bowers Digest

RICHARD BOWERS & CO.

The Bowers Digest

Metro Atlanta Office Market Analysis

Vol. 25, No. 2

Downtown leads all submarkets in vacant space

Urban

Suburban

Nine straight quarters of increased rental rates

¡°Second quarter 2014

continues an ongoing

positive trend... our

ninth straight quarter of

positive absorption.¡±

Suburban occupancy rate back over 83 percent

Real Estate Trends

Mid-Year 2014

Providing self generated and proprietary office market data since 1989

RICHARD BOWERS & CO.

In Brief: The Atlanta Market

The Atlanta Office Market absorption is continuing in a positive

direction for second quarter 2014 with 580,188 square feet

positive absorption. In addition to positive absorption, Atlanta

is having an ongoing vacancy reduction with properties taken

out of circulation this quarter, to include the 250 Piedmont

Office Tower, the former SunTrust Operations Center

containing 350,000 square feet being converted to apartments,

230 Peachtree with approximately 50% of the building being

converted to a boutique hotel of approximately 125,000 square

feet, and the Flatiron Building containing 42,000 square feet

being converted to a high tech incubator facility by Scoutmob.

Vacancy rates are down to 16.74%, the lowest since First

Quarter 2009. Despite the improved office market and higher

occupancy rates, rental rates remain relatively stable in the

$21.55 range on average, reflecting ongoing favorable leasing

opportunities for space users except in several major Class

A submarkets; Buckhead, Midtown, and GA-400/I-285.

The leading submarkets in second quarter absorption were GA-400

North (253,182 square feet), I-285/GA-400 (200,948 square feet),

Midtown (129,928 square feet), I-75/I-285 (73,487 square feet) ,and

Buckhead/Lenox (36,929 square feet). The suburban markets are

significantly outperforming

the urban markets although

Market

the urban markets are at

significantly higher average

rates, at $24.39 per square

foot compared to $21.50 per

square foot for the suburbs.

The submarkets with the

highest occupancy levels

are NE Expressway-South at

91.19%, Decatur at 90.62%,

I-285/GA-400 at 86.4%, GA400 North at 86.25%, and

Buckhead/Lenox at 86%.

Infrastructure:

There are a number of

significant

infrastructural

improvements

underway

in Atlanta to include the

recent completion of on and

off ramps at I-85 onto GA400, the ongoing airport

road improvements at Camp

Creek Parkway, and the

continuing

development

along the Atlanta BeltLine, considered Atlanta¡¯s number one

infrastructural development and perhaps the country according

to some city planners. The BeltLine has resulted in major inmigration with people living near the BeltLine on both the

Eastside in Virginia Highlands and Inman Park and the Westside

in West Midtown, whose locations are only approximately 1.5

miles from the Downtown/Midtown Peachtree Street Corridor.

Other infrastructural improvements or planned include the

new GA-400/I-285 one billion dollar Interchange, which will

commence construction in 2015 and is scheduled for completion

in 2016. There is also roadwork and additional expressway

ramps planned at the I-75/I-285 Interchange for the new Atlanta

Braves Stadium relocation to Cobb Parkway. Clayton County

is voting in November to determine whether or not the county

will enter the MARTA transit system and pay a one cent sales

tax for bus and rail transit. The current expectation is for the

referendum and sales tax to be approved, which will add a third

county to the MARTA system, now serving Fulton and Dekalb.

Downtown¡¯s 2.1 miles Atlanta Streetcar is scheduled to open in

November. This streetcar, which has the ability to be expanded,

will serve the Auburn/Edgewood Avenue Historic District running

west to Centennial Olympic Park serving the surrounding venues

to include two major venues opening this year, the recently

completed National Civil Rights Museum and the College

Football Hall of Fame, which is scheduled to open in August.

TWO

Other major venues include the Downtown Atlanta Falcons

Stadium scheduled to open in 2019 and the new Braves Stadium.

Other improvements include the possibility of a second airport in

Paulding County and increased biking activity through the bike

lanes opened on John Portman Boulevard and elsewhere extending

out to the BeltLine. Numerous Downtown workers are already

utilizing bicycle transportation for their work commutes currently.

Outlook:

The outlook for the second half 2014 is positive with a potential surge

in activity due to a number of tenants taking occupancy at Ponce

City Market and a number of significant leases under negotiation to

include potential and significant relocations to Atlanta including the

Pulte Group Corporate Headquarters and others. Atlanta is poised

to continue a positive recovery with the opening of Buckhead

Atlanta, and their 80,000 square foot office building at 100% leased

to Spanx. With limited new office developments in the planning

stages or under construction, and increasing demand, occupancy

rates will continue to improve and rental rates will start increasing.

The demand for new office space is also commencing. Tishman

Speyer will be breaking ground in August 2014 on a thirty story,

500,000 square foot office

tower at Lenox Road,

Overview

scheduled for delivery

in mid 2016. The asking

rental rate for this new

development will be the

highest in Atlanta at $38

per rentable square foot and

at a projected construction

cost of $375 per square foot.

Both the urban corridor,

with the ongoing inmigration by Millennials

and empty nesters desiring

to locate in an urban and

pedestrian

environment

with public transportation,

and the major suburban

submarkets on the north

side, including the I-285/

GA-400 market with State

Farm¡¯s major campus and

other potential mixed use

developments,

GA-400

North and I-75/I-285, will

continue to grow.

Our Central Business District is continuing to gain strength and

favorable consideration by numerous users due to the many

infrastructural improvements and ongoing developments taking

place to include the National Civil Rights Museum and the College

Football Hall of Fame, the opening of the Atlanta Streetcar, the new

Atlanta Falcons Stadium, the landscaping upgrades at Woodruff

and Centennial Olympic Park and various other developments

to include the construction of the 200,000 square foot law

school at Georgia State University, the Ambling student housing

development at Courtland and John Wesley Dobbs, the proposed

Post Properties development in Centennial Hill, the opening of

the renovated Aloft Hotel on Baker Street, and the new Hyatt

House at Ivan Allen Boulevard and Luckie Street among others.

Although, Atlanta has not rebounded as quickly as other major

cities around the country, Atlanta is poised for a significant

economic surge due to a low cost of living, favorable taxes,

a pro-business environment, a highly educated workforce,

a mild climate, affordable office rates and housing, and the

advantages of the world¡¯s busiest airport, Hartsfield-Jackson

International Airport. With these advantages and strong

economic activity, rental rates will be increasing and occupancy

is projected to be in the 84 - 85% range by year end 2014.

RICHARD

BOWERS

RICHARD

BOWERS

&&

CO.CO.

The Atlanta Office Market

2nd Quarter 2014

2nd Quarter 2013

Mid-Year Absorption

580,188

594,702

2nd Quarter Absorption

508,614

404,353

Total Existing Square Feet

134,104,122

135,221,299

Total Available Square Feet

22,447,651

24,678,082

16.74%

18.25%

$21.55

$21.24

Space Delivered YTD - Square Feet*

3,855

0

Percent Of Total Space Vacant

Average Quoted Rental Rate

* Excludes Net Losses

Urban Corridor Submarkets

1. Downtown

2. Midtown

3. Buckhead/Lenox

Suburban Submarkets

4. Airport/South

5. Decatur

6. GA-400 North

7. I-20W/Greenbriar

8. I-285E/Stone Mountain

9. I-285/GA-400

10. I-285/I-85/Northlake

11. I-75 Corridor

12. I-75N/Marietta/Johnson Ferry

13. I-75/I-285

14. NE Expressway-North

15. NE Expressway-South

16. Peachtree Corners

Atlanta¡¯s Top Five Ranking Submarkets

Absorption - 2nd Quarter 2014:

GA-400 North

253,182

I-285/GA-400

200,948

Midtown

129,928

I-75/I=285

73,487

Buckhead/Lenox

36,929

Total Available Square Feet:

Downtown

3,203,734

I-285/GA-400

3,088,849

I-75/I-285

3,043,426

Midtown

2,735,948

GA-400 North

2,177,496

Total Existing Square Feet:

I-285/GA-400

22,705,938

I-75/I-285

18,587,264

Downtown

16,068,416

GA-400 North

15,838,963

Buckhead/Lenox

15,204,451

Average Quoted Rental Rate:

Buckhead/Lenox

$26.90

Midtown

$25.55

I-285/GA-400

$22.96

Downtown

$21.28

I-75/I-285

$20.62

Submarket Occupancy Rate:

NE Expressway-South

91.19%

Decatur

90.62%

I-285/GA-400

86.40%

GA-400 North

86.25%

Buckhead/Lenox

86.00%

Average Class ¡°A¡± Rental Rate:

Buckhead/Lenox

$29.14

Midtown

$27.90

I-285/GA-400

$24.98

Decatur

$23.47

Downtown

$23.21

¡°This is the highest occupancy rate Atlanta has seen in five years and the

highest average rental rate since third quarter 2010¡±

The Bowers Digest was prepared by the Research Department & Assistants of Richard Bowers & Co. The numerical data summarized

herein were obtained directly from the owners and managers of the buildings included in the Richard Bowers & Co. database. Richard

Bowers & Co. takes no responsibility for the accuracy of the information provided by others. Additional copies are available at $25.00 each.

Copyright ? 2013 by Richard Bowers & Co., Atlanta, Georgia. All rights reserved.

THREE

RICHARD BOWERS & CO.

Atlanta Market Trends By Quarter

Quarter

Total

Sq. Ft.

Vacant

Sq. Ft.

Net Absorption

Vacancy

Rate

Delivered Delivered

Qtr:

Ytd

4 Qtr

Total

Year

To Date

Quarter

Average

Rental Rate

2Q2014

1Q2014

134,104,122 22,447,651

134,100,267 22,925,410

16.74%

17.13%

3,855

(363,042)

(359,187)

0

1,558,762

1,454,501

733,188

71,574

508,614

71,754

$21.55

$21.50

4Q2013

3Q2013

2Q2013

1Q2013

135,405,999

135,391,218

135,221,299

135,256,002

23,833,938

24,164,309

24,678,082

25,117,138

17.60%

17.85%

18.25%

18.57%

0

0

0

0

0

0

0

0

1,897,546

1,303,584

1,003,090

1,466,308

1,897,546

1,278,394

594,702

190,349

619,152

683,692

404,353

190,349

$21.50

$21.35

$21.24

$21.14

4Q2012

3Q2012

2Q2012

1Q2012

135,465,599

135,701,093

135,574,050

135,385,715

25,309,557

25,362,693

25,618,848

26,295,493

18.68%

18.69%

18.90%

19.42%

(8,835)

127,043

188,335

890

307,433

316,268

189,225

890

1,742,054

2,229,071

2,120,886

1,479,655

1,742,054

1,714,273

1,331,075

466,095

25,190

383,198

864,980

466,095

$21.03

$20.91

$20.67

$20.61

4Q2011

3Q2011

2Q2011

1Q2011

135,384,825

135,402,440

135,402,440

135,402,440

26,686,726

27,224,130

27,521,660

27,791,873

19.71%

20.11%

20.33%

20.53%

(17,615)

0

0

0

0

0

0

0

844,724

184,350

(100,857)

(874,857)

844,724

324,935

(27,405)

(242,808)

519,789

297,530

270,213

(242,808)

$20.84

$20.89

$21.01

$21.02

4Q2010

3Q2010

2Q2010

1Q2010

135,357,440

135,402,440

135,402,440

135,402,440

27,549,065

27,408,480

27,420,793

26,917,016

20.35%

20.24%

20.25%

19.88%

0

0

0

1,640,626

1,640,626

1,640,626

1,640,626

1,640,626

(626,015)

(1,040,263)

(1,364,227)

(1,566,872)

(626,015)

(485,430)

(497,743)

6,034

(140,585)

12,313

(503,777)

6,034

$21.20

$21.26

$21.39

$21.44

4Q2009

3Q2009

2Q2009

1Q2009

133,761,814

133,838,047

132,542,904

132,074,631

25,282,424

24,803,824

23,197,030

22,022,335

18.90%

18.53%

17.50%

16.67%

(76,233)

1,295,143

468,273

(168,464)

1,518,719

1,594,952

299,809

(168,464)

(1,947,045)

(1,797,220)

(1,552,421)

(796,409)

(1,947,045)

(1,392,212)

(1,080,561)

(374,139)

(554,833)

(311,651)

(706,422)

(374,139)

$21.42

$21.56

$21.61

$21.65

4Q2008

3Q2008

2Q2008

1Q2008

132,243,095

131,664,332

131,747,344

130,723,492

21,816,660

20,832,889

20,849,049

19,874,787

16.50%

15.82%

15.83%

15.20%

578,763

(83,012)

1,023,852

152,000

1,671,603

1,092,840

1,175,852

152,000

60,188

456,974

2,116,415

2,975,148

60,188

465,196

532,048

482,458

(405,008)

(66,852)

49,590

482,458

$21.64

$21.62

$21.65

$21.40

The Urban Corridor

The Urban Corridor, which consists of the Downtown, Midtown, and Buckhead submarkets,

experienced 143,273 square feet of positive absorption for Second Quarter 2014, bringing the MidYear absorption total to 147,102 square feet. While these in-town numbers are down from last year,

it still marks the fourteenth consecutive quarter of positive absorption for the Urban Corridor. As

a direct result of the last three and a half years of absorption, the vacancy rate has declined from

22.86 percent to 17.47 percent, a change of over 500 basis points. Due to increased occupancy

rates and the lack of new product coming to the market, rental rates have also increased 21 cents

from Mid-Year of 2013 to an average quoted rental rate of $24.38 per square foot.

Although the Buckhead/Lenox submarket had mediocre absorption of 36,929 square feet this

quarter, this submarket still leads the Urban Corridor in occupancy at 86 percent. Considering

the amount of new deliveries constructed between 2007 and 2010, which inflated the Buckhead

submarkets¡¯ vacancy to a record high 29.50 percent, this turnaround in just over four years is

remarkable. Buckhead leads the urban submarkets in four quarter cumulative absorption overall

with 156,455positive square feet. This recent activity, mixed with low vacancy rates, has improved

Buckhead¡¯s average rental rate to $26.90 per square foot, up 29 cents from last quarter and 69

cents year-over-year. Look for this submarket to continue to thrive as the ongoing in-migration of

businesses, workers, and young professionals who desire an urban pedestrian environment shows

FOUR

RICHARD BOWERS & CO.

no sign of slowing down.

Notable Lease Transactions Signed

Midtown, the smallest of the three urban submarkets with nearly

15 million square feet of existing office space, has posted positive

year-to-date absorption of 129,133 square feet. In the last three

years, the Midtown submarket has increased its occupancy rate

from 76.01 percent to 81.66 percent, a difference of 5.65 percent.

Although the last two quarters have only experienced modest

positive absorption, this submarket still has the second highest

average rental rate at $25.55 per square foot and the second

highest Class ¡°A¡± Urban Corridor rate at $27.90 per square foot.

Downtown has the lowest occupancy rate of the Urban Corridor

at 80.06 percent, but has been gaining traction recently. The

submarket currently has an average rental rate of $21.28 per

square foot and a Class ¡°A¡± rental rate at $23.21 per square foot.

While the overall occupancy is not fairing as well as the other

suburban submarkets at 80.06 percent, the Class ¡°A¡± market

is performing better with an 86.69 percent occupancy rate. As

more businesses and workers are relocating to the Downtown

office market, new attractions and developments are bringing

more tourists to the area as well. The new SkyView Ferris

Wheel, which plans to attract around 500,000 visitors each year,

was just completed, as was the National Civil Rights Museum, a

42,000 square foot museum that plans to attract 400,000 visitors

annually. Numerous other projects are well underway to include

the Atlanta Streetcar, the new College Football Hall of Fame, and

the new $1.2 billion Atlanta Falcons football stadium. Downtown

has also been one of the nation¡¯s leaders in the Better Buildings

Challenge, a nation-wide effort by the Department of Energy

to enhance building effficiency by improving ¡°green¡± programs

and policies such as water and energy conservation, reducing

solid waste and carbon emissions, and improving recycling

rates. Downtown¡¯s participation in this initiative has led to 17%

of Downtown¡¯s office square footage being ¡°Green-Rated.¡±

Lessee

AMEC

Property

1949 Lakeside Parkway

Size (SF)

111,919

Preferred Apartment The Medici ¨C 3284 Northside 68,960

Advisors

EarthLink The Proscenium 64,910

DS Waters Wildwood Center 58,357

Altisource Northpark 400 46,859

Jackson Spalding

Eleven Hundred Peachtree

35,928

Andritz Hydro 5

405 Windward Parkway

35,168

Regus One Alliance Center 26,002

Vonage The Towers at 25,038

Wildwood Plaza

¡°Urban Corridor occupancy rates have jumped

1.28% from Mid-Year 2013¡±

Office Space by Building Classification

Net Absorption

Total

Sq. Ft.

Vacant

Sq. Ft.

Vacancy

Rate

2nd

Quarter

4 Qtr

Total

Average

Rental Rate

Urban Corridor

Class A

Class B

Class C

Total

29,965,320

13,783,183

2,443,239

46,191,742

4,456,313

2,828,122

784,196

8,068,631

14.87%

20.52%

32.10%

17.47%

177,397

63,990

(98,114)

143,273

393,284

(46,869)

(83,964)

262,451

$26.99

$20.69

$15.67

$24.51

Suburban

Class A

Class B

Class C

Total

48,573,999

33,145,939

6,192,442

87,912,380

6,519,980

6,254,621

1,604,419

14,379,020

13.42%

18.87%

25.91%

16.36%

344,398

6,726

14,217

365,341

1,167,547

78,392

50,372

1,296,311

$22.56

$17.26

$14.52

$19.99

78,539,319

46,929,122

8,635,681

134,104,122

10,976,293

9,082,743

2,388,615

22,447,651

13.98%

19.35%

27.66%

16.74%

521,795

70,716

(83,897)

733,188

1,560,831

31,523

(33,592)

1,558,762

$24.25

$18.26

$14.84

$21.55

Total Market

Class A

Class B

Class C

Total

FIVE

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