Office Market Snapshot

Raleigh-Durham Fourth Quarter 2012

Market Tracker
*Arrows = Change from Previous Quarter

Vacancy
16.1%

Net Absorption
234,187 SF

Deliveries
0 SF

Asking Rent
$18.75 SF

Steady Pace of Growth in 2012 Leads to Improving Market Conditions

Driven by a large proportion of expansionary leases, the Triangle office market enjoyed net absorption in fourth quarter of 234,187 square feet and a total 808,675 square feet of net occupancy for the entire year. Vacancy shrank two full percentage points during 2012 because of the positive move in activity and ended 2012 at 16.1 percent 10 basis points below the markets historical average. The Triangle office market, which began recovering in mid-2010, almost a year before most U.S. office markets, has now recorded positive net absorption for three years in a row. Accordingly, users of all sizes are beginning to feel the squeeze when looking for space in the most sought-after submarkets, though the search is most onerous for large users that have struggled to find blocks greater than 50,000 square feet for several quarters. Though the mantra has become that there are more large users on the sidelines than large blocks, the two under construction projects the 168,000 square foot SECU headquarters in Downtown Raleigh and Downtown Durhams 133,000 square foot Diamond View III are both already substantially preleased and unlikely to provide any availability relief. Smaller tenants in the 10,000 square foot range are also experiencing similar issues, despite a larger number of potential spaces, and are more frequently forced to select their second or third choice as deal velocity accelerates. Though the Triangle market has historically been subject to stationary asking rates, rental rates seem to have recently turned the corner as the balance of power between tenants and landlords shifts; Triangle rates averaged $19.50 per square foot at year-end 2012. Whereas rent only increased in the healthiest pockets during the post-recession recovery, notably Six Forks, Downtown Durham, and Downtown Raleigh, market rates overall are now stabilizing and are expected to escalate throughout 2013. Similarly, landlords that have been holding concessions stable in order to remain competitive are expected to test the waters with less generous incentives in 2013 as they gain confidence.
08 09 20 10 20 11 07 20 12

Raleigh Office

Economic Indicators
Q4 12
Triangle Employment Triangle Unemployment U.S. Unemployment U.S. CCI 875.4K 7.1% 7.8% 69.89

Q4 11
856.2K 8.1% 8.7% 53.6

(Consumer Confidence Index)

Net Absorption
2,000
Square Feet ('000s)

1,500 1,000 500 0 -500 -1,000

05

06

Forecast
A second wave of Triangle investment sales, driven by improving fundamentals and institutional investors desire for higher returns in strong secondary markets, will also help push asking rents up. Tenants, understanding the changing availability landscape, have begun to initiate renewals earlier than usual. Also, due to oncoming space constraints, tenants are now more likely to renew (and often expand) in place. This overall market tightening may lead to another speculative office building breaking ground by year-end 2013. The revamped Research Triangle Park (RTP) master plan the first update in 50 years is slated to introduce retail and multifamily uses into the park in the next several years. With more amenities coming online in the near-term, RTP is the submarket to watch in 2013 to see if those upcoming changes impact the geography of tenant searches.

20

20

20

20

Office Net Absorption

Vacancy Rate
20% 18% 16% 14% 12% 10% 8% 2006 2007 2008 2009 2010 2011 Historical Average

20

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cassidy Turley Office Market Snapshot

Raleigh-Durham Fourth Quarter 2012
TOTal BlDgS invenTORy TOTal vacanT Sf DiRecT vacancy % cuRRenT neT aBSORpTiOn yTD neT aBSORpTiOn unDeR cOnSTRucTiOn aveRage aSking RenT
(all claSSeS)

Submarket
Cary Downtown Durham Downtown Raleigh Falls of Neuse North Durham Orange County RTP/I-40 Corridor Six Forks South Durham US 1/Capital Boulevard US 70/Glenwood Avenue West Raleigh 120 53 78 71 30 35 148 59 39 47 64 86 5,722,003 3,030,424 4,529,528 2,996,901 1,335,377 1,521,338 11,132,114 3,291,791 1,809,586 2,156,541 3,453,253 5,269,775 729,091 261,819 487,925 556,110 508,341 270,161 2,462,303 440,403 335,069 354,652 433,639 595,272 12.7% 8.6% 10.8% 18.6% 38.1% 17.8% 22.1% 13.4% 18.5% 16.4% 12.6% 11.3% 34,995 35,929 31,697 6,922 -2,115 7,259 56,216 -11,095 2,306 38,470 4,356 29,247 37,956 51,835 47,316 76,361 14,550 3,238 233,548 -10,821 16,392 132,658 191,111 14,531 133,000 168,000 $18.24 $18.94 $22.09 $19.09 $15.50 $21.09 $18.71 $19.02 $18.65 $17.10 $17.62 $19.78

TRiangle MaRkeT TOTalS

Class A Class B Class C 348 379 103 830 29,277,912 14,198,446 2,772,273 46,248,631 3,661,785 3,193,937 579,063 7,434,785 12.5% 22.5% 20.9% 16.1% 160,241 47,051 26,895 234,187 513,088 250,520 45,067 808,675 301,000 301,000 $21.28 $17.31 $15.01 $18.75

TOTal

Office asking rents converted to Full Service *Includes Six Forks Rd, Falls of the Neuse Rd & US 1/Capital Blvd

Office Submarkets
Raleigh / Durham
Ofce Submarkets
6. Cary 7. Southern Wake County 8. Eastern Wake County 9. West Raleigh 10. US 70 / Glenwood 11. 12. 13. 14.
Raleigh / Durham

Key Lease Transactions Q4 2012

pROpeRTy
RDU Center III Overlook Building 2501 Old Cornwallis Road Trinity Place 4401 Research commons Westchase Two Palladian II

Sf
56,000 18,450 15,772 13,900 12,919 11,685 11,268

TenanT
Extreme Networks cenduit Doctors Making Housecalls Neonova impact pharmaceuticals environmental Defense fund Northwestern Mutual Life

TRanSacTiOn Type
Relocation, expansion Relocation, expansion Relocation, expansion Relocation, expansion new Renewal, expansion Relocation, expansion

SuBMaRkeT
I-40/RTP i-40/RTp I-40/RTP West Raleigh i-40/RTp West Raleigh South Durham

1. 2. 3. 4. 5.

Orange County North Durham Downtown Durham South Durham RTP / I-40 Corridor

Six Forks Road Falls of Neuse Road US 1 / Capital Blvd Downtown Raleigh

3 11 4
Raleigh Durham Int. Airport

10
40

12

13

5 6

440

14 9
40

Key Sales Transactions Q4 2012

pROpeRTy
Palladian I Palladian II Butterball hQ palisades i Miami North Office Park 227 Fayetteville Street

40

Sf
100,462 100,546 25,700 79,148 81,985 113,628

SelleR/BuyeR
Northwestern Mutual / Clarion Partners Northwestern Mutual / Clarion Partners Duke Realty / Mason properties cWcapital OBO gccf 2004-gg1 / Brookdale group Lincoln National Life Insurance / TME Investments 227 Fayetteville Street LLC / LRC Opportunity Fund

pRice
$22,000,000 $14,000,000 $4,600,000 $8,200,000 $4,500,000 $5,200,000

SuBMaRkeT
South Durham South Durham garner West Raleigh I-40/RTP Downtown Raleigh

David finger
Senior Vice President, Managing Principal David.Finger@cassidyturley.com

Sarah godwin
Senior Analyst Sarah.Godwin@cassidyturley.com 3110 Edwards Mill Road Suite 210 Raleigh, NC 27612 Tel: 919.789.4255 Fax: 919.789.0268
The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. Copyright 2012 Cassidy Turley. All rights reserved.

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