RALEIGH 3Q11

Overview
As of the third quarter 2011, the Triangle office market continued the path to recovery although vacancy rates flattened across the nineteen submarkets. While most of the country has experienced the pain of major employment cuts, the Triangle has endured a good portion of the downturn and has stayed the course on the path to recovery. The Triangle market continues to lead the nation in many surveyed categories and was ranked this past September as Businessweek.coms #1 selection as Americas Best Cities to live in.

Historically, the office market has absorbed roughly 1.0 msf per year. At current vacancy levels, it would take just over 2.5 years of average absorption to return the Triangle market to an overall vacancy of 10%, which is typically considered healthy. Major transactions this quarter included Kilpatrick Townsend Law Firm absorbing 54,856 sf in CapTrust Tower. Another significant lease transaction in the third quarter was Corvell Corp, which expanded into Forum II, leasing approximately 17,703 sf. Overall absorption of 294,497 sf through this quarter indicates that total absorption will fall well short of that 1.0 msf mark this year. The submarkets of Cary and Six Forks Falls of Neuse account for the majority of the positive absorption this year with 323,224 sf absorbed between them.

Vacancy Rate
Overall vacancy has held steady around 14.0% for the past year or so after peaking at 15.3% in the first quarter of 2010. The RTP/RDU submarket is not only the largest office submarket in the Triangle, it has one of the highest vacancy rates at 18.4%. With over 2.4 million square feet (msf) vacant, the RTP/RDU submarket has an impact on the overall vacancy. Downtown Durham and Downtown Raleigh, on the other hand, have vacancy rates of 7.5% and 5.5%, respectively. There is still very little construction activity, so this will help lower the vacancy rate once conditions improve.

Outlook
Preliminary employment figures for the Triangle region indicate that a total of only 967 net jobs were created in the 12-month period ending in August 2011. While this 0.1% annual growth rate was significantly better than the losses reported in the same periods ending in 2009 and 2010, job growth is still well below the 5.4% annual job growth reported in pre-recession 2006. Continued improvements in job growth will be key to creating strong demand for office space in the region and reducing excess vacant inventory.

Absorption & Leasing Activity

Leasing activity has averaged 3.5 msf per year for the past nine years. This year is tracking to come in well below that number, with only 1,807,893 square feet (sf) leased year-to-date. Last year at this time, 3.3 msf had been leased.

Stats on the Go
3Q10 3Q11 Y-o-Y change -0.3pp 12 month Forecast

Under Construction vs. Completions

Rent $35.00 $28.00 psf/yr $21.00 $14.00 $7.00 $0.00 2008 2009 2010 2011F 2012F Vacancy 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0%

Overall Rental vs. Vacancy Rates

R ent $35.00 $28.00 psf/yr $21.00 $14.00 $7.00 $0.00 2008 2009 2010 2011F 2012F Vacancy 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0%

Overall Vacancy Direct Asking Rents YTD Leasing Activity (sf)

14.3%

14.0%

$19.63

$19.48

-0.8%

3,275,323 1,807,893

-44.8%

RALEIGH OFFICE REPORT 3Q11

Market/Submarket Statistics
Marke t / Submarke t Downtown Durham Downtown Raleigh CBD 6 Forks Falls of Neuse Cary Chatham County East Raleigh Franklin County Glenwood/Creedmoor Johnston County North Durham Northeast Wake County Orange County Person County Route 1 RT P/RDU South Durham Southeast Wake County Southwest Wake County West Raleigh NO N-C BD RALEIGH TO TAL Inve ntory 3,681,020 4,113,985 7,795,005 7,372,195 7,126,054 142,385 993,899 117,579 2,841,260 664,038 1,326,228 401,559 1,996,594 34,875 2,691,494 13,179,085 3,838,377 740,519 449,272 8,015,237 51,930,650 59,725,655 O ve rall Dire ct Vacancy Vacancy Rate Rate 7.7% 5.5% 6.6% 14.5% 11.8% 26.4% 0.3% 11.0% 12.6% 9.0% 30.9% 7.7% 15.2% 12.9% 17.0% 18.4% 20.6% 5.5% 13.0% 11.6% 15.1% 14.0% 7.5% 5.1% 6.2% 14.2% 11.5% 26.4% 0.3% 11.0% 12.6% 9.0% 30.2% 7.7% 15.0% 12.9% 15.6% 17.1% 20.2% 5.5% 13.0% 11.2% 14.5% 13.5% YTD Le asing Activity 26,476 53,450 79,926 432,069 230,730 0 19,618 0 113,212 1,319 0 30,319 23,583 0 90,842 336,458 83,799 4,000 5,700 356,318 1,727,967 1,807,893 YTD Unde r Construction Construction Comple tions 0 0 0 0 22,600 0 87,000 0 20,000 0 0 0 0 0 0 26,367 0 0 0 0 155,967 155,967 0 0 0 15,500 0 0 0 0 0 0 0 0 0 0 0 110,905 0 0 0 0 126,405 126,405 YTD Dire ct Absorption (46,414) (49,996) (96,410) 141,675 113,182 (10,583) 0 0 54,484 14,919 (42,994) 10,531 33,971 0 26,829 26,035 100,872 (23,247) 1,935 (101,372) 346,237 249,827 YTD O ve rall Absorption O ve rall W td. Avg. All Classe s Gross Re ntal Rate * (43,828) $20.85 (49,995) (93,823) 152,874 170,350 (10,583) (17,618) 0 57,522 14,919 (42,994) 10,531 33,435 0 1,408 (18,012) 91,628 (5,247) 1,935 (51,828) 388,320 294,497 $21.03 $20.95 $20.81 $18.78 $18.22 $17.96 $13.98 $19.86 $15.05 $16.12 $19.83 $23.98 N/A $18.71 $18.66 $19.70 $13.18 $18.82 $19.85 $19.28 $19.39 Dire ct Wtd. Avg. Class A Gross Re ntal Rate * $23.95 $22.32 $22.86 $24.28 $20.46 $18.22 N/A N/A $22.53 $20.75 N/A N/A $25.35 N/A $21.37 $20.16 $20.45 N/A $22.50 $22.19 $21.67 $21.76

* Rental rates reflect asking $psf/year.

Market Highlights
SIGN IFIC A N T 3 Q 1 1 LEA SE TR A N SA C TIO N S
BUILDING
1111 H ay nes St 3737 G lenw ood A ve Regency F orest II

SUBM A RKET
East Raleigh West Raleigh Cary

TENA NT
N /A N /A N /A

SQUA RE FEET
19,618 15,717 14,211

BUILDING CLA SS
B A A

SIGN IFIC A N T 3 Q 1 1 SA LE TR A N SA C TIO N S

BUILDING
10208 Cerny St . 710 W M ain St . 1901-1903 H arrison A ve.

M A RKET
RT P /RD U D ow nt ow n D urham Cary

BUYER
H ealt h Care REIT H CP Inc G rubb P rop ert ies

SQUA RE FEET
60,000 52,609 31,320

PURCHA SE PRICE
$11,500,000 $9,700,000 $3,700,000

SIGN IFIC A N T 3 Q 1 1 C O N STR U C TIO N C O M PLETIO N S

BUILDING
2001 Carringt on M ill Road

M A RKET
RT P /RD U

M A JOR TENA NT
T he Chef's A cademy

SQUA RE FEET
23,937

COM PLETION DA TE
3Q 11

SIGN IFIC A N T PR O J EC TS U N D ER C O N STR U C TIO N /R EN O VA TIO N

BUILDING
23 Sunny brook Road 6523 N C-55 7980 Chap el H ill Road

M A RKET
East Raleigh RT P /RD U Cary

M A JOR TENA NT
N /A T riangle Brick N /A

SQUA RE FEET
87,000 26,367 22,600

COM PLETION DA TE
2Q 12 3Q 11 3Q 12

Thalhimer 3131 RDU Center Drive, Suite 140, Morrisville, NC 27560 (919) 576-2680

www.thalhimer.com

* The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2011 Cushman & Wakefield, Inc. All rights reserved.