Office Snapshot Q1 2016 Memphis, TN

cushmanwakefield.com I 1

MARKETBEAT

Economic Indicators

Market Indicators (Direct, All Classes)

Overall Net Absorption/Overall Asking Rent 4Q TRAILING AVERAGE

Overall Vacancy

1Q 15 1Q 16 12-Month Forecast

Memphis Employment 622k 636k

Memphis Unemployment 6.9% 6.2%

U.S. Unemployment 5.6% 4.9%

1Q 15 1Q 16 12-Month Forecast

Vacancy 20.3% 19.2%

Net Absorption (sf) 297k 58k

Under Construction (sf) 52k 52k

Average Asking Rent* $17.63 $18.00

*Rental rates reflect gross asking $psf/year

Economy The Memphis economy continued to exhibit signs of improvement in the first quarter. Year-over-year unemployment dropped 0.8 percentage point from 7.0% at the beginning of 2015 to 6.2%, which is equal to two unemployed workers per open position, down from the recession high of seven (Federal Reserve Bank of St Louis). New unemployment figures released at the time of publishing came in at 4.7% for March, falling below the national average of 5% and indicating further employment growth for the region. Retail investment became the bright spot of first quarter with much anticipated national retailers like Nordstrom Rack, Ulta, Trader Joes, H&M and Ikea making progress towards opening new Memphis area locations. Investment in Memphis reflects growing confidence in the region with more than $6.4 billion of significant construction projects underway. Steady Demand and Organic Growth The Memphis office market recorded 57,795 square feet (sf) of positive absorption for the quarter with leasing activity over 200,000 sf – an increase of 22% over the previous year. Year-over-year direct vacancy fell by nearly a percentage point to 19.2%. The highly sought after East class A submarket sat well below this vacancy at 3.4%. Due to the tightening of this market, only one East class A lease was signed in first quarter for 5,384 sf: Sedgewick’s expansion at Marsh Center. Over the past two years, available space in the East class A submarket has steadily decreased substantially by more than 75% from 411,000 sf available in 2014 to just under 100,000 sf in 2016. There are currently only two spaces that can accommodate a user greater than 10,000 sf in the East class A submarket. Most of this growth is organic from existing tenants in the market. Several of these tenants have space requirements ranging from 20,000 to 150,000 sf. All of these requirements are expansions of existing tenants in the market including MAA’s search for a new headquarters building. Other organic tenant growth is from existing tenants in the industrial/flex market looking to expand into office space. Most of these tenants will seek out class B space outside of the prominent East Memphis corridor.

MEMPHIS OFFICE

$14

$16

$18

$20

-80,000

-40,000

0

40,000

80,000

120,000

2010 2011 2012 2013 2014 2015 Q1 16

Net Absorption, SF Asking Rent, $ PSF

12%

15%

17%

20%

22%

25%

2010 2011 2012 2013 2014 2015 Q1 16

Historical Average = 21%

Office Snapshot Q1 2016

cushmanwakefield.com I 2

MARKETBEAT

Memphis, TN

Direct vs. Sublease Space Available Comparison SUBLEASE SPACE GREW 60% FROM THE PREVIOUS QUARTER

Vacancy, Absorption, Deliveries VACANCY CONTINUES TO DECLINE FROM ITS PEAK IN 2010

Downtown Making a Comeback Hnedak Bobo, an architectural firm, signed a 30,000-sf lease at One Commerce Square in the downtown submarket, marking the largest first quarter lease transaction. Hnedak’s commitment to remain downtown is a big thumbs up for this Memphis submarket. The company had outgrown its current location and was looking for a more collaborative and creative environment. Their decision to stay downtown was based on a desire to be immersed in an urban location and interact on a personal level with their clients and community. Hnedak’s lease is counter to the “downtown to east” trend that occurred a few years prior when companies were choosing to move from the downtown submarket to the more suburban east submarket. This trend seems to have subsided for the time-being with the last big move out of downtown occurring in early 2015. Another good example of a tenant committing to downtown would be Bass Berry Sims which decided to renew its lease at Peabody Tower in late 2015, noting a desire to stay downtown after an extensive search in the east submarket. Sublease Availability Ticks Up Sublease space grew by just under 100,000 sf in first quarter, a 60%+ increase from the previous quarter. This is due to several companies either downsizing or closing their offices

HNEDAK BOBO’S DECISION TO SIGN A 30,000-SF LEASE AT ONE COMMERCE IS A BIG THUMB’S UP FOR THE DOWNTOWN SUBMARKET.

Outlook

•  Vacancy in the East class A submarket will remain tight with no new speculative construction announced.

•  Growth and recovery expected to continue throughout 2016.

•  Rental rates will hold steady and could increase, especially as vacancy continues to decline.

•  Organic growth from existing tenants in the market will continue with several expansions expected to be announced in 2016.

•  More than 1 msf of users are actively seeking space.

0

1

2

3

4

5

2011 2012 2013 2014 2015 2016 Direct Sublease

MS

F

in the Memphis area including Conduit Global, First Data and the most recently announced Enoble. Despite these announcements, total sublease space remains relatively low in comparison to 2012, when it reached nearly 500,000 sf. These office closures are not expected to affect the market too drastically. On the heels of these availabilities sits a healthy amount of demand, and CW/CA is tracking more than 1 million square feet (msf) of users looking for space in the market. Rental Rate Growth Asking rates increased steadily throughout 2015 landing 2% higher in first quarter 2016 than the same time last year. Market asking rates are now at $18.00 per square foot (psf), however, asking rates in the East submarket are pushing $30.25 psf in buildings with class A+ finishes. Real rent growth is expected to continue into 2016.

5%

8%

11%

14%

17%

20%

23%

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

07 08 09 10 11 12 13 14 15 16

Direct Absorption Deliveries Direct Vacancy

Office Snapshot Q1 2016

cushmanwakefield.com I 3

MARKETBEAT

Memphis, TN

SUBMARKET TOTAL BLDGS INVENTORY SUBLET

VACANT DIRECT VACANT

DIRECT VACANCY RATE

CURRENT DIRECT NET ABSORPTION

YTD DIRECT NET ABSORPTION

UNDER CNSTR

AVERAGE ASKING RENT (ALL CLASSES)*

AVERAGE ASKING RENT

(CLASS A)*

East 98 7,649,497 100,509 895,718 11.7% 36,201 36,201 0 $19.92 $26.41

Midtown 27 1,634,891 1,009 309,939 19.0% 6,580 6,580 0 $18.40 N/A

Northeast 25 1,455,229 75,997 215,300 14.8% 12,232 12,232 0 $17.97 N/A

Airport 39 2,140,566 0 1,057,363 49.4% -300 -300 0 $15.13 N/A

385 Corridor 35 3,129,968 25,123 445,960 14.2% 646 646 52,000 $19.43 $19.73

Downtown 21 2,923,215 28,931 690,199 23.6% 2,436 2,436 0 $16.95 $19.62

North 15 469,778 0 102,613 21.8% 0 0 0 $12.31 N/A

MEMPHIS TOTALS 260 19,403,144 231,569 3,717,092 19.2% 57,795 57,795 52,000 $18.00 $20.62

Key Lease Transactions Q1 2016

PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

One Commerce Square 29,538 Hnedak Bobo Lease Downtown

7130 Goodlett Farms Parkway 14,470 Regional Adjustment Bureau Lease Northeast

Oak Court Office Building 7,704 Butler Sevier Lease East

Oak Court Office Building 5,502 Monogram Foods (Expansion) Lease East

Key Sales Transactions Q1 2016

PROPERTY SF SELLER/BUYER PRICE / $PSF SUBMARKET

2600 Nonconnah Blvd 133,594 Hampshire/Olymbec $500,000 / $4 Airport

SUMMARY BY CLASS TOTAL BLDGS INVENTORY SUBLET

VACANT DIRECT VACANT

DIRECT VACANCY RATE

CURRENT DIRECT NET

ABSORPTION YTD DIRECT NET

ABSORPTION UNDER CNSTR

AVERAGE ASKING RENT OVERALL*

AVERAGE ASKING RENT DIRECT*

Class A 38 5,493,039 28,199 583,558 10.6% 7,831 7,831 52,000 $20.65 $20.62

Class B 161 11,613,630 202,361 2,695,416 23.2% 42,683 42,683 0 $17.53 $17..84

Class C 61 2,296,475 1,009 438,121 19.1% 7,281 7,281 0 $12..58 $12..58

*Rental rates reflect gross asking $psf/year

Office Snapshot Q1 2016 Memphis, TN

cushmanwakefield.com I 4

MARKETBEAT

About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. Copyright © 2016 Cushman & Wakefield. All rights reserved. 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.

OFFICE SUBMARKETS MEMPHIS, TN

Cushman & Wakefield Commercial Advisors 5101 Wheelis Dr, Ste 300 Memphis, TN 38117

For more information, contact: Melissa Alexander EVP Marketing Tel: +1 901 362 4308 malexander@commadv.com

NORTH

NORTHEAST

385

EAST

AIRPORT

MIDTOWN

DOWNTOWN