Q3 North American Office Outlook

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1 OFFICE NORTH AMERICA HIGHLIGHTS Q3 North American Office Outlook ANDREA B. CROSS Office Research Manager USA INDICATORS Relative to prior period US Q3 US Q4 * Canada Q3 NET Close to Zero CONSTRUCTION RENTAL RATE** NORTH AMERICAN OFFICE Summary Statistics, Canada Q4 * *Projected **CBD Class A rents Construction is the change in Under Construction US CAN NA Change From Q (MSF) NEW CONSTRUCTION (MSF) UNDER CONSTRUCTION (MSF) ASKING RENTS PER SF US CAN Downtown Class A ($) Change from Q Suburban Class A ($) KEY TAKEAWAYS The North American vacancy rate improved for the seventh straight quarter, down 25 basis points to 13.71%. The recent trend of small increases in the Canadian vacancy rate and small decreases in the U.S. rate continued. U.S. vacancy was still nearly double the Canadian rate. Net absorption accelerated in to 21.6 million square feet, slightly more than the 1H 2012 total of 21.2 MSF. Intellectual capital, energy and education (ICEE) markets continued to drive absorption in Q3. Finance, insurance and real estate (FIRE) market absorption is increasing (approx. 73% of ICEE absorption during, up from 44% in 1H ), but much of the FIRE absorption Now with ICEE Clusters! In this quarter s report, we highlight ICEE submarkets and industry clusters within metropolitan areas that traditionally have a FIRE-based employment profile. These ICEE clusters are outperforming (or poised to outperform) the metros in which they re located. occurred in submarkets with ICEE industry concentrations (e.g., River North and West Loop in Chicago, West Los Angeles). YTD construction completions totaled 22.3 MSF. Total inventory increased by just 0.4%, about half of net absorption during the period. Completions were concentrated in markets with the strongest economies (e.g., Houston, Silicon Valley, Dallas and Boston). However, the amount of space under construction in markets tracked by Colliers increased 10.6 MSF in Q3, to 86.3 MSF. Investors remained undeterred by rising interest rates, with a 38% year-over-year increase in office transaction volume in. Although unlikely to match the Q surge in anticipation of tax increases, we expect another robust quarter in Q4. Change from Q

2 OFFICE, INVENTORY AND NORTH AMERICA 15.0% vac. Absorption Per Market Q2-1,000, , , , ,000-1,000,000 Sq. Ft. By Region 2 billion 1 billion 200 mil. Occupied Square Feet Vacant Square Feet Economic Trends The pace of job creation in the U.S. remains weaker than needed for a meaningful reduction in the office vacancy rate, especially as tenants across most industries focus on using their space more efficiently. Job growth averaged 186,000 per month during the first ten months of U.S. PRIVATE-SECTOR EMPLOYMENT Mil million private-sector jobs lost during the recession Private-Sector Employment Level (left axis) 7.30 million private-sector jobs gained during the recovery 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% Year-Over-Year % Change (right axis) and other than an unexpected jump in October decelerated through the year, from an average of 207,000 jobs created per month during Q1 to an average of just 163,000 per month in. The uncertainty resulting from the gridlock in the federal government has spilled over into the private sector. Private-sector employment data from ADP disappointed in recent months, with just 130,000 jobs created in October below market expectations, and the lowest total in six months. Despite the weak trend in overall job creation, the recovery in office-using employment remains ahead of the recovery in total employment. As of October, 97% of office-using jobs lost during the recession had been regained, compared with 83% of all jobs. However, the performance of the two primary office-using sectors continues to vary substantially, and the impact of this bifurcated recovery is reflected in the performance of office markets and submarkets across the country. On the positive side, the professional and business services sector (which contains many jobs within the technology, R&D, engineering and other intellectual capital industries) remains one of the strongest, with current employment 139% above the pre-recession peak. This trend is reflected in continued robust tenant demand in markets like Boston, San Francisco, Silicon Valley, Austin, Raleigh-Durham, Seattle, Denver, Pittsburgh and Houston. NOTE: Latest data as of October Sources: ADP Research Institute, Colliers International Research P. 2 COLLIERS INTERNATIONAL

3 Markets with the most-educated populations are leading this trend. Ten of the 12 U.S. metropolitan areas with the highest educational attainment rates are ahead of the U.S. in office-using employment recovery since the recession. In fact, office-using employment in most of these markets has already exceeded the pre-recession peak. (The two exceptions, Bridgeport-Stamford and Seattle-Tacoma, were hit especially hard by losses in the financial services sector. And, exclusive of financial services, Seattle-Tacoma has recovered to above pre-recession levels, due to a robust technology sector.) We expect knowledge and innovation industries to remain long-term drivers of economic growth, benefiting office markets and submarkets with concentrations of these industries. OFFICE-USING EMPLOYMENT TOP MSAS BY EDUC. ATTAINMENT U.S. MSA % OF 25+ POP WITH BACHELOR S DEGREE OR HIGHER % OF OFFICE-USING JOBS LOST DURING RECESSION REGAINED AS OF AUG-13 Washington, DC San Jose Bridgeport-Stamford San Francisco-Oakland Durham-Chapel Hill Boston-Cambridge Madison, WI Raleigh-Cary Austin Denver Minneapolis-St. Paul Seattle-Tacoma UNITED STATES NOTE: Educational attainment ranking includes metropolitan areas with population of 500,000 or higher Sources: U.S. Census Bureau, Bureau of Labor Statistics, Colliers International Research On the other hand, the financial activities sector remains an economic weak spot a trend that we do not expect to change, at least in the near term. The future regulatory environment remains unclear, with many Dodd-Frank rules yet to be finalized, including designations of systemically UNEMPLOYMENT RATE BY EDUCATIONAL ATTAINMENT U.S. 16% 14% 12% 10% 8% 6% 4% 2% 0% PRE-RECESSION LOW RECESSION PEAK Less than HS Diploma Overall Unemployment Rate Bachelor's Degree and Higher NOTE: Latest data as of October ; data are seasonally adjusted Source: Bureau of Labor Statistics, Colliers International Research CURRENT Bachelor s or Higher 1.8% 5.1% 3.8% Overall 4.4% 10.0% 7.3% Less than HS Diploma 5.8% 15.7% 10.9% important financial institutions (SIFIs) and proposals for qualified residential mortgages (QRMs). Also, the increase in mortgage rates beginning in May caused a steep drop in mortgage refinancing activity, resulting in layoffs in the mortgage servicing divisions of most major banks in recent months. The Mortgage Bankers Association (MBA) reported that at least 10,000 mortgage servicing jobs were cut in, contributing to declines in the overall financial activities sector in recent months. Also, according to MBA, mortgage industry employment fell by more than 40% since its peak level in February 2006 to 295,000 positions in July. MBA projects that mortgage refinancing activity will drop by 22% in to $967 billion, followed by a 60% decline to $388 billion in With weakness persisting in refinancing activity as well as other areas of the FIRE sector, markets and submarkets that depend on this source of demand will likely continue to experience a weaker recovery than those with concentrations of ICEE industries. IN EMPLOYMENT FROM CYCLICAL PEAK U.S. 4% 2% 0% -2% -4% -6% -8% -10% MONTHS Total Employment Office-Using Employment Professional & Business Services Financial Activities NOTE: Latest data as of October ; x axis indicates number of months elapsed since each sector s previous cyclical employment peak; office-using employment sectors include professional and business services, financial activities and information services; information services not displayed separately because sector peaked in 2001 Source: Bureau of Labor Statistics, Colliers International Research Some exceptions exist: tenant activity by small, high-end financial services firms such as hedge funds and asset managers continues in New York. Also, many major financial services firms are looking to relocate to or move significant operations to lower-cost locations not just back-office functions, but trading and banking operations as well. One example is Goldman Sachs expansion in Salt Lake City in recent years, where the firm s local workforce is expected to grow from less than 300 in 2007 to an estimated 2,000 by Another example is Deutsche Bank s ongoing expansion in Jacksonville, a market in which financial activities employment actually exceeds its pre-recession peak, making it one of only a handful of markets to reach this milestone. Deutsche Bank, along with several other financial firms such as Credit Suisse and Fidelity Investments, has also expanded operations in the Raleigh-Durham area in recent years, capitalizing on the area s low cost of doing business and highly skilled workforce, especially for technology-related functions. The Canadian economy continues to expand, albeit at an unspectacular pace. Job growth decelerated to an average of 12,600 per month during the first ten months of, less than half the monthly rate in The contagion effect of uncertainty surrounding the U.S. debt ceiling issue had COLLIERS INTERNATIONAL P. 3

4 an impact on business confidence. Nonetheless, the trend is positive, and Canada is well ahead of the U.S. in terms of recovery from the recession, with total employment about 600,000 jobs above the previous peak level. We expect a moderate pace of economic expansion to continue into ON NUMBERS ECONOMIC INDEX TOP 20 S OCTOBER MSA OVERALL SCORE 1-YEAR PRIV EMPLOYMENT GROWTH RATE UNEMPLOYMENT RATE Austin Dallas-Fort Worth Provo, UT Houston San Jose Oklahoma City Minneapolis-St. Paul Honolulu Ogden, UT Denver Boston Grand Rapids, MI Salt Lake City Nashville Indianapolis Des Moines, IA San Francisco-Oakland Pittsburgh Tampa-St. Petersburg Baton Rouge NOTE: Ranking measures 18 economic indicators including private-sector job growth, unemployment, personal earnings, home-price appreciation and construction and retail activity; includes markets with population of 500,000 or greater Source: American City Business Journals CBD OFFICE BY CANADA Toronto, ON 82.6 Saskatoon, SK 50.9 Regina, SK 38.4 Vancouver, BC 32.5 Waterloo Region, ON 4.7 Montréal, QC 4.1 Winnipeg, MB 0.0 Victoria, BC 0.0 Halifax, NS 0.0 Edmonton, AB Ottawa, ON Calgary, AB Thousands NOTE: Victoria, Halifax and Winnipeg report data semi-annually in Q2 and Q4. CBD OFFICE UNDER CONSTRUCTION BY CANADA Toronto, ON 5.70 Calgary, AB 3.94 Vancouver, BC 1.82 Montréal, QC 0.94 Edmonton, AB 0.50 Ottawa, ON 0.36 Halifax, NS 0.19 Winnipeg, MB 0.13 Waterloo Region, ON 0.00 Victoria, BC 0.00 Saskatoon, SK 0.00 Regina, SK Millions NOTE: Q2 data reported for Victoria, Halifax and Winnipeg. ICEE Clusters in FIRE Markets In addition to well-known metropolitan areas with the largest concentrations of ICEE-related employment such as San Francisco, Boston, Calgary and Houston, ICEE submarkets and industry clusters also exist within metropolitan areas whose office markets are driven primarily by FIRE employment. In this quarter s report, we highlight some of those submarkets, both established and emerging, that are outperforming (or poised to outperform) the metro areas in which they are located. LOS ANGELES West Los Angeles The West Los Angeles office market, particularly in beach cities like Santa Monica and Venice, has proven attractive to a range of established and startup tech firms, including entertainment-related technology firms like YouTube, Netflix and Microsoft s Xbox Entertainment Studios that benefit from proximity to Los Angeles entertainment industry. The West Los Angeles office market, especially these prime submarkets, has outperformed the rest of the metro, with a vacancy rate of 15.5% in compared with 18.2% for all of Los Angeles. With few availabilities in Santa Monica and Venice, tenants are spreading to adjacent submarkets such as Playa Vista and Culver City, as well as El Segundo in the South Bay. Major recent leases include Sony Computer Entertainment at W. Jefferson in Playa Vista for 85,000 square feet, and Beats Electronics at 8550 Higuera Street in Culver City for 110,000 square feet. Following an increase in employee count from 75 to more than 1,000 in just three P. 4 COLLIERS INTERNATIONAL

5 years, Riot Games will move into 284,000 square feet at Hudson Pacific s Element LA campus in West Los Angeles. Continental Development Corp and Mar Ventures recently received planning commission approval for a 210,000 square-foot creative office campus in El Segundo that will offer 15 buildings for sale, hoping to capitalize on the preference among tech and entertainment firms as well as a growing number of firms in other industries for this type of space. CHICAGO River North and West Loop Downtown Chicago has attracted a large number of tech companies from both outside of the metro area as well as from suburban Chicago submarkets, offering an urban lifestyle that is appealing to many young tech workers. Tech growth has been concentrated in the River North submarket, which had the lowest vacancy rate among downtown office submarkets at 10.4% in, down 390 basis points from 2011 the largest decrease among the CBD submarkets. With very few large availabilities in River North, demand is spreading to other submarkets, especially the westernmost part of the West Loop which contains warehouse and brick-and-timber loft properties favored by tech/creative tenants. Recent major transactions include Google s 200,000 square-foot lease at 1000 W. Fulton, a former cold-storage facility that is undergoing a major redevelopment by Sterling Bay Partners. Also, GoHealth, an online health insurance brokerage firm, recently signed a 93,800 square-foot lease at 222 Merchandise Mart Plaza. Motorola Mobility will relocate its headquarters from suburban Libertyville into 607,000 square feet at the Merchandise Mart. Conversions of non-traditional buildings for office use will likely continue given the shortage of this type of space, particularly large blocks, and demand from both creative and more traditional office-using tenants seeking unconventional workplaces to attract top talent. ATLANTA Midtown, Central Perimeter and North Fulton With its concentration of top universities and research institutions, large talent base and low costs of living and doing business, Atlanta is attracting a slew of tech companies, resulting in the MSA transitioning from a FIRE market to an ICEE market. Although FIRE tenants are still important drivers of office demand, indicated by recent leases and acquisitions by State Farm in the Central Perimeter and PulteGroup s relocation of its headquarters from Michigan, tech leasing activity is ramping up, especially in the Midtown, Central Perimeter and North Fulton submarkets, all of which had vacancy rates below the metro area vacancy rate in. Alliances of local businesses, universities and development groups, such as the Midtown Alliance and Georgia Tech s recent partnership to promote innovation and AT&T s new Foundry Innovation Center at Georgia Tech, are supporting this growth. Local clusters include financial technology, software development, automotive technology, telecommunications and medical technology, including the Emory Proton Therapy Center, currently under construction in Midtown. Like many other tech markets, conversions of former warehouse space into office space are attracting tech tenants. Slated for delivery in Q2 2014, Jamestown Properties 487,000 square-foot Ponce City Market in Midtown is attracting tech tenants, including Carlytics and athenahealth, with renovated space in a former Sears store and distribution facility. NEW YORK Midtown South Given the downward trend in New York s financial activities employment sector during the last few decades, other industries increasingly are driving growth in the office market, notably the technology sector in recent years. New York s urban lifestyle, public transit network, large number of older buildings ripe for conversion to creative space, and high-quality education and research institutions, including the forthcoming twomillion-square-foot Cornell Tech at Roosevelt Island campus, are attracting both tech companies and the talent that they seek to employ. According to EMSI, New York accounted for 11.4% of all U.S. startups receiving venture capital funding in 2012, up from 5.3% a decade ago. Many established and startup technology firms are supporting or disrupting industries that New York traditionally has been known for, such as fashion, media and music. Midtown South has been the epicenter of tech tenant growth, but decreasing availabilities and rapidly escalating North American Downtown Markets: Excluding renewals, of the leases signed this quarter in your CBD/downtown, did most tenants...? Expand 13.8% Contract 9.2% Hold Steady 58.6% North American Downtown Markets: What was the trend in Free Rent (in months) offered by CBD landlords this quarter? Less 11.5% More 9.2% Same 58.6% North American Downtown Markets: What was the trend for tenant improvement allowances offered by CBD landlords this quarter? Less 6.9% More 9.2% Same 64.4% North American Suburban Markets: Excluding renewals, of the leases signed this quarter, did most tenants...? Expand 18.4% Contract 8.0% Hold Steady 56.3% COLLIERS INTERNATIONAL P. 5

6 rents are driving tenants to other submarkets, including Midtown, Lower Manhattan and Brooklyn. According to LaunchLM, the number of start-ups located south of Chambers Street increased by 24% since 2012 to reach 600. Some buildings are being designed or repurposed with creative tenants in mind, such as SL Green s renovations to 180 Maiden Lane and options at One World Trade Center targeted at creative tenants, including exposed ductwork and open floor plates. PORTLAND CBD, Pearl District and Eastside Due to urban revitalization efforts during the last few decades, Portland today possesses many of the characteristics that make it attractive to tech tenants and their employees, contributing to significant growth in the local technology base. An efficient light rail system, concentration of restaurants, bars, shopping and other entertainment options, and a compact, walkable and bikeable downtown are among the qualities that are attracting tech and other creative companies and young employees. Tech companies are concentrated in both traditional and non-traditional office submarkets in the downtown area, including warehouse space in the revitalized Pearl District. Eastside warehouse buildings also are being converted for use by high-tech tenants seeking similar space as in Pearl District. Although the Eastside s office inventory is underreported due to the amount of it that previously was considered warehouse space, the submarket has the lowest office vacancy rate in Portland, at 7.5% in. The CBD is seeking to capitalize on the growth of tech/creative tenants as well: landlords are repositioning traditional Class A office buildings to appeal these types of tenants. Four tech tenants recently signed leases for newly renovated space at the US Bancorp Tower: SurveyMonkey, New Relic, Webtrends and InComm Digital Solutions. PHOENIX Chandler, AZ With its highly skilled workforce and low cost of doing business relative to most traditional technology markets, the Chandler submarket in the FIRE-driven Phoenix metropolitan area has attracted a slew of tech companies in recent years, contributing to its outperformance relative to the rest of the MSA. The vacancy rate was 15.4% in, down from 22.9% in Q and well below the overall Phoenix vacancy rate of 20.1% in. One of the largest leases signed in was by Infusionsoft for 68,867 square feet of Class A space at Park Place Central. Also, GPS manufacturer Garmin announced plans to construct a 60,000 square-foot building at Chandler Corporate Center, adding about 141 software and product development jobs. LAS VEGAS Downtown Downtown Las Vegas is an emerging tech cluster for two reasons: the relocation of 1,500 Zappos employees into the former City Hall building; and the $350-million Downtown Project, a privately-funded effort spearheaded by Zappos founder Tony Hsieh to revitalize the downtown area through strategic investments in real estate, small businesses, education, and tech startups. The revitalization is still in its nascent stages, but the scale of the investment and progress made thus far make Downtown Las Vegas an emerging tech market worth watching. ORLANDO Lake Nona Medical City Lake Nona Medical City has become a major health care and life sciences cluster less than a decade after its inception. The 650-acre park includes the University of Central Florida Health Sciences Campus, the University of Florida Academic & Research Center, Sanford-Burnham Medical Research Institute, the MD Anderson Orlando Cancer Research Institute, and the Nemours Children s Hospital. This growing cluster is spurring development both within and near the park. Lake Nona Land Co. s plans for a 17-acre office park, including 570,000 square feet of office space, were approved earlier this year, and the Orlando VA Medical Center is slated for completion in Also, Medical City developer Tavistock recently announced a 2014 groundbreaking on the Florida Blue Innovation Center, to house biotech, medical device and venture capital firms, among others, upon completion in The pace and scale at which Lake Nona Medical City and the area around it have developed and continue to evolve is a major positive for Orlando, providing economic diversity in high-paying growth industries in this tourism-heavy market. Beyond the Basics & Beyond the Statistics SCOPE OF COLLIERS OFFICE OUTLOOK REPORT Colliers office space universe encompasses 87 markets in the U.S. and Canada with a combined total of nearly 6.4 billion square feet. The 75 U.S. markets account for most of this space, with about 5.9 billion square feet of tracked inventory and the remaining 441 million square feet in Canada. Our coverage includes 21 markets with more than 100 million square feet of space, which combined account for 3.8 billion square feet, or nearly 60% of our office market inventory. The largest U.S. markets are New York, Washington, D.C., Chicago, Dallas and Atlanta; Toronto is the only Canadian market with more than 100 million square feet of space. The North American vacancy rate decreased for the seventh consecutive quarter in and at a slightly faster rate than observed in recent quarters. The vacancy rate decreased by 25 basis points to 13.71%, entirely due to improvement in the U.S., where the vacancy rate decreased by 27 basis points to 14.19%. Canadian office markets posted another slight, five basis-point increase in vacancy, but the office market remained tight, with a 7.31% rate, despite an active development pipeline. As noted in previous reports, vacancy statistics indicate a broadening in the recoveries of the economic and office markets. Among markets tracked by Colliers, 61 posted quarterly decreases in vacancy rate, 3 were unchanged and 23 increased. Indicative of the more widespread recovery, substantial quarter-over-quarter decreases occurred in former housing-bubble markets like the Inland Empire, Phoenix and Sacramento, and financial centers such as Hartford and Charlotte. Although job growth, especially P. 6 COLLIERS INTERNATIONAL

7 in financial services, is weak, competition from new space is low or nonexistent in these markets, enabling the absorption of existing vacant space. Also, rising rents and declining availabilities in the prime Bay Area and New York tech submarkets are creating a spillover effect into adjacent submarkets, benefiting the San Francisco Peninsula and Downtown and Midtown Manhattan submarkets, respectively. is one of the strongest in the country, and demand from this and Boston s other premier tech submarkets is spilling over into submarkets with greater availability, such as the Financial District. TOP S FOR OFFICE NORTH AMERICA LARGEST QUARTERLY RATE DECREASE NORTH AMERICA METROPOLITAN AREA RATE Q2 RATE (BPS) 1 Boise Birmingham Inland Empire Grand Rapids Saskatoon Columbia, SC Downtown Manhattan San Francisco Peninsula Savannah Phoenix Source: Colliers International Research Absorption surged to 21.8 million square feet in, more than half of the total recorded during the first two quarters of the year. The strong absorption numbers demonstrate the resilience of the office market, with tenant demand strengthening despite the looming debt ceiling, and fears regarding a slowdown in the economy and a possible reduction in bond purchases by the Federal Reserve. Just 12 of the 87 metro areas tracked by Colliers posted negative absorption during the quarter. ICEE markets like Boston, Houston, Seattle and Silicon Valley remained near the top of the absorption list for, but many FIRE markets also posted significant absorption, indicative of the broadening economic recovery. Strong job growth in business-friendly Dallas propelled the market to the top of the absorption list, with more than 2.2 million square feet during the quarter. New York s office market recovery and the strength of the local tech and other creative sectors are spreading beyond Midtown South, with the Midtown and Downtown markets accounting for a total of nearly three million square feet of absorption during. Robust demand from tech tenants drove improvement in the hard-hit Atlanta and Phoenix office markets, both of which ranked in the top six for absorption. Growth is coming from both tech firms expanding within those metro areas as well as relocating from other markets to capitalize on their skilled workforces and low costs of doing business, especially compared with more expensive coastal tech hubs. With a confluence of ICEE characteristics, including top educational and research institutions and leading life sciences, technology and health care clusters, Boston ranked the highest among the traditional ICEE markets with more than one million square feet of absorption. The East Cambridge/Kendall Square submarket 2.5 MSF Dallas NY-Midtown NY-Downtown Source: Colliers International Research Houston Washington, DC NY-Downtown Atlanta Boston Boston NY-Midtown South Phoenix Dallas Washington, DC San Francisco Houston San Jose/Silicon Valley Birmingham Seattle/Puget Sound CONSTRUCTION ACTIVITY Construction completions in Colliers markets totaled 8.2 million square feet in, below the 9.8 million square feet delivered in Q2. Despite this decrease, construction activity is picking up: as of November, 84.8 million square feet were under construction in the U.S., up from 75.0 million at mid-year. Medical office continued to account for a large share of office construction activity, at about 25%. However, traditional office space accounted for most of the increase in construction underway, rising by 16.5% from mid-year, compared with a 3.7% increase in the amount of medical office space under construction. Speculative development is occurring in ICEE markets due to strong tenant demand and diminishing availabilities, led by Houston with more than 10 million square feet underway. However, we also are seeing development TOP S, OFFICE SPACE UNDER CONSTRUCTION NA 12 MSF Los Angeles Seattle/Puget Sound Source: Colliers International Research P. 7 COLLIERS INTERNATIONAL

8 OFFICE Q UNITED STATES OFFICE TRANSACTION VOLUME NORTH AMERICA (Bil.) $ % Vacancy % % 50% 0% -50% 0.0 Q Q4 Q Q2 Q3 Q4 Q1 Q2 Q3 Absorption MSF Completions MSF Vac Rate % 12-Month Trailing Volume (left-axis) Year-Over-Year % Change (right-axis) Source: Colliers International NOTE: Latest data as of ; all data are 12-month trailing transaction volumes Source: Real Capital Analytics activity in some metropolitan areas in which the overall vacancy rate is still high but there is a lack of a particular type or size of space in the metro area or in a particular submarket. For example, Douglas Allred Co. recently broke ground on a 100,600 square-foot speculative building in the Chandler, AZ, submarket, in which the vacancy rate has been decreasing rapidly due to tech tenant demand. Some tenants such as Washington, D.C., law firms are moving into newer buildings but taking less space, leaving behind older vacant space. Another example is McGuire Woods, which recently signed on for 217,000 square feet at the 315,000 square-foot Gateway Plaza office tower under construction in Downtown Richmond. The move will result in a 20% reduction in footprint due to increased use of collaborative spaces and equal-sized offices. Traditional office-using industries such as legal and accounting embracing the greater use of collaborative and flexible floor plans indicates how widespread the densification trend has become, expanding from the tech/creative industries in expensive markets to a broad range of industries and markets across the country. We also are seeing developers responding to the preference among many younger workers for offices proximate to public transit. This quarter, Wright Runstad & Co. and Shorenstein began work on the $2.3-billion Spring District transit-oriented development project in Bellevue, WA, which includes 491,000 square feet of office space to be delivered in Q The project will feature both residential and commercial space on 36 acres adjacent to a future light-rail station. Also, the pipeline of projects near Los Angeles Expo Line the second phase of which will extend from Culver City to Santa Monica upon completion in 2015 is growing, including recently announced creative office building C3 in Culver City and Hines proposed Bergamot development in Santa Monica. CAPITAL S & TRANSACTION ACTIVITY The rise in U.S. interest rates beginning in May had little effect on demand for office properties from both domestic and foreign buyers. According to Real Capital Analytics, combined transaction volume in the U.S. and Canada increased by 29% year-over-year in to $25.7 billion, which (excluding the spike in Q4 ) was the highest quarterly total since Q The increase was driven by investment in the U.S., as Canadian transaction volume decreased by more than 50% during that period. Canadian investment in U.S. office properties remained robust, increasing to nearly $4 billion year-to-date from $2.5 billion for all of Average cap rates decreased further for most U.S. property types, other than secondary suburban office, for which cap rates were essentially flat. The attractive risk-adjusted returns on office properties as well as the inflation protection provided by them particularly given the Fed s current extremely accommodative monetary policy are attracting investors, a trend that we expect to continue. Also, the transparency and relative economic strength of the U.S. market are attracting a surge in foreign capital, notably from China. Office acquisitions by Chinese investors totaled $2.1 billion through the first three quarters of, compared with just $39.9 million in 2012, with investors targeting New York, Los Angeles and San Francisco in particular. Improving economic conditions as well as higher yields in non-core markets are drawing investors from major gateway cities to markets that have been less favored since the start of the recession. Secondary markets posted the largest year-over-year increase in sales volume during the third quarter, up by 50%. Among the markets with the largest increases in transaction volume (all 100% or more) were Richmond/Norfolk, Pittsburgh, Orlando, Stamford and Salt Lake City. The regulatory environment remains a concern for future bank lending, particularly with more than $350 billion of vintage CMBS maturing between 2015 and The Fed s newly released stress test rules for 2014 will assume a 35% decline in commercial real estate prices under the severely adverse scenario, up from 21%. This change, along with SIFI designations, QRM rules and other bank regulatory and capital requirements, could signal an end to the current cheap debt environment and contribute to a capital shortfall to refinance maturing CMBS and other types of debt through P. 8 COLLIERS INTERNATIONAL

9 UNITED STATES DOWNTOWN OFFICE ALL INVENTORY INVENTORY UNDER CONSTRUCTION NORTHEAST Baltimore, MD 28,963, , ,426 Boston, MA 61,523, , ,224 2,918, ,809 1,245,042 Hartford, CT 9,971, , ,454 New York, NY Downtown Manhattan 109,940, ,035, ,329, ,377 New York, NY Midtown Manhattan 228,738, ,529,490 1,715,586 New York, NY Midtown South Manhattan 160,771, ,491, , ,621 Philadelphia, PA 42,970, , ,382 Pittsburgh, PA 32,084, , ,724 42,603 Stamford, CT 18,642, ,502 59,414 Washington, DC 142,511, ,685 1,894, ,424 21,991 White Plains, NY 7,705, ,510-59,579 Northeast Total 843,824, ,000 1,308,909 15,139, ,610,264 3,246,311 SOUTH Atlanta, GA 49,918, , ,057 85,684 Birmingham, AL 4,278, ,028 62,689 Charleston, SC 2,132, , ,802-13,368 Charlotte, NC 22,525, , ,779 Columbia, SC 4,471, , ,301 Dallas, TX 34,378, , ,758-17,313 Ft. Lauderdale-Broward, FL 8,126, , ,724 Ft. Worth, TX 10,033, , , ,799 Greenville, SC 3,293, , ,000 85, ,620 66,386 Houston, TX 37,923, , ,097 Jacksonville, FL 15,994, , ,460 Little Rock, AR 6,544, ,914 56,440 Louisville, KY 44,062, , , ,353 46,862 Memphis, TN 6,079, , ,842 Miami-Dade, FL 18,512, , ,650 Nashville, TN 11,801,529-20, ,916-8,542 Orlando, FL 12,180, ,846 66,618 Raleigh/Durham/Chapel Hill, NC 13,638,609 15,000 53, , ,516 86,209 Richmond, VA 16,952, , ,186-2,803 Savannah, GA 802, ,168 14,228 Tampa Bay, FL 8,554, ,543-43,545 W. Palm Beach/Palm Beach County, FL 9,918, ,835 5,784 South Total 342,121, , ,122 2,280, , ,947 COLLIERS INTERNATIONAL P. 9

10 UNITED STATES DOWNTOWN OFFICE ALL INVENTORY (continued) INVENTORY UNDER CONSTRUCTION MIDWEST Chicago, IL 159,533, , , ,610 Cincinnati, OH 18,117, , ,789 Cleveland, OH 38,052, , , ,075 Columbus, OH 19,452, , , , ,955 Detroit, MI 25,645, , ,603 Grand Rapids, MI 5,157, ,483 94,759 Indianapolis, IN 23,004, ,057-15,467 Kansas City, MO 34,012, , , ,113 Milwaukee, WI 19,174,103 93,035 93, , ,900 Minneapolis, MN 32,104, ,509 28,311 Omaha, NE 6,358, ,399 29,561 St. Louis, MO 24,122, , ,988 St. Paul, MN 11,760, , ,883 Midwest Total 416,495,465 93,035 1,269,112 1,406, ,059 2,444,080 WEST Albuquerque, NM 3,241, , ,871 Bakersfield, CA 3,225,883-60, ,576 19,179 Boise, ID 3,995, , , ,115 Denver, CO 34,603, , , ,333 Fresno, CA 3,338, ,174 13,373 Honolulu, HI 7,119, ,479-88,685 Las Vegas, NV 4,596, , , , , ,205 Los Angeles, CA 32,566, , ,200-56,500 Oakland, CA 16,891, , ,292 Phoenix, AZ 20,082, , ,884 Portland, OR 35,199, , , ,993 Reno, NV 3,223, ,343-11,954 Sacramento, CA 13,576, , ,955 San Diego, CA 10,172, ,353 79,729 San Francisco, CA 88,119, , ,982 4,155, ,484 1,474,124 San Jose/Silicon Valley 7,601, ,329 93,595 Seattle/Puget Sound, WA 56,034, , ,492 1,411, , ,856 Stockton, CA 8,221, ,618 59,430 Walnut Creek, CA 12,416, , West Total 364,225, ,445 1,528,227 7,368, ,593 2,724,248 U.S. TOTAL/AVERAGE 1,966,667,259 1,871,480 4,529,370 26,194, ,363,794 8,821,586 P. 10 COLLIERS INTERNATIONAL

11 UNITED STATES DOWNTOWN OFFICE CLASS A INVENTORY AVG. ANNUAL QUOTED RENT (USD PSF) QUARTERLY IN RENT ANNUAL IN RENT JUN 30, SEP 30, NORTHEAST Baltimore, MD 12,913, ,488 24,540 Boston, MA 41,923, , ,338 Hartford, CT 6,771, , ,412 New York, NY Downtown Manhattan 77,949, ,031, ,011 New York, NY Midtown Manhattan 195,449, ,397,253 1,373,318 New York, NY Midtown South Manhattan 33,221, ,588 54,489 Philadelphia, PA 32,888, , ,895 Pittsburgh, PA 18,461, , ,957 Stamford, CT 13,300, ,997 10,077 Washington, DC 87,531, , ,838 White Plains, NY 4,887, , ,332 Northeast Total 525,298, ,072,743 2,875,753 SOUTH Atlanta, GA 30,090, ,570 57,075 Birmingham, AL 3,322, ,190 76,625 Charleston, SC 957, ,121-21,724 Charlotte, NC 16,018, ,766-39,304 Columbia, SC 1,926, ,103 4,812 Dallas, TX 22,636, ,986-62,745 Ft. Lauderdale-Broward, FL 4,477, , ,902 Ft. Worth, TX 5,723, , ,854 Greenville, SC 2,021, ,235 50,907 Houston, TX 28,249, , ,703 Jacksonville, FL 6,830, , ,219 Little Rock, AR 2,636, ,767 41,795 Louisville, KY 10,282, , ,428 Memphis, TN 2,009, ,751 Miami-Dade, FL 9,758, , ,189 Nashville, TN 4,269, , ,593 Orlando, FL 5,832, , ,927 Raleigh/Durham/Chapel Hill, NC 5,777, , ,412 Richmond, VA 5,905, ,940 5,965 Savannah, GA 642, ,528-4,686 Tampa Bay, FL 4,782, ,498-12,825 W. Palm Beach/Palm Beach County, FL 3,285, ,949 19,130 South Total 177,438, , ,387 COLLIERS INTERNATIONAL P. 11

12 UNITED STATES DOWNTOWN OFFICE CLASS A (continued) INVENTORY AVG. ANNUAL QUOTED RENT (USD PSF) QUARTERLY IN RENT ANNUAL IN RENT JUN 30, SEP 30, MIDWEST Chicago, IL 61,081, , ,827 Cincinnati, OH 8,824, ,642 47,913 Cleveland, OH 10,828, , ,669 Columbus, OH 8,377, , ,621 Detroit, MI 8,175, , ,700 Grand Rapids, MI 1,445, ,733 13,535 Indianapolis, IN 9,603, ,000 2,909 Kansas City, MO 10,163, , ,011 Milwaukee, WI 5,106, ,678 48,594 Minneapolis, MN 13,618, ,833 26,818 Omaha, NE 3,417, ,459-30,523 St. Louis, MO 10,388, , ,663 St. Paul, MN 2,773, ,697 3,440 Midwest Total 153,804, ,799 1,748,177 WEST Albuquerque, NM 575, ,753 Bakersfield, CA 729, ,140 53,928 Boise, ID 2,177, , ,644 Denver, CO 21,516, ,191 90,051 Fresno, CA 1,058, ,026 7,475 Honolulu, HI 4,644, ,967 8,938 Las Vegas, NV 1,103, , ,261 Los Angeles, CA 18,098, , ,900 Oakland, CA 9,842, , ,748 Phoenix, AZ 9,468, , ,919 Portland, OR 13,560, ,090-28,403 Reno, NV 583, Sacramento, CA 5,916, , ,501 San Diego, CA 7,257, ,563-25,934 San Francisco, CA 56,345, , ,112 San Jose/Silicon Valley 2,930, ,276 15,906 Seattle/Puget Sound, WA 32,330, , ,655 Stockton, CA 2,790, , ,594 Walnut Creek, CA 8,255, ,923 68,428 West Total 199,184, ,174 1,693,044 U.S. TOTAL/AVERAGE 1,055,725, ,233,477 6,944,361 P. 12 COLLIERS INTERNATIONAL

13 UNITED STATES SUBURBAN OFFICE ALL INVENTORY INVENTORY UNDER CONSTRUCTION JUN 30, SEP 30, NORTHEAST Baltimore, MD 87,399, , , , ,009 Boston, MA 111,872, , ,852 2,059, ,983 1,148,650 Fairfield County, CT 41,219, , ,427 Hartford, CT 12,251, ,657 93,720 Long Island, NY 73,613,964 20,000 40,000 83, , ,149 New Jersey Central 130,413,041 14,955 30, ,995 1,808,660 New Jersey Northern 164,320, , , , ,349 Philadelphia, PA 110,277,469-50,000 1,146, , ,398 Pittsburgh, PA 90,836, , , , , ,462 Washington, DC 285,306, ,906 1,581,383 5,689, , ,728 Westchester County, NY 36,869, , ,365 Northeast Total 1,144,380,305 1,856,764 4,025,649 9,556, ,551,193 5,760,063 SOUTH Atlanta, GA 172,406,969 60, , , ,727 1,788,703 Birmingham, AL 14,672, , ,645 Charleston, SC 9,363,809-75, , ,383 89,307 Charlotte, NC 61,927, , , , ,651 Columbia, SC 4,983, ,598 37,445 Dallas, TX 240,810, ,263 1,483,588 3,721, ,190,798 3,483,216 Ft. Lauderdale-Broward, FL 43,045, , , ,297 Ft. Worth, TX 20,553, , , , , ,732 Greenville, SC 4,690, ,601-18,158 Houston, TX 135,478,246 1,431,616 2,107,779 10,529, , ,878 Jacksonville, FL 44,988,591 14,902 72,503 98, , ,437 Little Rock, AR 7,657, ,226-75,771 Memphis, TN 27,031,716 40, , ,614 66,519 Miami-Dade, FL 61,943,171 22,680 57, , , ,372 Nashville, TN 14,812, , , ,595 Orlando, FL 54,141, , , , , ,133 Raleigh/Durham/Chapel Hill, NC 64,385,045 48, , , , ,459 Richmond, VA 34,684, , , ,492 Savannah, GA 1,469, ,831 13,046 Tampa Bay, FL 71,870, ,145 95, , ,342 W. Palm Beach/Palm Beach, FL 28,435,414-30, , , ,378 South Total 1,119,352,445 2,737,605 5,415,112 18,284, ,368,400 11,809,124 COLLIERS INTERNATIONAL P. 13

14 UNITED STATES SUBURBAN OFFICE ALL INVENTORY (continued) INVENTORY UNDER CONSTRUCTION JUN 30, SEP 30, MIDWEST Chicago, IL 155,865, , , , ,359 Cincinnati, OH 35,741, , ,333 Cleveland, OH 49,228, , ,768 Columbus, OH 43,764, , , , ,620 Detroit, MI 139,731, , ,638 53,394 Grand Rapids, MI 10,944, , , ,055 Indianapolis, IN 43,468,687-75, , , ,728 Kansas City, MO 57,889, , , , ,762 1,095,144 Milwaukee, WI 33,549, , ,003 85,641 Minneapolis, MN 79,675, , ,434 1,132,171 Omaha, NE 21,082, , , , , ,985 St. Louis, MO 55,605, , , ,924 Midwest Total 726,547, ,000 1,726,038 3,638, ,020,282 5,957,122 WEST Albuquerque, NM 10,877, ,865 95,467 Bakersfield, CA 6,039,226 27,777 57,777 92, ,556 34,041 Boise, ID 12,797, ,174 1,781,719 Denver, CO 103,515, , , ,232 1,100,202 Fairfield, CA 4,798, ,179 46,759 Fresno, CA 18,262, , , , ,126 Honolulu, HI 7,490, , ,741 Las Vegas, NV 36,209, , , , , ,985 Los Angeles, CA 167,866, ,100 1,524, , ,200 Los Angeles Inland Empire, CA 20,493, , ,700 Oakland, CA 16,165, , ,977 Orange County, CA 81,047, , ,500 1,136,200 Phoenix, AZ 110,259,489 45, ,459 68, ,797 1,121,204 Pleasanton/Tri-Valley, CA 27,421, , ,261 Portland, OR 43,354,233-10,916 23, , ,396 Reno, NV 9,664, ,164 94,459 Sacramento, CA 56,387,896 53, ,810 65, ,099 2,678,734 San Diego, CA 71,006,713 10, , , , ,822 San Francisco Peninsula 35,146,938 4,739 4, , ,547 San Jose/Silicon Valley 56,105, ,576 1,848,140 2,332, ,672 1,628,149 Seattle/Puget Sound, WA 56,950, ,000 75, , ,404 Walnut Creek, CA 5,562, ,017-85,503 West Total 957,422,434 1,083,482 4,467,910 6,751, ,273,263 11,165,236 U.S. TOTAL/AVERAGE 3,947,702,356 5,923,851 15,634,709 38,229, ,213,138 34,691,545 P. 14 COLLIERS INTERNATIONAL

15 UNITED STATES SUBURBAN OFFICE CLASS A INVENTORY AVG. ANNUAL QUOTED RENT (USD PSF) QUARTERLY IN RENT ANNUAL IN RENT JUN 30, NORTHEAST Baltimore, MD 30,817, , ,677 Boston, MA 47,768, , ,607 Fairfield County, CT 17,379, ,006-87,658 Hartford, CT 7,906, , ,215 Long Island, NY 24,102, , ,763 New Jersey Central 61,119, ,947 1,900,047 New Jersey Northern 87,287, , ,807 Philadelphia, PA 68,043, , ,976 Pittsburgh, PA 16,506, , ,521 Washington, DC 136,863, ,083 1,169,818 Westchester County, NY 16,971, , ,262 Northeast Total 514,768, ,303,004 5,680,035 SOUTH Atlanta, GA 81,305, ,101,838 1,940,730 Birmingham, AL 9,276, , ,001 Charleston, SC 3,500, ,296 5,360 Charlotte, NC 20,007, , ,418 Columbia, SC 1,003, ,351-1,178 Dallas, TX 92,399, ,622,035 2,022,938 Ft. Lauderdale-Broward, FL 10,574, , ,623 Ft. Worth, TX 2,709, ,444 57,857 Greenville, SC 2,245, ,378 65,545 Houston, TX 56,155, ,516 1,800,473 Jacksonville, FL 9,206, ,510 23,964 Little Rock, AR 3,014, ,494 40,379 Memphis, TN 8,115, ,173-12,757 Miami-Dade, FL 16,338, , ,000 Nashville, TN 7,302, ,929 31,507 Orlando, FL 16,810, , ,467 Raleigh/Durham/Chapel Hill, NC 24,726, , ,741 Richmond, VA 13,793, , ,720 Savannah, GA 490, ,548 Tampa Bay, FL 24,349, , ,197 W. Palm Beach/Palm Beach, FL 8,996, ,685 76,603 South Total 412,323, ,240,114 9,479,040 COLLIERS INTERNATIONAL P. 15