Landlords look for ways to stay competitive as vacancy tightens

MARKETVIEW Miami Office, Q4 2017 Landlords look for ways to stay competitive as vacancy tightens 10.9% Lease Rate Class A $44.04 PSF Net 147,000 SF Completions 90,000 SF Figure 1: vs Net (Class A & B) Millions of SF 1.5 *Arrows indicate change from previous year. Rate 20 1.0 15 0.5 10 0.0 5-0.5 2010 2011 2012 2013 2014 2015 2016 2017 Q1 Q2 Q3 Q4 Rate ( R ) 0 LEASING ACTIVITY Miami was ranked third among the top destination markets for migration from primary markets between 2011-2015 in a study analyzing U.S. migration trends conducted by PricewaterhouseCoopers. Investor interest in Miami s office market was ranked 11th out of 78 markets across the country for investment and development in a survey conducted by PricewaterhouseCoopers. Office-using employment growth driven by financial services and professional and business services has been key in creating strong demand for office space over the last few years. vacancy was 10.9% in Q4 2017, relatively stable quarter-over-quarter and decreased by 70 basis points (bps) year-over-year. Net absorption during Q4 2017 was 147,062 sq. ft., with 48,528 sq. ft. in the downtown submarkets and 98,534 sq. ft. in the suburban submarkets. As vacancy continues to tighten, landlords are looking for ways to differentiate themselves from the competition. By providing amenities such as enhanced lobbies, outdoor meeting spaces, gyms and ride-sharing services, properties offering these services will likely outperform their competitors. This would not only increase the value of their assets but would help attract and retain quality tenants. Tenants are also placing more emphasis on creating a workplace that is conducive to recruiting and retaining workforce talent, and landlords are being challenged to provide creative solutions. Rents, for Class A office space, in particular, are continuing to increase as supply diminishes. The average asking lease rate for Class A properties in the CBD climbed to $52.20 per sq. ft., an increase Q4 2017 CBRE Research 2018 CBRE, Inc. 1

Figure 2: Market Statistics Class A & B Figure 3: Market Statistics All Classes Inventory Inventory Direct Direct Q4 2017 Q4 2017 2017 Net 2017 Net Under Construction Under Construction Avg. Dir. Asking Lease Rate ($/SF/FSG/G/MG) Submarket Class CBD Brickell A 4,220,374 8.0 8.0 30,534 118,710 0 53.71 B 2,085,545 12.5 12.5 15,024 9,963 0 39.11 Downtown A 3,347,916 24.1 24.1 (88,271) (72,315) 190,000 51.48 B 2,311,954 22.4 22.4 (9,301) (61,719) 0 33.98 CBD 11,965,789 16.1 16.1 (52,014) (5,361) 190,000 45.45 Suburban Airport/Doral A 4,818,082 8.0 8.0 43,245 84,559 0 35.57 B 6,022,899 7.5 7.5 38,219 218,709 0 28.40 Aventura A 1,250,700 6.0 6.0 (24,983) 5,988 0 45.93 B 166,788 2.8 2.8 1,987 59,254 0 36.02 Biscayne Blvd. A 704,963 22.1 22.1 0 16,403 87,511 38.19 B 392,923 13.8 13.8 1,426 23,705 30,000 32.07 Coconut Grove A 507,367 4.7 4.7 6,234 11,390 120,293 38.86 B 601,071 2.6 2.6 (8,480) 17,745 0 30.30 Coral Gables A 4,172,535 8.9 8.9 15,201 142,596 132,381 39.64 B 2,992,508 5.4 5.4 23,604 19,387 96,427 36.53 Kendall A 1,398,315 8.1 8.1 2,283 49,104 0 37.77 B 2,109,424 8.5 8.5 4,937 20,911 0 25.63 Miami Beach A 820,097 3.9 3.9 8,959 (14,354) 0 44.62 B 926,035 9.6 9.6 4,977 (15,243) 0 41.67 Miami Lakes A 517,331 17.2 17.2 1,869 15,095 0 28.16 B 996,735 24.2 24.2 (15,329) 52,245 0 21.80 North Miami A 560,752 5.3 5.3 1,765 18,286 74,336 30.74 B 314,047 1.4 1.4 (2,711) 33,724 0 - South Dade A 0 0 0 0 - B 467,756 32.2 32.2 (12,723) (46,222) 0 27.01 Suburban 29,740,328 8.8 8.8 90,480 713,282 540,948 33.98 41,706,117 10.9 10.9 38,466 707,921 730,948 38.78 Avg. Dir. Asking Lease Rate ($/SF/FSG/G/MG) Submarket Brickell 7,284,471 9.8 9.8 56,990 134,554 0 44.76 Downtown 7,674,293 21.0 21.0 (8,462) (81,057) 190,000 41.13 CBD 14,958,764 15.5 15.5 48,528 53,497 190,000 42.29 Airport/Doral 11,956,184 7.8 7.8 88,243 302,887 0 31.05 Aventura 1,549,296 5.3 5.3 (13,836) 72,041 0 43.68 Biscayne Blvd Corridor 1,685,341 15.8 15.8 (15,211) 39,867 87,511 35.08 Coconut Grove 1,173,438 3.4 3.4 (2,246) 29,135 120,293 34.28 Coral Gables 7,287,071 7.4 7.4 36,582 162,769 228,808 38.48 Kendall 3,683,539 8.1 8.1 7,420 75,210 0 30.18 Miami Beach 1,995,534 6.2 6.2 13,936 (30,352) 0 42.77 Miami Lakes 1,953,195 20.3 20.3 (3,272) 74,506 0 22.47 North Miami 1,423,572 5.2 5.2 (359) 79,460 74,336 29.50 South Dade 467,756 32.2 32.2 (12,723) (46,222) 0 27.01 Suburban 33,174,926 8.8 8.8 98,534 759,301 540,948 32.95 48,133,690 10.9 10.9 147,062 812,798 730,948 37.07 Q4 2017 CBRE Research 2018 CBRE, Inc. 2

Figure 4: Significant Q4 2017 Occupancies* Submarket Property Tenant Transaction Downtown Three MiamiCentral Brightline 24,225 North Miami The Citadel Entercom Miami 22,500 Downtown Miami Tower BDO Siedman 22,386 Airport/Doral Doral Concourse Building I Subway Latin America & Caribbean 21,111 Airport/Doral 800 Waterford DB Schenker 18,588 *Does not include renewals. Figure 5: Significant Q4 2017 Leases Executed Submarket Property Tenant Lease Type Transaction Airport/Doral Doral Costa Office Park World Fuel Services Renewal/Exp. 132,457 Downtown 701 Brickell Merrill Lynch Renewal 105,738 Airport/Doral Doral Court Blue Cross Blue Shield (Florida Blue) New Lease 81,000 Downtown 701 Brickell Bank of America Renewal 41,031 Brickell Courvoisier Centre II Sony Pictures Renewal 30,000 Figure 6: Top Q4 2017 Investment Sales ($ Millions) Submarket Property Buyer Seller Building Sale Price ($) Price per SF ($) Airport/Doral Lennar Corp Center Naya USA Investment & Management Colony Northstar, Inc. 287,172 40,000,000 139 Kendall 9350 Financial Centre Banyan Street Capital Delma Properties Inc. 109,440 33,000,000 302 Airport/Doral 50Forty on 7th Netz Group Ltd TMSA Real Estate 82,763 10,900,000 132 Figure 7: Under Construction Submarket Property Owner Developer Building Downtown Two MiamiCentral Florida East Coast Industries Florida East Coast Industries 190,000 Coral Gables Ofizzina The Solution Group (TSG) The Solution Group (TSG) 96,427 Biscayne Blvd Corridor CUBE Wynwd RedSky Capital Investments RedSky Capital Investments 87,511 Coconut Grove 3310 Mary St. Terra Group Terra Group 76,000 North Miami Canal Park Office Eduardo Namnum Namnum Developers 74,336 Coral Gables Giralda Place Transamerica Holding Corp. Giralda Complex LLC 71,582 Coral Gables Sunset Office Center Catherine Lorie OHL Arellano 60,799 Coconut Grove 3480 Main Highway Optimum Development USA Optimum Development USA 44,293 Biscayne Blvd Corridor The Wynwood Garage Goldman Development, LLC Wynwood Realty 30,000 Q4 2017 CBRE Research 2018 CBRE, Inc. 3

of $0.89 year-over-year or 1.7%. In the suburban submarkets, the average asking rate for Class A properties was $37.74, an increase of $0.82 yearover-year or 2.2%. vacancy was 10.9% in Q4 2017, which was relatively stable quarter-over-quarter due mostly to the delivery of 90,000 sq. ft. at Three MiamiCentral. It was 76% vacant upon completion. Year-over-year, total vacancy decreased by 70 bps declining steadily since 2012. Leases executed during Q4 2017 totaled approximately 1,010,000 sq. ft. in over 180 transactions. The majority of the transactions took place in the Downtown, Brickell and Airport/Doral submarkets. Florida Blue s 81,000 sq. ft. lease was the largest relocation transaction of the year moving from Westside Plaza to Doral Court. tenants seeking space in the market have requirements for 1.2 million sq. ft. Financial services, energy-oil, gas & coal extraction, and business services, which includes co-working providers, were the top industries in the market, followed by creative industries-media entertainment. INVESTMENT SALES ACTIVITY Investor interest in Miami s office market continues as it has strengthened from strong employment growth and absorption. It was ranked 11th out of 78 markets across the country for investment and development in a survey conducted by PricewaterhouseCoopers. Investment sales for Q4 2017 totaled $83.9 million, the largest of which was the trade of Lennar Corporate Center, a four-building campus that sold for $40 million. Another large transaction involved the sale of 9350 Financial Centre in the Kendall submarket to Banyan Street Capital by Delma Properties, Inc. for $33 million or $310 per sq. ft. Banyan is an example of a landlord that plans to improve the common areas, lobby and elevators in order to enhance the tenant experience. dye Figure highest 8: Leases Executed by SF - Space Analysis (Class A & B) 20,001+ THE VACANCY 25% RATE CONTINUED TO DECLINE 0-5000 IN Q2 2016 TO 12.2%, DOWN 30 BASIS 36% POINTS (BPS) QUARTER-OVER-QUARTER AND 140 BPS YEAR-OVER-YEAR. AIRPORT/DORAL, AVENTURA, COCONUT GROVE, CORAL GABLES 15,001-20,000 AND MIAMI BEACH ARE ALL 12% REPORTING SINGLE-DIGIT VACANCIES. ECO VACANCY RATE CONTINUED TO 10,001-15,000 5,001-10,000 DECLINE IN 11% Q2 2016 TO 12.2%, DOWN 30 16% BASIS POINTS (BPS) QUARTER-OVER-QUARTER AND 140 BPS YEAR-OVER-YEAR. AIRPORT/DORAL, AVENTURA, COCONUT GROVE, CORAL GABLES AND MIAMI BEACH Figure 9: Average Direct Asking Lease Rate (FSG/G/MG) ARE ALL REPORTING SINGLE-DIGIT VACANCIES. Asking Lease Rate ($) 50 45 40 35 30 25 20 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Class A Class B Figure 10: Completions 000's of SF) 2,000 Forecast 1,500 1,000 500 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q4 2017 CBRE Research 2018 CBRE, Inc. 4

DEVELOPMENT Office properties under construction totaled 730,948 sq. ft. as of Q4 2017. Two office properties broke ground in Q4 2017 including Cube Wynwd, which is scheduled to deliver a 12-story bldg. with 87,511 sq. ft. office in late 2018. Redsky Capital is the developer, and Spaces (Regus) is its first tenant. The other office property was Optima Development USA s 3480 Main Highway in Coconut Grove which is also scheduled to deliver 44,293 sq. ft. Two MiamiCentral, the second office tower totaling 190,000 sq. ft. is scheduled to deliver in 2018 and is 50% pre-leased. Included among the future tenants are owner/developer Florida East Coast Industries (FECI), Ernst and Young, Regus and The Cisneros Group. The remaining 408,514 sq. ft. are located in the Coral Gables, North Miami, Coconut Grove and North Miami submarkets and scheduled to be completed by the end of 2018. Three MiamiCentral delivered 90,000 sq. ft. in Q4 2017 with Brightline occupying 22,000 sq. ft. on the 9th floor. HNTB is scheduled to move into 18,424 sq. ft. in Q1 2018 and was approximately 60% pre-leased at the time of completion. Brightline is scheduled to begin limited express passenger train service from Miami to Fort Lauderdale and West Palm Beach this year. Ridership projections, in an independent study conducted by Fitch Ratings, average 3 million people by 2020 with 16 round trips daily between Miami, Fort Lauderdale and Palm Beach. The highly-anticipated Phase Two of the Brightline railway connecting West Palm Beach to Orlando received final approval by the U.S. Department of Transportation to begin construction, which is scheduled to start in early 2018. ECONOMIC INFLUENCE Office-using employment growth driven by financial services and professional and business services has been key in creating strong demand for office space over the last few years. According to the BLS, the Miami metropolitan division recorded an increase of 27,100 jobs in the twelve months prior to November 2017, representing a year-over-year gain of 2.3%, the third highest in the state. Miami s annual office job growth was driven by gains in professional and business services (+2,300) and financial activities (+300). The job market continued to tighten with unemployment dropping to 4.6% in November 2017, a decrease of 40 bps year-over-year. OUTLOOK Office demand has been gaining momentum as vacancy rates continue to decline. Unemployment has also reached the lowest level in years indicating increased demand for office space. Declining vacancy should continue through 2018 with strong job performances in office-using jobs, which are projected to grow by 5.5% by 2022 acccording to Moody s Analytics. Financial services, professional and business services and information services are among the top ten metropolitan divisions in the country with the highest increase in the number of jobs created. Regarding supply, there is minimal construction in the Downtown and none in Brickell as of the close of Q4 2017 with no planned projects. Fewer options for tenants will lead to rising asking rates. Miami was ranked third among the top destination markets for migration from primary markets between 2011-2015 in a study analyzing U.S. migration trends conducted by PricewaterhouseCoopers. One of the reasons to migrate to Florida, in addition to no state income tax, may be the federal tax reform bill, which may have a very positive impact on Miami, especially for the office market. The depreciation period for office assets is being reduced from 39 to 25 years, increasing the tax benefit to property owners. The new deduction limit for income, sales and property taxes combined in states such as New York and California might also make relocating to Florida more appealing. Q4 2017 CBRE Research 2018 CBRE, Inc. 5

Market Coverage: Includes all competitive office buildings 30,000 sq. ft. and greater in size in Miami-Dade county. Excludes: single occupancy, government and medical buildings. CONTACTS Ana M. Gonzalez Research Coordinator +1 305 381 6432 ana.gonzalez@cbre.com Arden Karson Senior Managing Director +1 305 374 1000 arden.karson@cbre.com To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/research-and-reports. Contact CBRE Miami 777 Brickell Avenue, Suite 1100 Miami, FL 33131 +1 305 374 1000 John Ferguson President Southeast Division +1 404 504 7870 john.ferguson@cbre.com Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.