MARKET REPORT FIRST QUARTER Creative Reuse of Office Space in Virginia Market Recovery to Occur with New Federal Spending

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1 Q NORTHERN VIRGINIA OFFICE NORTHERN MARKET REPORT VIRGINIA Q1 OFFICE 2015 NORTHERN VIRGINIA OFFICE MARKET REPORT FIRST QUARTER 2015 Creative Reuse of Office Space in Virginia Market Recovery to Occur with New Federal Spending MARKET OUTLOOK VACANCY NET ABSORPTION CONSTRUCTION Q Q1 2016* MARKET SUMMARY With federal fiscal austerity creating softness in the Northern Virginia economy, vacancies have been on the rise. In some instances, product has been sitting on the market for long periods of time with very little activity. With demand for space shrinking in all but three of the last 13 quarters, tenants have been able to find and repurpose office buildings to meet their needs, which previously would not have been viable options. Since the beginning of 2014, four such conversions have occurred. The largest and most significant of these took place during the first quarter of Inova Health Systems executed a ground lease with an option to buy the Exxon Mobile headquarters building in Merrifield. The hospital plans on demolishing the 1.4-million-square -foot building to make way for a new Cancer and Individual medicine addition to the Inova Fairfax Hospital. During the second quarter of 2014, after the Department of Defense vacated 2221 South Clark Street in Crystal City, Vornado in conjunction with WeWorks commenced the conversion of the existing 171,953-square-foot office building into a 25,000-square-foot WeWork center and 216 microresidential units. RENTAL RATE *Projected MARKET INDICATORS Q Q VACANCY RATE 17.3% 18.3% ABSORPTION* -265, ,630 DELIVERIES* 2,749,969 2,240,472 UNDER CONSTRUCTION 3,467,346 3,672,338 ASKING RENTS/SF $32.35 $31.38 Similarly, Fairfax County Public Schools purchased Seven Corners Corporate Center, a 96,502-square-foot, B office building during the third quarter of The system is in the process of converting the building into an elementary school. Finally, Arlington County removed the office building at 2020 North 14 th Street from the market during the second quarter of They started the conversion of the building from a multitenant office building into a government owned facility (not tracked by Colliers International). It will include a $6.6 million, highly controversial homeless shelter. It is expected that these secondary uses will occasionally take advantage of the softness in the office-using sectors of the economy and office market to acquire properties suited to their purposes, especially in areas like Arlington and Alexandria which have been highly developed and very little raw land remains. * Trailing four quarter total

2 ECONOMIC OVERVIEW While demand for office-space has shrunk over the last four quarters, the office-using sectors of the economy have begun to add jobs. Between the beginning of March 2014 and the end of February 2015, the US Bureau of Labor Statistics reported that the Northern Virginia economy added 17,100 jobs. Of these jobs, 4,000 were in office-using sectors of the economy. While the total non-farm economy has replaced all the jobs lost between the first quarter to 2013 and the first quarter of 2014, the office-using economy is only a third of the way recovered. Most of the office-using job gains were from the government sector of the economy. While 2,300 jobs were added, they are not expected to impact the office market. In an attempt to control costs, the federal government has been either consolidating its real estate footprint or locating new jobs into government owned space. Additionally, the professional and business services sectors of the economy have also begun to grow. Over the 12 months ending February 2015, 1,700 jobs were created. A number of these were in the high tech sector of the economy, and weren t associated with the government contracting industry. While the jobs help diversify the economic base, they have yet to generate much new demand, let alone offset contraction from the defense industry. Finally, the financial sector of the economy added 500 jobs over the time period. This compares to 100 jobs over the same time period ending in February The information sector of the economy was the only sector detracting from of the overall office-using growth. Over the 12 months ending February 2015, the sector shed 500 jobs. ABSORPTION The ongoing softness in the market, which has been driven by discretionary spending cuts, continued to manifest within the Northern Virginia office market during the first quarter of During the quarter, net absorption totaled negative 571,632 square feet with contraction in demand occurring across all classes of space. The largest decrease continued to occur in B product, with 313,575 square feet of space being returned to the market. Additionally, a significant amount of space was also returned in both A and C product, where 148,326 and 109,731 square feet of space were returned to the market, respectively. During the quarter, Lockheed Martin vacated the entire 162,276-square-foot building at 2245 Monroe Street in Reston because one of their federal contracts expired. Additionally, General Dynamics returned 97,513 square feet at Arrowhead Drive in Oakton. The defense industry was not the only sector of the economy to reduce demand for office space. Freddie Mac vacated the

3 entire 217,129-square-foot building at 8000 Jones Branch Drive in Tysons Corner, while Marymount University completed relocating out of 115,000 square feet at 1000 North Glebe Road to 4040 North Fairfax Drive. Both these buildings are located in Ballston. Their location at 4040 North Fairfax Drive is Marymount s swing space while they redevelop their property at 1000 North Glebe. This trend continued to be seen in the first quarter leasing activity. The largest lease of the quarter was executed by the US Marshals Service. The agency leased 370,000 square feet of space between 201 South 12 th Street and 1215 South Clark Street, but they will relocate and consolidate out of 417,428 square feet of space in four different buildings. Booz Allen Hamilton executed the second largest lease of the quarter, renewing for the entire 222,989-square-foot building at 8283 Greensboro Drive. However, they returned and vacated the entire 128,272-square-foot office building at 8255 Greensboro Drive last quarter. This consolidation trend occurred in five largest leases signed during the quarter. Despite these leases totaling 1.1 million square feet, the associated contraction will result in net absorption of negative 85,193 square feet. DEVELOPMENT ACTIVITY Even with falling demand for office space, developers continued to break ground on new office product. During the first quarter of 2015, Capital One commenced construction on their third building within their headquarters campus. The 970,700-square-foot office building is expected to deliver during the second quarter of The bank will completely occupy the space upon delivery, relocating their employees out of hundreds of thousands of square feet in Tysons Corner. Most of the buildings that broke ground since the beginning of 2015, have been build-to-suits. As a result of the current 3.7 million square feet under construction, 65.0 percent of the space is committed. The one exception was 1775 Tysons Boulevard. Lerner Enterprises recommenced construction on this 476,913-square-foot building on a purely speculative basis. There has been significant interest in the building and a 90,000-square-foot tenant is close to finalizing a lease, but the building remains completely available for lease. It is expected to deliver during the first quarter of During the first quarter, two office buildings delivered. They totaled 183,000 square feet and were 85.2 percent committed upon delivery. An undisclosed national intelligence agency occupied the entire 150,000-square-foot building in Westfields, and LGV group occupied about 6,000 square feet of the 33,000-square-foot building they developed at Broderick Drive in Loudoun County.

4 MARKET REPORT Q NORTHERN MARKET VIRGINIA REPORT OFFICE Q NORTHERN VIRGINIA OFFICE VACANCY With the addition of new supply coupled with falling demand for office space, the overall vacancy rate increased from 18.0 percent to 18.3 percent during the quarter. This marked the fifteenth consecutive quarter of increasing vacancy rates. All classes of space contributed to this increase with the A rate increasing 38 basis points to 18.8 percent, the B rate increasing 48 basis points to 19.7 percent and the C rate increasing 3 basis points to 13.3 percent. RENTAL RATES As vacancy rates rose through the first quarter of 2015, rental rates continued to decrease. The overall direct asking rent for the quarter 2015 was $31.38 per square foot, which was the lowest it has been since the first quarter of 2012 when it measured $31.17 per square foot. All classes of space contributed to the decrease in rates. During the quarter, A rental rate decreased from $34.80 to $34.49 per square foot, and B product registered $29.31 per square foot, which was down from $29.51 per square foot. As rates continued to fall, landlords have competed for tenants though concessions and tenant improvement packages. Typically, tenant improvement packages have ranged between $70 to $80 per square foot on a 10-year lease, with free rent in excess of one year. Significant Deliveries Project Submarket RBA Lead Tenant 4850 STONECROFT BOULEVARD ROUTE 28 CORRIDOR SOUTH 150,000 UNDISCLOSED INTELLIGENCE BRODERICK DRIVE ROUTE 28 CORRIDOR NORTH 33,000 LGV GROUP

5 Significant Q Construction Projects Project Submarket RBA Delivery Lead Tenant 3100 Clarendon Boulevard Clarendon/Courthouse 259,331 Q None 4870 Stonecroft Boulevard Route 28 Corridor South 150,000 Q None Stone Springs Hospital Center Leesburg/West Loudoun 95,000 Q None 1775 Tysons Boulevard Tysons Corner 476,913 Q None General s Ridge 2 Route 29/I-66 48,014 Q None Mitre 4 Tysons Corner 340,000 Q Mitre NSF Headquarters Eisenhower Avenue Corridor 720,000 Q National Science Foundation Capital One Building 3 Tysons Corner 970,700 Q Capital One CEB Tower Rosslyn 552,781 Q CEB

6 MARKET REPORT Q NORTHERN MARKET VIRGINIA REPORT OFFICE Q NORTHERN VIRGINIA OFFICE Recent Lease Transactions Tenant Address Submarket Size (SF) Type GSA US Marshals Service (USMS) 201 S 12th & 1215 S Clark Streets Crystal City 370,000 Relocation/ Consolidation Booz Allen Hamilton, Inc Greensboro Drive Tysons Corner 333,989 Renewal Fannie Mae Sunrise Valley Drive Reston 186,133 Relocation/ Consolidation GSA Executive Office for Immigration Review (EOIR) 5107 Leesburg Pike I-395 Corridor 169,131 Renewal/ Consolidation Noblis 2000 & 2002 Edmund Halley Reston 155,048 Relocation/ OUTLOOK With the growth of the private technology sector over the last few years, the Northern Virginia economy has become more diversified. However, it still remains highly reliant on federal spending and local agencies to underpin the economy. As a result, any recovery within the office market will be closely tied to the return of federal leasing and procurement spending, which will prompt expansion from government contractors. With the exception of the intelligence community, federal agencies are not expected to start generating in new office demand in the foreseeable future. If fact, they are expected to shrink their real estate footprint for much of the next decade. However, according to a Deltek analysis, the budgets created by both President Obama and Congress in 2014 point to increased discretionary spending starting in Additionally, even under the more onerous Sequestration, spending should start to increase, though at much more subdued rate than either of the proposed budgets project. While spending growth under any of these scenarios will be at lower levels than what occurred last decade, any growth in long-term discretionary spending will prompt a market recovery. It appears that Northern Virginia is poised to see recovery in In September, Congress and the President will need to address spending for With a clear budget, federal agencies and governmental contractors will be able to well defined business plans, and if spending increases as is projected, they will have plan on how they expand their operations. This recovery is predicated on a number of factors outside the control of the marketplace. Political uncertainty remains the number one threat to recovery. While the political environment is not as contentions as it was in 2011, the question of how to control the federal debt remains unsolved, and the political parties are no closer to a solution than they were four years ago. The Bipartisan Policy Center estimates that Congress will need to address the national debt again sometime between October and December of this year. The way in which it is resolved will be an indication of whether political uncertainty will continue to plague the market or not.

7 NORTHERN VIRGINIA Q1 MARKET STATS NORTHERN VIRGINIA FAIRFAX COUNTY Bldgs RBA Sublet Vacancy Prior Qtr Leasing Activity SF* Current Qtr SF 2014 Weight Avg Asking Lease A ,759, % 1.4% 18.8% 18.5% 1,752, , ,326 $34.49 B ,739, % 0.6% 19.7% 19.2% 748, , ,575 $29.31 C ,494, % 0.5% 13.3% 13.2% 10, , ,731 $25.43 All es 2, ,993, % 1.0% 18.3% 18.0% 2,511, , ,632 $31.38 Leasing Activity Weight Avg Asking Bldgs RBA Sublet Vacancy Prior Qtr SF* Current Qtr SF 2014 Lease Annandale A 1 200, % 6.3% 20.7% 20.7% $31.50 B 8 381, % 0.9% 9.9% 9.3% - -2,399-2,399 $23.57 C 45 1,289, % 0.0% 9.3% 9.1% - -3,010-3,010 $23.03 All es 54 1,871, % 0.9% 10.6% 10.3% - -5,409-5,409 $24.89 Fairfax/Oakton A 32 4,949, % 0.4% 12.9% 13.2% - 14,128 14,128 $30.11 B 90 5,869, % 0.4% 18.3% 17.0% 17,327-76,884-76,884 $23.90 C 93 2,604, % 0.7% 11.2% 10.1% - -29,008-29,008 $20.42 All es ,424, % 0.5% 14.9% 14.2% 17,327-91,764-91,764 $26.77 Falls Church A 2 128, % 0.8% 7.9% 7.1% $29.70 B 33 1,479, % 2.3% 17.8% 18.3% - 7,366 7,366 $23.59 C , % 0.0% 14.0% 11.9% - -14,199-14,199 $19.44 All es 66 2,279, % 1.5% 16.1% 15.8% - -7,823-7,823 $22.48 Herndon A 47 7,940, % 1.6% 11.2% 10.3% 148,685-75,013-75,013 $30.24 B 51 3,201, % 0.2% 18.3% 16.6% - -55,496-55,496 $22.97 C 38 1,002, % 0.3% 7.8% 8.0% - 2,692 2,692 $19.87 All es ,144, % 1.1% 12.8% 11.8% 148, , ,817 $27.12 McLean A - - n/a n/a n/a n/a n/a B , % 0.2% 11.6% 10.8% - -4,180-4,180 $33.39 C 48 1,059, % 0.0% 9.7% 9.7% $27.92 All es 61 1,558, % 0.1% 10.3% 10.0% - -4,165-4,165 $30.70 Merrifield A 29 5,369, % 1.2% 14.2% 15.9% 23,812 94,404 94,404 $32.91 B 31 3,155, % 0.6% 11.2% 10.5% - -23,487-23,487 $28.03 C 44 1,284, % 0.5% 10.6% 10.3% - -4,139-4,139 $24.80 All es 104 9,809, % 0.9% 12.8% 13.4% 23,812 66,778 66,778 $31.40 Reston A 62 11,085, % 2.1% 14.7% 12.7% 509, , ,897 $32.18 B 73 6,011, % 1.1% 16.8% 17.6% 121,946 50,288 50,288 $26.85 C 55 1,827, % 0.4% 23.3% 22.5% - -15,257-15,257 $22.98 All es ,924, % 1.6% 16.2% 15.2% 631, , ,866 $28.67 Route 28 Corridor South A 57 8,903, % 0.2% 18.6% 19.4% 23, , ,477 $27.34 B 68 4,175, % 1.0% 25.0% 24.4% - -23,526-23,526 $23.48 C 36 1,100, % 8.2% 20.5% 16.7% - -42,618-42,618 $17.48 All es ,180, % 1.1% 20.6% 20.7% 23, , ,333 $25.53 Springfield A 18 2,435, % 8.1% 41.0% 41.3% 39,774 8,312 8,312 $39.25 B 43 1,988, % 0.0% 21.8% 22.4% 12,408 10,395 10,395 $23.16 C 82 2,570, % 0.0% 13.3% 13.2% $20.55 All es 143 6,993, % 2.8% 25.4% 25.6% 52,182 17,852 17,852 $29.43 Tysons Corner A 52 13,726, % 1.0% 15.3% 14.1% 480, , ,378 $37.10 B ,947, % 0.9% 24.2% 22.8% 16, , ,521 $30.13 C 37 2,128, % 0.1% 11.4% 13.1% - 36,101 36,101 $23.92 All es ,803, % 0.9% 19.0% 17.9% 497, , ,798 $31.43 Fairfax County A ,947, % 1.4% 16.4% 15.9% 1,394, , ,475 $31.84 B ,508, % 0.8% 20.9% 20.2% 168, , ,336 $27.17 C ,535, % 0.8% 13.8% 13.3% 10,000-80,071-80,071 $22.25 All es 1, ,990, % 1.1% 17.7% 17.1% 1,572, , ,882 $28.75

8 MARKET REPORT Q NORTHERN MARKET VIRGINIA REPORT OFFICE Q NORTHERN VIRGINIA OFFICE ARLINGTON COUNTY ALEXANDRIA CITY LOUDOUN COUNTY PWC R-B Corridor Bldgs RBA Sublet Vacancy Prior Qtr Leasing Activity SF* Current Qtr SF 2014 Weight Avg Asking Lease A 62 15,598, % 1.2% 21.1% 21.9% 218, , ,205 $43.26 B 43 7,120, % 0.2% 19.9% 20.8% 144,933 67,060 67,060 $39.30 C 29 1,436, % 0.2% 23.7% 22.2% , ,121 $34.08 All es ,155, % 0.9% 20.9% 21.6% 363,621 74,144 74,144 $40.84 Crystal City/Pentagon City A 20 6,165, % 0.6% 29.2% 29.0% 42,792-16,298-16,298 $41.53 B 12 3,453, % 0.3% 26.6% 26.4% 385,266-7,948-7,948 $36.73 C 18 3,835, % 0.0% 14.0% 14.4% - 15,397 15,397 $35.18 All es 50 13,454, % 0.4% 24.2% 24.2% 428,058-8,849-8,849 $39.09 Arlington County A 85 22,295, % 1.0% 23.4% 23.8% 261, , ,569 $42.18 B 58 10,654, % 0.2% 22.2% 22.7% 530,199 59,112 59,112 $38.21 C 61 5,983, % 0.2% 15.5% 15.7% - -87,915-87,915 $34.34 All es ,933, % 0.7% 21.8% 22.3% 791,679 71,766 71,766 $39.86 Bldgs RBA Sublet Vacancy Prior Qtr Leasing Activity SF* Current Qtr SF 2014 Weight Avg Asking Lease Old Town Alexandria A 34 3,515, % 2.8% 17.1% 16.1% 11,805-33,247-33,247 $35.76 B 103 4,222, % 0.5% 8.2% 7.2% 19,700-41,044-41,044 $29.53 C 57 1,233, % 0.1% 6.3% 7.8% - 18,345 18,345 $26.84 All es 194 8,971, % 1.4% 11.4% 10.8% 31,505-55,946-55,946 $32.02 I-395/Eisenhower Ave A 27 7,969, % 2.1% 25.9% 25.7% - -14,378-14,378 $34.20 B 44 4,792, % 0.2% 35.4% 34.1% - -63,379-63,379 $29.32 C 53 1,736, % 0.5% 6.9% 9.0% - 37,040 37,040 $22.61 All es ,498, % 1.3% 26.8% 26.5% - -40,717-40,717 $31.35 Alexandria City A 53 9,152, % 2.8% 21.5% 21.0% 58,674-49,769-49,769 $37.36 B 136 7,504, % 0.4% 17.7% 16.3% 34, , ,531 $28.91 C 85 2,031, % 0.1% 6.7% 9.0% - 47,076 47,076 $24.03 All es ,688, % 1.6% 18.4% 17.8% 93, , ,224 $32.29 Sublet Vacancy Leasing Weight Avg Asking Bldgs RBA Prior Qtr Activity SF* Current Qtr SF 2014 Lease Eastern Loudoun A 57 6,476, % 1.3% 22.5% 22.0% 20,362-30,417-30,417 $25.34 B 132 7,145, % 0.2% 12.2% 12.3% 15,636 35,255 35,255 $20.07 C , % 0.0% 4.5% 6.0% - 9,045 9,045 $24.00 All es ,229, % 0.7% 16.6% 16.5% 35,998 13,883 13,883 $24.20 Loudoun County A 67 7,127, % 1.2% 21.2% 20.9% 20,362-23,912-23,912 $25.36 B 148 7,644, % 0.2% 12.4% 12.5% 15,636 35,037 35,037 $20.12 C 59 1,503, % 0.0% 10.8% 11.3% - 7,666 7,666 $24.18 All es ,275, % 0.6% 16.1% 16.1% 35,998 18,791 18,791 $24.23 Bldgs * Leases over 10,000 square feet. RBA Sublet Vacancy Prior Qtr Leasing Activity SF* Current Qtr SF 2014 Weight Avg Asking Lease Prince William County A 19 1,237, % 1.0% 9.4% 7.1% 17,469-28,739-28,739 $27.48 B 104 3,427, % 0.1% 16.8% 16.8% $20.36 C 109 2,441, % 0.5% 11.1% 11.2% - 3,513 3,513 $18.75 All es 232 7,106, % 0.4% 13.5% 13.2% 17,469-25,083-25,083 $20.97

9 DEFINITIONS OF KEY TERMS FOUND IN THIS REPORT Deliveries: Buildings that complete construction during a specified period of time. In order for space o be considered delivered, a certificate of occupancy must have been issued for the property. Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased. Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in building that are either planned, under construction or under renovation. Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings. Rentable Building Area (RBA): The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant s rental obligation. This report tracks buildings with 10,000 square feet of more of space. Includes competitive space in A, B and C single - and multi-tenanted buildings. Excludes buildings that are owned and operated by the Federal Government Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that me be on the space. Inventory: Includes all existing multi or single tenant leased or owner-occupied office properties greater than or equal to 10,000 square feet (Net rentable area). Does not include government owned buildings. : The net change in occupied space over a given period of time. Unless other wise noted, net Absorption includes direct and sublease space. Weighted Average Asking Rental s: Average rental rates weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial services and utilities. Reports on an annual per square foot basis. 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue 1.7 billion square feet under management Over 15,800 professional FOR MORE INFORMATION, CONTACT: Rob Hartley Director of Research robert.hartley@colliers.com TEL FAX Colliers International Tysons Corner 8045 Leesburg Pike Vienna, VA TEL FAX Accelerating success.