SUBURBAN MARYLAND IN THIS ISSUE OFFICE Q RESEARCH MARKET REPORT. State of the Economy p.2. Leasing Activity p.3. Development Pipeline p.

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1 RESEARCH MARKET REPORT SUBURBAN MARYLAND OFFICE IN THIS ISSUE State of the Economy p.2 Leasing Activity p.3 Development Pipeline p.4 Market Outlook p.5 Market Breakdown p.6

2 Two Massive Deals Highlight Suburban Maryland Third Quarter Andrew Wellman RESEARCH ANALYST SUBURBAN MARYLAND Suburban Maryland captured two of the largest tenants in the DC region in the third quarter of Marriott, after an exhaustive search that centered around the Bethesda market, finally decided to lease 720,000 square feet at 7750 Wisconsin Avenue in the heart of Bethesda. It was rumored that Marriot expanded their search to outside of Maryland, but likely, Bethesda was the one-and-only choice from the start. It was a huge win for Maryland to retain one of the largest private sector tenants in the region. Perhaps an even larger win for Maryland in the third quarter was the decision for the United States Citizenship & Immigration Services to relocate to One Town Center on One Capital Gateway Drive in Prince George s County. They signed for 574,767 square feet and will be moving from several locations in the District, the largest being over 250,000 square feet at 111 Massachusetts Avenue, NW. It is not the first Federal tenant to leave the District and likely not to be the last as the Federal Government attempts to both shrink their footprint and reduce rent costs for all future leases. Economy During the third quarter of 2017, the Suburban Maryland economy grew by 0.78 percent, an annual adjusted rate of 3.18 percent. This was the fourth quarter in a row where gross regional product was greater than three percent. Despite this economic expansion, quite a few office using jobs were lost. The financial and government sectors lead the decline. During the quarter, about 1,860 jobs were lost by government agencies and about 330 were lost by financial institutions. These losses were offset by other sectors of the office-using economy. The professional and business services industries added about 550 jobs, while the companies associated with the media and other service sectors added about 180 jobs. Market Indicators VACANCY CONSTRUCTION Office Market All Classes Class A Class B & C Vacancy Rate 15.6% 16.0% 15.2% Change from (basis points) Absorption New Construction Under Construction Asking Rents Per Square Foot Per Year Summary Statistics 2018 Year-End Projection NET RENTAL , ,081 33,263 16,194-16, , , ,00 Direct Asking Rates $27.15 $28.71 $25.11 Change from $0.00 -$0.01 -$0.08 SUBURBAN MARYLAND MUCH NEEDED TROPHY DEVELOPMENT POISED TO COMMENCE SUPPLY Past Four Quarters: 346K SF Removed 178K SF Delivered 4733 Bethesda Ave: 99K SF Demolished Replacing with 300K SF 7272 Wisconsin Ave: 163K SF Demolished Replacing with 357K SF 2 SUBURBAN MARYLAND OFFICE MARKET REPORT COLLIERS INTERNATIONAL

3 Demand Demand for office space grew during the third quarter, with net absorption registering 148,344 square feet. This is the third quarter of the last four where demand for office space has grown. As in previous quarters, the majority of the positive absorption occurred in Class A space and totaled 115,081 square feet. In contrast, 37,583 square feet of Class B space was returned. Net absorption registered 70,849 square feet in Class C product. Net Absorption 800 Thousands SF Marriott Headquarters Wisconsin Avenue, Bethesda, MD Suburban Maryland Office Market Leasing Activity TENANT ADDRESS LEASE TYPE LEASED SPACE Marriott International 7750 Wisconsin Avenue Preleased/Relocation/ Consolidation 720,000 United States Citizenship & Immigration Services (CIS) One Town Center Preleased/New 574,767 Automatic Data Processing, Inc (ADP) 401 N Washington Street Renewal 23,798 Greenhorne & O'Mara (G&O) 6110 Frost Place Relocation/Expansion 21,633 Whiting Turner Contracting Company 6305 Ivy Lane Renewal/Expansion 21,500 Exiger 8403 Colesville Road Relocation 19,502 Clifton Larson Allen (CLA) 6411 Ivy Lane Relocation 19,149 Liquidity Servies, Inc. (LSI) 6931 Arlington Road Relocation 18,412 Aledade 4550 Montgomery Avenue New 15,475 CACI International, Inc. 174 Waterfront Street Relocation 15,105 SUBURBAN MARYLAND OFFICE MARKET REPORT COLLIERS INTERNATIONAL 3

4 Deliveries Supply Thousands SF Just one building was completed in the third quarter. Located at Darnestown Road in the Outlying Montgomery County West submarket. The 16,194-square-foot building delivered completely vacant. While there are several buildings ready to start construction over the next few quarters, there was just 376,724 square feet under construction at the end of the third quarter. While speculative construction is rare in Suburban Maryland, two projects in Bethesda will to start soon. Additionally, the second phase of Pike and Rose along Rockville Pike, located at 909 Rose Avenue, is expected to break ground early next year. All of these projects are in mixed-used neighborhoods with ample amenities and access to mass transit. Under Construction Thousands SF Vacancy With a strong quarter of demand, vacancy for Suburban Maryland dropped by 23 basis points to end the quarter at 15.6 percent. This is below the three-year average of 16.4 percent and the second lowest it has been since the fourth quarter of Vacancy in the market continues to be stable despite a lack of consistent tenant growth. When the US Citizenship & Immigration Services moves in the next few years, it will be net growth to the market causing vacancy to further decrease. In the meantime, vacancy will likely remain at the current level as new deliveries offset expected demand growth. Even if these high-quality projects are successful, which they likely will be, the tenants that lease space will most likely relocate out of aging product in the market. Without substantial, sustained employment growth, buildings from which tenants relocate will have difficulty backfilling the space Darnestown Road (16,194 SF) - Renovation delivered in Photo courtesy of CoStar Second phase of Pike and Rose along Rockville Pike and located at 909 Rose Avenue is is expected to break ground early next year. 4 SUBURBAN MARYLAND OFFICE MARKET REPORT COLLIERS INTERNATIONAL

5 Rental Rates During the quarter, there was no movement in rental rates. At $27.15 per square feet, the asking rate ended the quarter where it began. All three classes of buildings were stable with the largest change in rents occurning in Class C space where there was just a five cent increase from $22.23 per square foot in the second quarter to $22.28 in the third quarter. Averaging $29.48 per square foot, Montgomery County, with its higher-end office buildings, continued to have the highest rents in Suburban Maryland. Prince George s County has been and will continue to be the lower cost alternative for tenants. It is expected, however, that there will be some high-rent pockets of office product emerging in the county, especially around the new casino in National Harbor. Vacancy Rate % 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% Outlook Direct Asking Rental Rate $28 Maryland s market fundamentals are perhaps the most stable in the region with both the District and Northern Virginia expected to experience volatile vacancy swings in the next few quarters. Positive net absorption coming to Maryland from Federal agencies is a likely outcome over the next few years. One agency has already committed to move out of the District, and it would not be surprising if others followed suit. $/SF $27 $26 $25 SUBURBAN MARYLAND OFFICE MARKET REPORT COLLIERS INTERNATIONAL 5

6 Suburban Maryland Office Market Class A MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW SUPPLY UNDER CONSTRUCTION YTD OVERALL VACANCY DIRECT ASKING MONTGOMERY COUNTY Bethesda 5,508, , , % $41.62 Gaithersburg 2,382, , % $23.65 Germantown 1,314, ,905 63, % $25.79 I-270 North n/a n/a Kensington 165, ,828 3, % $35.82 North Bethesda 7,194, , , % $30.04 North Rockville 8,017, ,365-64, % $28.95 North Silver Spring 1,399, , % $21.50 Outlying Montgomery County East n/a n/a Outlying Montgomery County West 719, % n/a Rockville 4,542, ,246 96, % $32.44 Silver Spring 4,193, ,724 29,432 26, % $30.87 Montgomery County Total 35,436, , , , % $30.66 PRINCE GEORGE S COUNTY Beltsville 767, ,715-93, % $22.01 Bowie 688, , % $28.00 Branch Avenue Corridor n/a n/a College Park 1,847, ,000 6,295-24, % $24.92 Greenbelt 2,166, , , % $22.32 Landover/Largo 957, , % $23.75 Lanham 557, , , % $22.00 Laurel 840, , % $19.35 National Harbor 460, ,494 9, % n/a Outlying PG County South n/a n/a Pennsylvania Avenue Corridor 232, % n/a Upper Marlboro 54, % n/a Prince George's County Total 8,572, ,000 12, , % $22.54 Suburban Maryland Total 44,009, , , , % $28.71 THIRD QUARTER 2017 OVERALL QUICK STATS 15.6% Vacancy Rate 148,344 Absorption 16,194 New Deliveries $27.15 Direct Asking Rate 6 SUBURBAN MARYLAND OFFICE MARKET REPORT COLLIERS INTERNATIONAL

7 Suburban Maryland Office Market Class B & C MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW SUPPLY UNDER CONSTRUCTION YTD OVERALL VACANCY DIRECT ASKING MONTGOMERY COUNTY Bethesda 5,905, , , % $36.82 Gaithersburg 4,240, ,798 95, % $21.35 Germantown 1,818, ,299-16, % $21.52 I-270 North 631, % n/a Kensington 1,457, ,450-15, % $22.90 North Bethesda 3,904, ,791-87, % $27.84 North Rockville 5,229, ,123-96, % $23.18 North Silver Spring 1,862,228-16, ,000-6,265 8, % $24.42 Outlying Montgomery County East 480, ,047-1, % $24.91 Outlying Montgomery County West 89,450 16,194 16,194-20,985 18, % $12.00 Rockville 5,507, ,396 28, % $29.59 Silver Spring 2,717, ,784-30, % $25.08 Montgomery County Total 33,886,625 16,194 33, ,000-60, , % $27.61 PRINCE GEORGE S COUNTY Beltsville 917, ,600 16, % $17.77 Bowie 1,192, ,843 4, % $18.48 Branch Avenue Corridor 1,930, ,887 27, % $13.50 College Park 2,647, ,985 34, % $21.86 Greenbelt 1,470, ,836 93, % $18.64 Landover/Largo 2,260, ,174-90, % $22.22 Lanham 1,512, ,710 34, % $20.50 Laurel 1,825, ,945 34, % $20.07 National Harbor 722, ,284-3, % $28.54 Outlying PG County South 108,909-41, , % n/a Pennsylvania Avenue Corridor 352, ,997 16, % $21.91 Upper Marlboro 142, , % n/a Prince George's County Total 15,040,127-41,584-94, , % $20.90 Suburban Maryland Total 48,926,752 16,194 74, ,000 33,263-45, % $25.11 Class A 47.4% Class B 43.1% 1,410 Office Jobs Lost 0.38 Under Construction (Million Square Feet) Class C 9.5% Inventory by Class SUBURBAN MARYLAND OFFICE MARKET REPORT COLLIERS INTERNATIONAL 7

8 Suburban Maryland Office Market All Classes MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW SUPPLY UNDER CONSTRUCTION YTD OVERALL VACANCY DIRECT ASKING MONTGOMERY COUNTY Bethesda 11,414, , , % $38.37 Gaithersburg 6,622, , , % $22.47 Germantown 3,133, ,606 47, % $24.03 I-270 North 631, % n/a Kensington 1,622, ,622-12, % $25.30 North Bethesda 11,098, ,651 64, % $29.26 North Rockville 13,246, , , % $27.23 North Silver Spring 3,262,156-16, ,000-6,265 15, % $24.27 Outlying Montgomery County East 480, ,047-1, % $24.91 Outlying Montgomery County West 808,532 16,194 16,194-20,985 18, % $12.00 Rockville 10,050, , , % $31.84 Silver Spring 6,910, ,724 47,216-4, % $29.66 Montgomery County Total 69,323,461 16,194 33, ,724 41, , % $29.48 PRINCE GEORGE S COUNTY Beltsville 1,685, ,115-77, % $21.89 Bowie 1,881, ,843 8, % $18.99 Branch Avenue Corridor 1,930, ,887 27, % $13.50 College Park 4,495, ,000 11,280 10, % $22.55 Greenbelt 3,636, , , % $21.20 Landover/Largo 3,218, ,174-75, % $22.30 Lanham 2,069, , , % $20.92 Laurel 2,665, ,945 51, % $19.86 National Harbor 1,183, ,778 5, % $28.54 Outlying PG County South 108,909-41, , % n/a Pennsylvania Avenue Corridor 584, ,997 16, % $21.91 Upper Marlboro 196, , % n/a Prince George's County Total 23,612,765-41,584 75, , , % $21.65 Suburban Maryland Total 92,936,226 16,194 74, , , , % $27.15 FOR MORE INFORMATION David Parker Regional Managing Director david.w.parker@colliers.com Robert Hartley Director of Research robert.hartley@colliers.com Andrew Wellman Research Analyst Suburban Maryland andrew.wellman@colliers.com Copyright 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International 1625 Eye Street, NW Suite 700 Washington, DC colliers.com/washingtondc 8 North American Research & Forecast Report Office Market Outlook Colliers International 8