Suburban Maryland. Quarterly Market Report. 4th Quarter lpcwashingtondc.com

Transcription

1 Suburban Maryland Quarterly Market Report

2 Table of Contents Metropolitan D.C. Market Overview...3 Suburban Maryland Quarterly Overview...5 Suburban Maryland Top Leases... 9 Suburban Maryland Top Sales...10 Maryland Leasing & Market Research Market Spotlight, 4Q 2018: Bethesda-Chevy Chase North Bethesda-Potomac Rockville North Rockville Gaithersburg-Germantown...19 Silver Spring Beltsville-Calverton Greenbelt-College Park Paul Kern Senior Vice President pkern@lpc.com Brent Prossner Vice President bprossner@lpc.com Kyle Bell Vice President kbell@lpc.com Tim Weitzel Associate tweitzel@lpc.com Landover-Largo-Capitol Heights National Harbor-Oxon Hill Columbia South...27 Prince George s County Industrial Baltimore-Washington Corridor Industrial Frederick...30 Frederick Flex Broker Biographies

3 Metropolitan D.C. Market Overview Overall Market Summary The Washington, DC Metropolitan commercial real estate market is comprised of approximately million square feet of rentable office space located in the District of Columbia, Northern Virginia, and Suburban Maryland. The total vacancy rate decreased to 14.0% at the end the fourth quarter 2018, down from 14.4% at the end of the third quarter. The market recorded 725,507 square feet of net absorption in the fourth quarter, representing an 67.0% increase from the previous quarter. Leasing activity for the quarter totaled 7.1 million square feet. The largest lease executed was a renewal by Fannie Mae for 379,000 square feet at American Dream Way in Reston, VA. At the end of the quarter, there was 7,626,007 square feet under construction, with 64% of the space pre-leased. Four buildings, totaling 1,624,960 square feet, broke ground; while five buildings, totaling 675,274 square feet, delivered. The largest addition was 1301 Pennsylvania Avenue. NW delivering 283,550 square feet, 70% pre-leased to Kirkland & Ellis. There were twenty-eight sale transactions in the fourth quarter, totaling $2.60 billion. The largest sale was in the District with 1111 Pennsylvania Avenue, NW trading for $338,000,000 ($1,002 psf). Average asking rental rates increased $0.04 to $37.49 per square foot, Full Service. From November November 2018 the Washington, DC Metropolitan area had a net increase of 54,100 jobs (49,900 private sector, 4,200 government) representing 1.6% growth, while the unemployment rate decreased to 3.0%. DC VA MD Metro Area (YTD) Direct Vacancy (4Q 2018) 10.3% 14.3% 13.1% 13.2% Total Vacancy (4Q 2018) 11.0% 15.0% 13.8% 14.0% Total Net Absorption (YTD 2018) -59,391 1,389, , M SF Leasing Activity (YTD 2018) 9,766,265 13,409,850 3,480, M SF 3

4 Metropolitan D.C. Market Overview Outlook The fourth quarter capped a strong end to 2018 for the Metropolitan Washington, DC market. Market fundamentals continued to improve throughout the year with total vacancy decreasing to 14.0% (down from 15.0% YE 2017) and total leasing activity experienced a 1.9% uptick with 26.7 million square feet leased (26.2 M sf leased in 2017). Investment sales increased 4.0% in 2018 with $7.62 billion in transactions. While the region absorbed 1.9 million square feet (1.4 M sf in Northern Virginia alone), net absorption for the market overall was down 24% compared to the previous year. Regional employment experienced 1.6% of growth YOY, while the DC Metro area s unemployment rate decreased to 3.0% (the national average is 3.9%). The DC Metro remained tied in 15th place in national ranking for unemployment in metro areas with populations over 1 million. Looking ahead to 2019, the news that Crystal City was awarded half of Amazon s coveted HQ2 requirement will have significant impacts on Northern Virgina. A substantial boon to employment, leasing, real estate development, infrastructure, and higher education is expected to occur in Arlington and Alexandria. Concerning Government leasing, the GSA will continue reducing the federal real estate footprint and begin to execute longer lease terms (15-20 year terms) while minimizing/eliminating short-term extensions to reduce costs. Proximity to Amazon and the new Metro stations for Phase II of the Silver Line in Virginia and the Purple Line in Maryland should continue to be a catalyst for demand (leasing and sales). 4

5 Suburban Maryland Market Summary The Suburban Maryland office market, which encompasses Montgomery and Prince George s Counties, totals approximately 88.1 million square feet of rentable space in 884 office buildings of 25,000 square feet and greater. The market recorded an increase in net absorption in the fourth quarter of 2018 with 420,821 square feet absorbed, up from the -150,753 square feet absorbed in the previous quarter. Direct Vacancy Total Vacancy YTD Q Q Q % 13.1% 13.5% 14.2% 13.8% 13.8% 14.2% 14.9% Direct vacancy decreased to 13.1% in the fourth quarter 2018, down from 13.5% and total vacancy decreased to 13.8%, down from 14.2% There were four sales transactions in Suburban Maryland this quarter, totaling $225,500,000. The largest sale of the quarter was Station Square, in the Silver Spring submarket. Station Square comprises of 1010 Wayne Avenue, 1100 Wayne Avenue, and 8484 Georgia Avenue. The portfolio sold to Bridge Investment Group out of Utah for $107,000,000. The price-per-square-foot was $ The largest lease signed this quarter was RegenXBio signing a 132,487-square-foot prelease at 9800 Medical Center Drive - Building F in the North Rockville submarket. The year-over-year unemployment rate in Suburban Maryland decreased to 3.0% in November 2018, down from 3.5% in November From November 2017 to November 2018 employment in Suburban Maryland had a net increase of 32,849 new jobs, representing 1.0% growth. Sectors with the greatest amount of job growth were Professional & Business Services with 15,800 jobs, Mining, Logging & Construction with 9,300 and Leisure and Hospitality with 8,800 jobs. The Government increased by 4,200 jobs yearover-year. Net Absorption (SF) 568, , ,753 31,359 Leasing Activity (SF) 3.5 M 1.0 M 1.0 M 1.0 M Under Construction (SF) 2.0 M 2.0 M 2.1 M 1.0 M Deliveries (SF) 291, , Rental Rates (, FS) U/C Percent Pre-Leased $27.10 $27.10 $27.29 $ % 73% 84% 43% 5

6 Suburban Maryland Vacancy Rate The direct vacancy rate decreased to 13.1% in the fourth quarter, down from 13.5%, totaling approximately 11.6 million square feet. Total vacancy decreased to 13.8%, down from 14.2%, totaling approximately 12.2 million square feet. The sublease vacancy rate decreased to 0.6% at the end of the fourth quarter, representing 587,367 square feet of vacant space. The Class A total vacancy rate decreased to 15.0% in the fourth quarter, down from 15.5%, totaling approximately 6.8 million square feet. The Class B total vacancy rate decreased to 13.0% in the fourth quarter, down from 13.3%, totaling approximately 4.8 million square feet % A Class Vacancy Rates 13.0% B 9.4% C (%) of Building Class Vacant Construction At the end of the fourth quarter 2018, there were six buildings under construction, totaling 1,998,449 sf Garden City Drive (Class A, 176,000 sf, 100% pre-leased) is set to deliver in January Bethesda Avenue (Class A, 288,000 sf, 77% pre-leased) is set to deliver in August Deliveries vs. 909 Rose Avenue (Class A, 212,000 sf, 0% pre-leased) is set to deliver in February Medical Center - Building F (Class A, 175,840 sf, 75% pre-leased) is set to deliver in June Wisconsin Avenue (Class A, 361,609 sf, 42% pre-leased) is set to deliver in November The Marriott Headquarters at 7750 Wisconsin Avenue (Class A, 785,000 sf, 100% pre-leased) is now under construction and is scheduled to deliver in January '09 '10 '11 Deliveries '12 '13 '15 '16 '17 '18 Three buildings delivered during the fourth quarter, totaling 291,724 sf. 251 National Harbor Boulevard, now known as 201 Potomac Passage (Class A, 95,000 sf, 60% pre-leased), 1000 Spring Street (Class A, 121,724 sf, 100% pre-leased), and 5801 University Research Court (Class A, 75,000 sf, 100% pre-leased) all delivered in December

7 Suburban Maryland Absorption & Gross Leasing The Suburban Maryland market recorded 420,821 square feet of net absorption in the fourth quarter 2018, an increase from the -150,753 square feet absorbed in the third quarter. This brings the total 2018 YTD net absoprtion in the Suburban Maryland market to 568,496 square feet. Eight of the Top Ten leases signed this quarter were in Montgomery County and ranged between 132,487 and 14,766 square feet. All of the leases in the Top Ten this quarter were private sector transactions. In the fourth quarter, total leasing activity totaled 1,007,734 square feet, a 2.9% decrease from the 1,038,815 square feet leased in the third quarter. The total average asking rental rate was $27.10 Full Service in the fourth quarter, down $0.19 from the previous quarter. The Class A asking rental rate was $29.68 Full Service, a $0.04 increase from the previous quarter. Montgomery County YTD Q Q Q 2017 Inventory (SF) 65.6 M 65.6 M 65.5 M 65.5 M Direct Vacancy 12.0% 12.0% 12.4% 13.0% Total Vacancy 12.8% 12.8% 13.2% 13.7% Net Absorption (SF) 590, ,109-46,057 18,514 Leasing Activity (SF) 2.9 M 883, , ,311 (SF) 1.6 M 1.6 M 1.7 M 771,333 Deliveries (SF) 121, , Rental Rates (, FS) Prince George s County $28.90 $28.90 $29.09 $28.66 YTD Q Q Q 2017 Inventory (SF) 22.7 M 22.7 M 22.4 M 22.4 M Direct Vacancy 16.5% 16.5% 16.8% 16.1% Total Vacancy 16.7% 16.7% 17.0% 16.2% Net Absorption (SF) -21,583 65, ,696 60,766 Leasing Activity (SF) 709, , , ,773 (SF) 351, , , ,000 Deliveries (SF) 170, , Rental Rates (, FS) $21.90 $21.90 $22.12 $

8 Suburban Maryland Market Outlook The office market in Montgomery County and Prince George s County finished 2018 on a fairly strong note. Montgomery County absorbed about 600,000 square feet with North Bethesda and Silver Spring showing the strongest gains. Prince George s County net absorption was essentially flat for the year, but this reverses negative trends. These trends should continue into In Montgomery County, the biotech industry remains strong (less than 4% vacancy) with several office buildings in North Rockville Germantown converting to lab space and a couple of build-to-suits announced. North Bethesda, particularly Executive Boulevard due to proximity to Pike & Rose, will continue to be hot and attract office tenants from Bethesda as companies are frustrated with rising rental rates, congestion, and tight parking in this submarket. The industrial market in Prince George s County and the Baltimore/Washington Corridor remains solid with vacancy hovering around 10%, rental rates trending up and absorption of over 1,000,000 square feet in There is limited new construction and several tenants in the market, so these trends should continue in the warehouse/distribution sector. Please contact Paul (Rocky) Kern, Managing Director, at pkern@lpc.com with any questions or comments. 8

9 Suburban Maryland Top Ten Leases In the fourth quarter 2018, nine of the Top Ten leases were in Montgomery County and one was in Prince George s County. All of the leases in the Top Ten this quarter were private sector transactions. The largest lease executed in Montgomery County was a pre-lease totaling 132,487 square feet signed by RegenXBio at 9800 Medical Center Drive in the North Rockville submarket. There were two substantial renewals where the transactions served as a downsizing effort. BAE renewed 90,040 square feet at 520 Gaither Road, giving back approximately 49,000 square feet and IBM renewed 42,462 square feet at 6710 Rockledge Drive, giving back approximately 16,250 square feet. In Prince George s County, Cybrary signed the largest deal of the quarter, pre-leasing 25,000 square feet at 4600 River Road in the College Park submarket. In the meantime, Cybray signed a 10,996-square-foot short-term lease at 5801 University Research Court. The Suburban Maryland market totaled 1,007,734 square feet of leasing activity in the fourth quarter 2018, a slight decrease from the 1,038,815 square feet leased in the third quarter Medical Center Dr - Building F RegenXBio 1801 Research Blvd Marriott Employee s Federal Credit Union 132,487 SF 18,487 SF Pre-lease New 520 Gaither Rd BAE Systems 90,040 Renewal / Downsize 7700 Old Georgetown Rd Stay N Touch 16,00 Sublease 6710 Rockledge Dr - A 540 Gaither Rd IBM Redfin 42,462 SF 14,792 SF Renewal / Downsize New 4550 Montgomery Ave 2101 Gaither Rd Gelman, Rosenberg & Freedman 31,292 SF Renewal / Expansion Johnson Controls 14,766 SF New 4600 River Rd 111 Rockville Pike Cybrary 25,00 Pre-lease Whiteford, Taylor & Preston 13,013 SF New 9

10 Suburban Maryland Suburban Maryland Sales 5625 Fishers Ln Submarket Rockville Date Sold November 2018 Price Buyer Seller RBA Class $69,831,009 ($ ) GI Partners JBG / Wealth Capital Management 153,385 SF B Occupancy 100% Comments Part of portfolio sale including Twinbrook Pky Twinbrook Pky Submarket Rockville Date Sold November 2018 Price Buyer Seller RBA Class $31,168,991 ($ ) GI Partners JBG / Wealth Capital Management 76,52 B Occupancy 100% Comments Part of portfolio sale including 5625 Fishers Ln 4424 Montgomery Ave Submarket Bethesda / Chevy Chase Date Sold December 2018 Price Buyer Seller RBA Class $17,500,000 ($1, ) Promark Partners Huguely Companies 11,634 SF C Occupancy 100% Comments Acquired for redevelopment purpose Station Square (1100 Wayne Ave, 1010 Wayne Ave, 8484 Georgia Ave) Submarket Silver Spring Date Sold December 2018 Price Buyer Seller RBA Class Occupancy 81% $107,000,000 ($ ) Bridge Investment Group Brandywine Realty Trust 510,20 A Comments 7.9% Cap Rate 10

11 Bethesda-Chevy Chase Vacancy Rate (%) '09 '10 Highlights '11 '12 The direct vacancy rate decreased to 9.9% in the fourth quarter 2018, down from 10.3% in the third quarter. Total vacancy decreased in the fourth quarter to 11.7%, down from 12.0% in the third quarter. Class A total vacancy increased to 10.9% in the fourth quarter, up from 10.3% in the third quarter, while the asking rental rate average decreased to $42.06 Full Service in the fourth quarter, down $0.20 from the previous quarter. Total net absorption was -34,576 square feet in the fourth quarter, down from the -41,601 square feet absorbed in the third quarter Contributing to the negative net absoprtion was Enig Associates vacating 3,216 square feet at 4600 East-West Highway. Total leasing activity decreased in the fourth quarter to 132,834 square feet, down from 262,062 square feet leased in the previous quarter. A contributing tenant was Gelman, Rosenberg & Freedman renewing and expanding into 31,292 square feet at 4550 Montgomery Avenue. There are currently three buildings under construction in the Bethesda/Chevy Chase submarket: 4747 Bethesda Avenue, a 288,000- square-foot, Class A building, 7272 Wisconsin Avenue, a 361,609-square-foot, Class A building and 7750 Wisconsin Avenue, Marriott s 785,000-square-foot headquarters. '13 Deliveries Total Net Absorption '15 '16 '17 ' Year Averages ( ) Total Absorption Deliveries (SF) Leasing Activity Market Stats Inventory '09 '10 33,452 SF / Year 58,55 / Year 867,443 SF / Year 11.0 M SF Direct Vacancy 9.9 % Total Vacancy 11.7 % 4Q 2018 Absorption YTD 2018 Absorption -34,576 SF -196,081 SF 1.4 M SF Percent Pre-Leased 81.0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) '11 '12 Direct Vacancy Rate ' : $36.69 '15 ' : $36.73 '17 '18 Total Vacancy Rate YTD 2018: $37.79

12 Bethesda-Chevy Chase Major Leases 4550 Montgomery Ave Gelman, Rosenberg & Freedman 31,292 SF Renewal / Expansion 7550 Wisconsin Ave Suntrust 11,109 SF New 4550 Montgomery Ave Cystic Fibrosis Foundation 5,62 Expansion Sales Property Submarket Date Sold Price Buyer Seller Class Occupancy Cap Rate 4424 Montgomery Ave Bethesda/ Chevy Chase 12/2018 $17.5 M Huguely Companies Promark Partners C 100% N/A Property Submarket Building Available Pre-leased Delivery Date Developer Major s 7272 Wisconsin Ave Bethesda/ Chevy Chase 361,609 SF 211,323 SF 42% 11/2020 Carr Properties Fox 5; Enviva Partners 4747 Bethesda Ave Bethesda/ Chevy Chase 288,00 65,231 SF 77% 8/2019 JBG Smith Booz Allen; Host Hotels & Resorts; JBG Smith; Orano Marriott Headquarters 7750 Wisconsin Ave Bethesda/ Chevy Chase 785,00 100% 1/2022 Bernstein Co. / Boston Properties Marriott International 12

13 North Bethesda-Potomac Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate decreased to 17.7% in the fourth quarter 2018, down from 17.8% in the third quarter Total vacancy decreased to 18.3% in the fourth quarter, down from 18.4% in the previous quarter. Class A total vacancy increased to 19.0% in the fourth quarter, up from 18.8% in the third quarter, while the average asking rental rate increased to $30.46 Full Service in the fourth quarter, up $0.08 from the previous quarter. Total net absorption was 13,128 square feet in the fourth quarter, up from the -4,270 square feet absorbed in the third quarter. Contributing to the positive net absorption was The Wilmer Eye Institute moving into 15,327 square feet at 6430 Rockledge Drive. Total leasing activity increased in the fourth quarter to 86,818 square feet, up from 59,204 square feet leased in the previous quarter. A contributing tenant was IBM renewing and downsizing to 42,462 square feet at 6710 Rockledge Drive. 10 Year Averages ( ) Total Absorption -40,337 SF / Year Deliveries (SF) 76,794 SF / Year Leasing Activity 775,065 SF / Year Market Stats Inventory 10.7 M SF Direct Vacancy 17.7 % Total Vacancy 18.3 % 4Q 2018 Absorption 13,128 SF YTD 2018 Absorption 247,743 SF 212,00 Percent Pre-Leased 0 % YTD 2018 Deliveries One building is now under construction in the North Bethesda submarket. 909 Rose Avenue (Class A, 212,000 sf, 0% pre-leased) is set to deliver in February Asking Rental Rates (Full Service) 2008: $ : $28.59 YTD 2018: $

14 North Bethesda-Potomac Major Leases 6710 Rockledge Dr 6707 Democracy Blvd IBM 42,462 SF Renewal / Downsize Centers for Advanced Orthopedics 6,00 New 6130 Executive Blvd Rockville Pike Cloudbolt Software OSIBeyond 11,188 SF 4,396 SF Sublease New Sales Property Submarket Date Sold Price Buyer Seller Class Occupancy Cap Rate No sales this quarter North Bethesda - Potomac N/A N/A N/A N/A N/A N/A N/A Property Submarket Building Available Pre-leased Delivery Date Developer Major s 909 Rose Ave North Bethesda - Potomac 212, ,000 0% 2/2020 Federal Realty N/A 14

15 Rockville Vacancy Rate (%) '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 3 0 '10 '11 '12 '13 '15 '16 '17 '18 Direct Vacancy Rate Total Vacancy Rate Highlights The direct vacancy rate increased to 11.8% in the fourth quarter, up from 11.5% in the third quarter The total vacancy rate increased to 12.1%, up from 11.7% in the third quarter. Class A total vacancy decreased to 18.6% in the fourth quarter, down from 19.7% in the third quarter, while the asking rental rate average decreased to $32.19 Full Service in fourth quarter, down $0.67 from the previous quarter. Total net absorption was 31,480 square feet in the fourth quarter, up from -142,389 square feet absorbed in the third quarter. Contributing to the positive net absorption was Bronfman Rothschild moving into 14,601 square feet at Park Potomac Avenue. Total leasing activity decreased in the fourth quarter to 65,827 square feet, down from the 124,596 square feet leased in the previous quarter. Contributing tenants included Whiteford, Taylor & Preston signing a 13,013-square-foot lease at 111 Rockville Pike. 10 Year Averages ( ) Total Absorption 136,588 SF / Year Deliveries (SF) 179,037 SF / Year Leasing Activity 745,521 SF / Year Market Stats Inventory 9.7 M SF Direct Vacancy 11.8 % Total Vacancy 12.1 % 4Q 2018 Absorption 31,48 YTD 2018 Absorption -76,316 SF Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2008: $ : $31.06 YTD 2018: $

16 Rockville Major Leases 111 Rockville Pike Whiteford, Taylor and Preston 13,013 SF New 2600 Tower Oaks Blvd U.S. Acute Care Solutions 4,367 SF New Park Potomac Ave Coldwell Banker 6,113 SF New Sales Property Submarket Date Sold Price Buyer Seller Class Occupancy Cap Rate 5625 Fishers Ln Rockville 11/2018 $69,831,009 ($ ) GI Partners JBG / Wealth Capital Management B 100% N/A Twinbrook Pky Rockville 11/2018 $31,168,991 ($ ) GI Partners JBG / Wealth Capital Management B 100 N/A Property Submarket Building Available Pre-leased Delivery Date Developer Major s No new construction during this quarter Rockville N/A N/A N/A N/A N/A N/A 16

17 North Rockville Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate increased to 14.6% in the fourth quarter 2018, up from 14.4% in the third quarter. Total vacancy increased to 16.2% in the fourth quarter 2018, up from 16.1% in the previous quarter. Class A total vacancy increased to 17.0% in the fourth quarter, up from 15.4% in the third quarter, while the asking rental rate average increased to $29.18 Full Service in fourth quarter, up $0.56 from the previous quarter. Total net absorption was 52,763 square feet in the fourth quarter, down from the 69,889 square feet absorbed in the third quarter. Contributing to the positive net absorption was Capital Bank moving into their 22,473-squarefoot sublease at 2275 Research Boulevard. Total leasing activity increased in the fourth quarter to 357,557 square feet, up from 115,851 square feet leased in the previous quarter. Contributing tenants included RegenXBio signing a 132,487-square-foot pre-lease at 9800 Medical Center Drive - Building F and BAE Systems renewing 90,040 square feet at 520 Gaither Road. 10 Year Averages ( ) Total Absorption 50,116 SF / Year Deliveries (SF) 134,977 SF / Year Leasing Activity 972,594 SF / Year Market Stats Inventory 13.2 M SF Direct Vacancy 14.6 % Total Vacancy 16.2 % 4Q 2018 Absorption 52,763 SF YTD 2018 Absorption 200,353 SF 175,84 Percent Pre-Leased 75 % YTD 2018 Deliveries One building is now under construction in the North Rockville submarket Medical Center Drive- Building F (Class A, 175,840 sf, 75% pre-leased) is set to deliver in June Asking Rental Rates (Full Service) 2008: $ : $26.02 YTD 2018: $

18 North Rockville Major Leases 9800 Medical Center Dr - Building F RegenXBio 1801 Research Blvd Marriott Employee s Federal Credit Union 132,487 SF 18,487 SF Pre-lease New 520 Gaither Rd 540 Gaither Rd BAE Systems Redfin 90,04 14,972 SF Renewal / Downsize New Sales Property Submarket Date Sold Price Buyer Seller Class Occupancy Cap Rate No sales this quarter N. Rockville N/A N/A N/A N/A N/A N/A N/A Property Submarket Building Available Pre-leased Delivery Date Developer Major s 9800 Medical Center Dr Building F N. Rockville 175,84 43,353 SF 75% 6/2020 Alexandria Real Estate Equities RegenXBio 18

19 Gaithersburg-Germantown Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate increased to 10.0% in the fourth quarter 2018, up from 9.3% in the third quarter. Total vacancy also increased to 10.1% in the fourth quarter, up from 9.3% in the third quarter. Class A total vacancy increased to 10.7% in the fourth quarter, up from 10.4% in the third quarter, while the asking rental rate average decreased to $25.31 Full Service in fourth quarter, down $0.29 from the previous quarter. Total net absorption was -66,885 square feet in the fourth quarter, up from the 22,858 square feet absorbed in the third quarter. Contributing to the negative net absorption was Pctel Rf Solutions vacating 20,704 square feet at Observation Drive. Total leasing activity increased in the fourth quarter to 41,510 square feet, up from 18,443 square feet leased in the previous quarter. Contributing tenants included The Management Group Associates renewing a 11,302-square-foot lease at Century Boulevard and Black & Veatch renewing a 5,040-square-foot lease at Montgomery Village Avenue. 10 Year Averages ( ) Total Absorption Deliveries (SF) Leasing Activity Market Stats Inventory 62,022 SF / Year 39,892 SF / Year 398,348 SF / Year 9.0M SF Direct Vacancy 10.0 % Total Vacancy 10.1 % 4Q 2018 Absorption YTD 2018 Absorption -66,885 SF -67,43 Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2008: $ : $23.63 YTD 2018: $

20 Gaithersburg-Germantown Major Leases Century Blvd The Management Group Associates Montgomery Village Ave Black & Veatch 11,302 SF 5,04 Renewal Renewal Sales Property Submarket Date Sold Price Buyer Seller Class Occupancy Cap Rate No sales this quarter Gaithersburg - Germantown N/A N/A N/A N/A N/A N/A N/A Property Submarket Building Available Pre-leased Delivery Date Developer Major s No new construction during the quarter Gaithersburg - Germantown N/A N/A N/A N/A N/A N/A 20

21 Silver Spring Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 0 '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption Direct Vacancy Rate Total Vacancy Rate Highlights The direct vacancy rate decreased to 8.0% in the fourth quarter, down from 8.9% in the third quarter Total vacancy decreased to 8.2% in the fourth quarter, down from 9.1% in the third quarter. Class A total vacancy decreased to 8.7% in the fourth quarter, down from 10.0% in the previous quarter. The Class A asking rental rate average increased to $31.37 Full Service in fourth quarter, up $0.16 from the previous quarter. Total net absorption was 155,657 square feet in the fourth quarter, up from 50,759 square feet absorbed in the third quarter. Contributing to the positive net absorption was United Therapeutics moving into their building at 1000 Spring Street. 10 Year Averages ( ) Total Absorption -30,812 SF / Year Deliveries (SF) 5,00 / Year Leasing Activity 432,949 SF / Year Market Stats Inventory 6.4 M SF Direct Vacancy 8.0 % Total Vacancy 8.2 % Total leasing activity decreased in the fourth quarter to 58,312 square feet, down from 113,050 square feet leased in the previous quarter. A contributing tenant was Pfizer signing 6,156-square-foot lease at 8455 Colesville Road. 4Q 2018 Absorption YTD 2018 Absorption 155,657 SF 234,677 SF One building delivered this quarter in Silver Spring Spring Street (Class A, 121,724 sf, 100% pre-leased) delivered in December. Percent Pre-Leased 0 % YTD 2018 Deliveries 121,724 SF Asking Rental Rates (Full Service) 2008: $ : $29.33 YTD 2018: $

22 Silver Spring Major Leases 8455 Colesville Rd Pfizer 6,156 SF New Sales Property Submarket Date Sold Price Buyer Seller Class Occupancy Cap Rate Station Square (1100 Wayne Ave, 1010 Wayne Ave, and 8484 Georgia Ave) Silver Spring 12/2018 $107 M ($ ) Bridge Investment Group Brandywine Realty Trust A 81% N/A Property Submarket Building Available Pre-leased Delivery Date Developer Major s No new construction during the quarter Silver Spring N/A N/A N/A N/A N/A N/A 22

23 Beltsville-Calverton Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 5 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate increased to 30.3% in the fourth quarter 2018, up from 27.9% in the third quarter. The total vacancy rate increased to 30.6% in the fourth quarter, up from 27.9% in the third quarter. Class A total vacancy increased to 43.5% in the fourth quarter, up from 41.9% in the third quarter, while the asking rental rate average increased to $22.23 Full Service in fourth quarter, up $0.04 from the previous quarter. Total net absorption was -36,878 square feet in the fourth quarter, down from -6,960 square feet absorbed in the third quarter. Contributing to the negative net absoprtion was TESST College of Technology vacating 40,000 square feet at 4600 Powder Mill Road. Total leasing activity increased in the fourth quarter to 21,525 square feet, up from 8,403 square feet leased in the previous quarter. 10 Year Averages ( ) Total Absorption -34,511 SF / Year Deliveries (SF) / Year Leasing Activity 98,052 SF / Year Market Stats Inventory 1.6 M SF Direct Vacancy 30.3 % Total Vacancy 30.6 % 4Q 2018 Absorption -36,878 SF YTD 2018 Absorption -35,324 SF Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2008: $ : $21.43 YTD 2018: $

24 Greenbelt-College Park Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 4 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate remained flat at 19.6% in the fourth quarter The total vacancy rate also remained flat, but at 19.8% in the fourth quarter. Class A total vacancy decreased to 18.4% in the fourth quarter, down from 19.1% in the previous quarter. The Class A asking rental rate average decreased to $22.90 Full Service in fourth quarter, down $0.73 from the previous quarter. Total net absorption was 58,974 square feet in the fourth quarter, up from 5,349 square feet absorbed in the third quarter. Contributing to the positive net absoprtion was the State of Maryland moving into 62,623 square feet at 5801 University Research Court. Total leasing activity decreased in the fourth quarter to 53,911 square feet, down from 155,437 square feet leased in the previous quarter. A contributing tenant was Cybrary signing a 25,000-square-foot pre-lease at 4600 River Road. One building delivered this quarter in College Park University Research Court (Class A, 75,000 sf, 100% pre-leased) delivered in December. 10 Year Averages ( ) Total Absorption Deliveries (SF) Leasing Activity Market Stats Inventory 33,677 SF / Year 66,092 SF / Year 449,587 SF / Year 7.4 M SF Direct Vacancy 19.6 % Total Vacancy 19.8 % 4Q 2018 Absorption YTD 2018 Absorption 58,974 SF 54,867 SF Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2008: $ : $ ,00 YTD 2018: $

25 Landover-Largo-Capitol Heights Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 4 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct and total vacancy rates both decreased to 16.7% in the fourth quarter 2018, down from 19.4% and 19.7% in the third quarter, respectively. Class A total vacancy decreased to 19.7% in the fourth quarter, down from 20.2% in the previous quarter. The Class A asking rental rate average decreased to $25.51 Full Service in the fourth quarter, down $0.44 from the previous quarter. Total net absorption was -11,588 square feet in the fourth quarter, up from -18,961 square feet absorbed in the third quarter. Total leasing activity decreased in the fourth quarter to 14,516 square feet, down from 83,773 square feet leased in the previous quarter. Contributing tenants included Terminix renewing a 8,649-square-foot lease at 9475 Lottsford Road and Vysnova Partners signing a 1,940-square-foot lease at 8400 Corporate Drive. 10 Year Averages ( ) Total Absorption 10,126 SF / Year Deliveries (SF) 2,50 / Year Leasing Activity 191,668 SF / Year Market Stats Inventory 3.2 M SF Direct Vacancy 16.7 % Total Vacancy 16.7 % 4Q 2018 Absorption -11,588 SF YTD 2018 Absorption -77,161 SF Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2008: $ : $22.65 YTD 2018: $

26 National Harbor-Oxon Hill Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 0 '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption Direct Vacancy Rate Total Vacancy Rate Highlights The direct vacancy rate increased to 21.5% in the fourth quarter 2018, up from 17.6% in the third quarter. The total vacancy rate increased to 21.6%, up from 19.5% in the previous quarter. Class A total vacancy increased to 21.3% in the fourth quarter, up from 18.6% in the third quarter, while the asking rental rate average increased to $33.07 Full Service in fourth quarter, up $0.15 from the previous quarter. Total net absorption was -19,158 square feet in the fourth quarter, down from -13,179 square feet absorbed in the third quarter. Contributing to the negative net absorption was the Department of Education vacating 13,504 square feet at 6710 Oxon Hill Road. Total leasing activity decreased in the fourth quarter to 1,181 square feet, down from 8,801 square feet leased in the previous quarter. A contributing tenant was Team Taylor Unlimited signing a 1,181-square-foot lease at Indian Head Highway. One building delivered in the fourth quarter. 251 National Harbor Boulevard, now known as 201 Potomac Passage (Class A, 95,000 sf, 60% pre-leased) delivered in December. 10 Year Averages ( ) Total Absorption Deliveries (SF) Leasing Activity Market Stats Inventory 18,364 SF / Year 21,209 SF / Year 59,652 SF / Year 1.1 M SF Direct Vacancy 21.5 % Total Vacancy 21.6 % 4Q 2018 Absorption YTD 2018 Absorption -19,158 SF -43,041 SF Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2007: $ : $ ,00 YTD 2018: $

27 Columbia South Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate increased to 9.9% in the fourth quarter 2018, up from 8.5% in the third quarter. Total vacancy increased to 10.1% in the fourth quarter, up from 8.7% in the third quarter. Class A total vacancy increased to 11.2% in the fourth quarter, up from 8.8% in the third quarter. Class A asking rental rate average decreased to $27.38 Full Service in the fourth quarter, down $0.98 from the previous quarter. Total net absorption was -29,567 square feet in the fourth quarter, down from the -62,843 square feet absorbed in the third quarter. Contributing to the negative net absorption was The Aerospace Corporation vacating 13,777 square feet at 6940 Columbia Gateway Drive. 10 Year Averages ( ) Total Absorption 225,096 SF / Year Deliveries (SF) 209,152 SF / Year Leasing Activity 776,806 SF / Year Market Stats Inventory 9.5 M SF Direct Vacancy 9.9 % Total Vacancy 10.1 % 4Q 2018 Absorption -29,567 SF Total leasing activity increased in the fourth quarter to 156,668 square feet, up from 68,880 square feet leased in the previous quarter. YTD 2018 Absorption -94,58 Two buildings delivered in the fourth quarter W. Market Place (Class A, 29,700 sf, 0% pre-leased) delivered in November and 8120 Maple Lawn Boulevard (Class A, 105,556 sf, 0% pre-leased) delivered in December. Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Full Service) 2008: $ : $ ,256 SF YTD 2018: $

28 Prince George s County Industrial Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 3 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate decreased to 10.2% in the fourth quarter 2018, down from 10.8% in the third quarter. Total vacancy decreased to 10.7% in the fourth quarter, down from 11.2% in the third quarter. Total net absorption was 111,454 square feet in the fourth quarter, down from 224,213 square feet absorbed in the third quarter. Contributing to the positive net absorption was Shepard Electric Company moving into 101,821 square feet at Mid Atlantic Boulevard. Total leasing activity decreased in the fourth quarter to 89,983 square feet, down from 337,413 square feet leased in the previous quarter. A contributing tenant included Restoration Hardware signing a 43,200-square-foot lease at 1200 Claybrick Road in the Landover submarket. There is currently one building under construction in Prince George s County Alaking Court (now 20,000 sf, 100% preleased) downsized and is scheduled to deliver in February Frito-Lay will be the sole tenant. 10 Year Averages ( ) Total Absorption Deliveries (SF) Leasing Activity Market Stats Inventory 264,917 SF / Year 334,198 SF / Year 1.2M SF / Year 21.2 M SF Direct Vacancy 10.2 % Total Vacancy 10.7 % 4Q 2018 Absorption YTD 2018 Absorption 111,454 SF 326,961 SF 20,00 Percent Pre-Leased 100 % YTD 2018 Deliveries Asking Rental Rates (Triple Net) 2008: $ : $ ,033 SF YTD 2018: $

29 Baltimore-Washington Corridor Industrial Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 0 '09 '10 '11 '12 '13 '15 '16 '17 '18 Direct Vacancy Rate Total Vacancy Rate Highlights The direct vacancy rate decreased to 10.3% in the fourth quarter 2018, down from 10.8% in the third quarter. The total vacancy rate decreased to 11.2%, down from 11.6% in the third quarter. Total net absorption was 369,710 square feet in the fourth quarter, up from the 331,755 square feet absorbed in the third quarter. Total leasing activity decreased in the fourth quarter to 946,077 square feet, down from 1,278,643 square feet leased in the previous quarter. A contributing tenant included American Sugar Refining signing a 305,769-square-foot lease at 7600 Assateague Drive. There is currently one building under construction Solley Road (340,000 sf, 0% pre-leased) is set to deliver July Four buildings delivered this quarter Dorsey Run Road (93,500 sf, 0% pre-leased) delivered in August Dorsey Run Road (126,000 sf, 0% pre-leased) delivered in August Perryman Court (500,400 sf, now 100% leased by Best Buy) also delivered in August Ridge Road (220,000 sf, 100% pre-leased) delivered in October nd Street (94,130 sf, 0% pre-leased) delivered in December. 10 Year Averages ( ) Total Absorption Deliveries (SF) Leasing Activity Market Stats Inventory 5419,76 / Year 510,182 SF / Year 4.1 M SF / Year 52.1 M SF Direct Vacancy 10.3 % Total Vacancy 11.2 % 4Q 2018 Absorption YTD 2018 Absorption 369,71 682,058 SF 340,00 Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Triple Net) 2008: $ : $5.15 1,174,43 YTD 2018: $

30 Frederick Office Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 4 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate remained flat at 18.4% in the fourth quarter Total vacancy increased to 19.1% in the fourth quarter, up from 19.0% in the third quarter. Total net absorption was -6,958 square feet in the fourth quarter, down from -97,413 square feet absorbed in the third quarter. Total leasing activity decreased in the fourth quarter to 72,399 square feet, down from the 77,168 square feet leased in the previous quarter. Contributing tenants included Maximus renewing a 25,907-square-foot lease at 5202 Presidents Court. 10 Year Averages ( ) Total Absorption 46,873 SF / Year Deliveries (SF) 56,631 SF / Year Leasing Activity 267,133 SF / Year Market Stats Inventory 4.4 M SF Direct Vacancy 18.4 % Total Vacancy 19.1 % 4Q 2018 Absorption -6,958 SF YTD 2018 Absorption -343,904 SF Percent Pre-Leased 0% YTD 2018 Deliveries 47,727 SF Asking Rental Rates (Full Service) 2008: $ : $20.08 YTD 2018: $

31 Frederick Flex Vacancy Rate (%) '09 '10 '11 '12 '13 '15 '16 '17 '18 Deliveries Total Net Absorption 4 0 '09 '10 '11 '12 '13 Direct Vacancy Rate '15 '16 '17 '18 Total Vacancy Rate Highlights The direct vacancy rate decreased to 7.9% in the fourth quarter 2018, down from 8.3% in the third quarter. Total vacancy remained flat at 8.4% in the fourth quarter. Total net absorption was 1,972 square feet in the fourth quarter, down from 6,429 square feet absorbed in the third quarter. Total leasing activity decreased in the fourth quarter to 11,180 square feet, down from the 47,882 square feet leased in the previous quarter. 10 Year Averages ( ) Total Absorption 111,315 SF / Year Deliveries (SF) 89,001 SF / Year Leasing Activity 193,153 SF / Year Market Stats Inventory 3.8 M SF Direct Vacancy 7.9 % Total Vacancy 8.4 % 4Q 2018 Absorption YTD 2018 Absorption 1,972 SF 74,105 SF Percent Pre-Leased 0 % YTD 2018 Deliveries Asking Rental Rates (Triple Net) 2008: $ : $10.38 YTD 2018: $

32 Broker Biographies About Paul (Rocky) Rocky joined Lincoln Property Company in 2017 and specializes in leasing and selling commercial properties in the Maryland suburbs of Washington, D.C. Over the last five years, Rocky has generated approximately $500 million in lease value with over 2 million SF leased. As Managing Director and Senior Vice President on Lincoln s Maryland brokerage team, Rocky s responsibilities include managing proposal and lease negotiations, prospecting, touring, presentations, reporting, and financial analysis. Rocky is consistently recognized as a Top Ten Broker and was named by the Commercial Real Estate Brokerage Association (CREBA) as a Multimillion Dollar Producer for the past 15 years. Prior to joining Lincoln Property Company, Rocky was a Managing Director and Team Leader at Cushman & Wakefield for 18 years. Paul (Rocky) Kern Managing Director & Senior Vice President Brokerage Services Group Experience 27 years experience Professional Affiliations National Association of Office and Industrial Properties (Maryland and Washington, D.C.) Commercial Real Estate Brokerage Association Education Denison University, Bachelors Degree 32

33 Broker Biographies About Brent Brent joined Lincoln in 2011 as the Leasing Vice President for the Baltimore and the Suburban Maryland Region. His focus will be leasing for both Landlords and s, office, industrial, and flex product in Baltimore City, Howard, Anne Arundel, Prince Georges County, and Montgomery Counties. Prior to joining Lincoln, Brent was a Vice President for EDGE Commercial, LLC where he started at the inception to help transition, maintain, and grow Edge s Landlord Representation. Prior to EDGE Commercial, he was an Associate at Scheer Partners where he assisted in the leasing of over 3.5 million square feet of office, industrial, and flex product throughout Prince George s County. Brent Prossner Vice President Maryland Brokerage Services Brent represents NASA contractors, technology firms, government contractors, medical practices, and non-profit agencies, as well as some of Maryland s largest landlords. His team s current landlord portfolio consists of over 3.5 million square feet stretching from Baltimore to the suburbs of DC with some of the representative landlord s including Morgan Stanley, JP Morgan, Meritage Properties, Ruppert Properties, etc. A resident of Annapolis, outside of Real Estate he enjoys spending time on the Chesapeake Bay fishing and hunting. Experience 13 Years, including 7 years with Lincoln Property Company Education Lehigh University Bachelor of Arts, International Business 33