Market Report. Suburban Maryland 2nd Quarter cushmanwakefield.com

Transcription

1 Market Report Suburban Maryland 2nd Quarter 2016 cushmanwakefield.com

2 Contents DC Metropolitan Area Overview...3 Suburban Maryland & Map Bethesda/Chevy Chase...7 Rock Spring Park...8 Pike Corridor...9 I-270/Rockville...10 Gaithersburg/Germantown...11 Silver Spring...12 Prince George s County...13 Appendix...14 Tables Methodology & Definitions...23 About Cushman & Wakefield...24 Cushman & Wakefield 2

3 Washington, DC Metropolitan Area Strong Economic Growth Continues At mid-year 2016, the Washington, DC metropolitan region s economy continues to grow at a fast clip. The region s unemployment rate is among the lowest among major metropolitan areas in the nation, ending the second quarter of 2016 at 3.8%. Meanwhile, job growth remains well above the historical annual average of 36,000 jobs. As of June 2016, the Washington, DC Metro economy had added 75,000 net new nonfarm jobs since June of 2015, the fourth highest number of new jobs among metros after the New York, Los Angeles and Dallas metropolitan regions. The annual job growth rate of 2.4% (year-over-year) has actually eclipsed job growth rates in the New York, Chicago and Boston metropolitan regions. And job growth was well distributed throughout the region, led by Northern Virginia with nearly 32,000 new jobs, Suburban Maryland with 22,900, and the District of Columbia with 8,800 jobs. The balance of the 75,000 jobs were in outlying areas. WASHINGTON, DC METRO Economic Indicators 2Q 15 2Q 16 DC Metro Employment 3.16M 3.23M DC Metro Unemployment 4.5% 3.8% U.S. Unemployment 5.3% 4.9% Market Indicators 2Q 15 2Q 16 Overall 18.0% 17.9% Net Absorption 289K 915k 12-Month Forecast 12-Month Forecast Breaking down the jobs data by sector, growth in office-using employment continues to promise increased demand for office space in the coming quarters for the Washington, DC Metro region. As it has done during the regional economic recovery from the negative effects of sequestration starting in early 2015, Professional and Business Services led the way in job creation with 17,600 new positions since June of Perhaps the most encouraging data comes from the federal government sector, which after losing nearly 20,000 employees in the Washington, DC region from , has recently ramped up hiring and added over 7,000 positions since the nadir in total federal employment in June Such a positive economic backdrop should go far in dispelling any perceived notions of a slowdown in the local economy due to uncertainty surrounding the upcoming presidential elections no evidence supporting this scenario is present in the jobs data. This robust job growth bodes well for improved leasing fundamentals in the coming quarters, but the tightening will continue to be slow in most asset classes. A significant amount of vacancy still remains to be absorbed: 53 million square feet () is currently vacant in the region s 300 -inventory, which equates to a 17.9% vacancy rate. Net absorption year to date is 830,000 square feet. Tenants are largely seeking quality whether that is new construction, renovated Class A space or the best of the Class B market. Quality space close to transit and amenities is where the vast majority of the positive net absorption is taking place. After several years of deliveries below historical averages, new supply is finally ramping up to meet the demand for quality space. Currently 6.8 is under construction, mostly in the District of Columbia and in Northern Virginia. The outlook for the Washington, DC Metro region from an investment standpoint continues to be bullish. Year-to-date office sales volume is $2.8 billion, less than volume in the previous two years, but the reduction in volume is a function of the type of product being brought to market. While there is plenty of global demand for wellleased, well-located core assets, there is a shortage of supply of these assets in the sales pipeline, as both offshore and institutional long-term holders have scooped up such assets with vigor over the past several years. With more value-add and opportunistic assets as well as large suburban portfolios hitting the market, average values should start to slowly come down compared to the previous two years. With turmoil continuing in the Middle East and much uncertainty remaining in Europe, the gateway markets in the U.S. and the relative safety and stability of the Washington, DC Metro region in particular, will continue to be a go-to location for global capital hungry for commercial real estate. Under Construction 4.6M 6.8M Deliveries 303K 764K Average (FS) $35.91 $36.19 Net Absorption/ 4Q TRAILING AVERAGE $ Washington, DC Metropolitan Area NET ABSORPTION - DELIVERIES - VACANCY Net Absorption,, $ PSF Net Absorption Deliveries Rate 20% 16% 12% 8% 4% 0% $39.0 $38.5 $38.0 $37.5 $37.0 $36.5 $36.0 $35.5 $35.0 $34.5 Rate cushmanwakefield.com 3

4 Suburban Maryland Economy Suburban Maryland continued to post better-than-average employment conditions during the second quarter of 2016 (2Q 2016). The market added 15,700 net new nonfarm payroll jobs from January through May of The Professional and Business Services and Federal Government sectors have both seen strong growth, adding 1,730 and 1,170 jobs, respectively, month over year. Unemployment in the region remains very low. At the end of May, Montgomery County s unemployment rate was 3.4% and Prince George s County s rate fell to 4.6% -- both rates below the national unemployment rate. Market Indicators 2Q 15 2Q 16 Overall 22.10% 21.20% Net Absorption (408k) 118k Under Construction 344k 104k Deliveries 80K 135K Average $26.87 $ Month Forecast Market Overview Overall direct vacancy rates declined less than 1.0 pp to end 2Q 2016 at 20.1%, down from year-end Class A space experienced the largest downturn in direct vacancy with a 1.7 pp decrease from a year ago. In addition, direct absorption posted was positive 136,217 square feet (SF) at mid-year. One of the most notable move-ins was the U.S. Department of Veterans Affairs absorption of 108,000 square feet (SF) of space at 6505 Belcrest Road. Other significant move-ins included Intelius, Inc., which relocated into 36,000 SF at 1401 Rockville, Beijing University for Chinese Medicine which moved into 23,000 SF at 9600 Blackwell Road, and Centrus which occupied the entire 8th floor (23,000 SF) at 6901 Rockledge Drive. New leasing demand grew by 11.8% to 1.3 million square feet () from mid-year Top leases for 2Q 2016 were Abt Associates leasing 151,000 SF at 6130 Executive Boulevard, the American Society of Health-Systems Pharmacists signing for 65,000 SF at 4500 East West Highway and United Research Corporation s lease at 5404 Wisconsin for 53,000 SF. Professional and Business Services firms accounted for 52% of new leasing activity in Suburban Maryland during 2Q Renewal activity captured 22% of activity in the second quarter of The U.S. Nuclear Regulatory Commission executed the largest renewal of the quarter, deciding to remain in its 347,000 SF space at Rockville Pike. Year-to-date sales activity in Suburban Maryland totaled 3.0 and $2.6 billion of transaction volume.. One of the most notable trades in the region so far this year is the sale of the Apex Building at 7272 Wisconsin Avenue and 7250 Wisconsin Avenue for $105 million or $634 per square foot (PSF). Carr Properties plans to demolish the property and redevelop the site into two multifamily towers and one office building totaling 940,000 SF. Outlook Growth in the national and local economies is mirrored by the uptick in leasing activity, as seen in the first half of Suburban Maryland has registered positive absorption for two consecutive quarters and vacancy rates have trended downward year-overyear. The next major amenities in the pipeline will be those located along the Washington Metro s Purple Line as well as the mixeduse project at the former Apex building. The Apex project will change the landscape of downtown Bethesda with the addition of a 350,000-SF office tower adjacent to Wisconsin Avenue and two residential towers that could bring up to 600 units to the area. This development will also add ground floor retail to the thriving retail market in the area. Net Absorption/ FOURTH QUARTER TRAILING AVERAGE 200,000 0 (200,000) (400,000) Suburban Maryland Overall 25.0% 20.0% 15.0% 10.0% 5.0% Net Absorption, SF Large Blocks of Contiguous Space Pike Corridor Silver Spring I-270/Rockville Germantown Bethesda/Chevy Chase Rock Spring Park Gaithersburg North Silver Spring Prince George's County, $ PSF 0.0% $30 $29 $29 $28 $28 $27 $27 $26 $26 $25 $ k SF k SF K SF 200K+ SF Cushman & Wakefield 4

5 Maryland CLARKSBURG Office Submarkets HOWARD COUNTY GERMANTOWN / GAITHERSBURG 270 OLNEY 650 NORTH ROCKVILLE Shady Grove NORTH POTOMAC ROCKVILLE 28 Rockville WHEATON Glenmont 190 VIRGINIA POTOMAC NORTH BETHESDA BETHESDA / CHEVY CHASE Twinbrook Friendship Heights White Flint 355 Grosvenor-Strathmore Medical Center 185 Bethesda 495 MARYLAND DISTRICT OF COLUMBIA Wheaton Forest Glen Takoma Fort Totten 29 SILVER SPRING 193 Silver Spring NORTH SILVER SPRING 650 MONTGOMERY COUNTY PRINCE GEORGE S COUNTY PRINCE GEORGE S COUNTY cushmanwakefield.com 5

6 Top Transactions Key Lease Transactions 2Q 2016 PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET Rockville Pike / Two White Flint North 347,900 US Nuclear Regulatory Commission Renewal Pike Corridor 6130 Executive Bouelvard / Executive Plaza North 151,000 Abt Associates New Pike Corridor 4500 East-West Highway / Pearl Street Plaza 65,800 American Society of Health Systems Pharmacists New Bethesda/Chevy Chase 2440 Research Boulevard / Research West I 63,600 Otsuka America Pharmaceutical Renewal I-270/Rockville Key Sales Transactions Midyear 2016 Property Total Price Total SF Price / SF Seller / Buyer Submarket Four Irvington Center $61,000, ,134 $281 AREP / State of Utah North Rockville BioMed Realty Portfolio $163,270, ,547 $432 BioMed REIT / Blackstone North Rockville 2701 Tower Oaks Blvd $6,000, ,309 $205 CWCapital / 2701 Tower Oaks LLC North Bethesda North Bethesda I & II $54,600, ,567 $158 JBG Cos / Hines North Bethesda Twinbrook Parkway $15,500, ,189 $92 TA Realty / MRP JV Artemis Rockville Suburban Maryland Office Market Net Absorption - Deliveries -, Second Quarter Net Absorption Deliveries Rate 24% 20% 16% 12% 8% 4% 0% Rate Suburban Maryland Office Market Inventory by Class & by Submarket, Second Quarter Pike Corridor Silver Spring I-270/Rockville Germantown Bethesda/Chevy Chase Rock Spring Park Gaithersburg North Silver Spring PG County Class A Class B Class C % Sub MD Overall 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Cushman & Wakefield 6

7 Bethesda/Chevy Chase Market Indicators *Arrows = Current Qtr Trend 12.2% Net Absorption 49,600 SF Under Construction 0 SF Deliveries 0 SF $39.65 FS Bethesda/Chevy Chase continued to capture the strongest tenant demand in Montgomery County and Suburban Maryland as a whole. New leasing ended the first half of the year with 376,908 square feet (SF) of space leased, of which 234,175 SF was leased in second quarter of The American Society of Health Systems Pharmacists (ASHSP) held the largest lease of the second quarter 2016 and will occupy 66,000 SF at 4500 East West Highway. University Research Corporation claimed the second largest lease at 5404 Wisconsin Avenue for 53,000 SF. New leasing saw a 26.9% uptick in activity from the same period rates also sustained better conditions as tenants occupied space the first half of At the end of the second quarter 2016, direct vacancy rates had abated 140 basis points (BP) from the same period last year to 10.2%. Class A direct vacancy rate closed the quarter at 9.2%, the lowest rate since 2Q14. Year-to-date overall absorption in Bethesda/Chevy Chase ended the quarter at 63,912 SF, of which 49,567 SF was occupied in the second quarter Montgomery Orthopedic moved into 16,000 SF at 8401 Connecticut Avenue and Peel Properties occupied 20,000 SF at 4520 East West Highway. The sale of 7272 Wisconsin was the only investment sale in Bethesda/Chevy Chase during second quarter The former home of ASHSP traded for $105 million or $638 per square foot (PSF). Once the building has been vacated, Carr Properties plans to raze it and construct a mixed-use project to include office, residential and hotel space Net Absorption Deliveries Net Absorption Deliveries Rate New Leasing Activity % 12% 10% 8% 6% 4% 2% 0% Rate Outlook We expect leasing activity to gain more momentum in 2016, but larger blocks of space are becoming scarcer in the Bethesda/Chevy Chase submarket. rates are expected to decline as a result of modest leasing and the current empty pipeline. Carr Properties redevelopment of 7272 Wisconsin Avenue is scheduled to break ground by next year, but the timing must match that of the Metro Purple Line project since the buildings will be located above the first station stop in Montgomery County, the Bethesda Purple Line station. The ground-breaking is expected in the second half of Rents are also expected to escalate due to improving economic conditions and the increasing demand for quality Class A space. Bethesda/Chevy Chase is well positioned for continued growth, more so than other submarkets, as owners have already started making improvements to assets to stay ahead of tenants demands. While the submarket faces competition from Washington DC and Northern Virginia for private industry tenants, its position as an amenity rich, Metro-accessible submarket within the Beltway continues to make it a desirable location for tenants wishing to be near the nation s capital. Full Service PSF Q1 Q2 Q3 Q4 $55 $50 $45 $40 $35 $30 $ Class A Class B, $ PSF cushmanwakefield.com 7

8 Rock Spring Park Market Indicators *Arrows = Current Qtr Trend 28.8% Net Absorption (35,900) SF Under Construction 0 SF Deliveries 0 SF $30.02 FS The Rock Spring Park office submarket experienced sluggish conditions during the first half of The direct vacancy rate edged upward 400 basis points (BP) from mid-year 2015 to end second quarter 2016 at 28.1%. Net absorption declined to a negative 35,919 square feet (SF). The majority of the elevated vacancy and negative absorption was due to the National Institutes of Health (NIH) vacating 140,000 SF at the end of New leasing activity was very light due to less tenant demand in Rock Spring Park than in more amenitized areas. Direct rental rates declined 1.0% year-over-year to $30.35 per square foot (PSF). There were no new deliveries during the second quarter of 2016 due to a limited pipeline and no new construction or building renovations within the market. Interest remains stunted, as no investment transactions were completed in the quarter. Net Absorption Deliveries Net Absorption Deliveries Rate 35% 30% 25% 20% 15% 10% 5% 0% Rate New Leasing Activity THSF Q1 Q2 Q3 Q4 Outlook Going forward, look for owners to consider conversions, renovations and/or add a stronger amenity base to attract tenants which can attract a younger, more skilled workforce. Marriott s pending relocation could add more than 900,000 sf of space to the market. While there have been many efforts to keep the native tenant in Suburban Maryland, only time will tell as Marriott s lease is due to expire in Other key players to watch are federal agencies; the federal spending bill that was approved in late 2015 included spending increases for key Suburban Maryland agencies including the Centers for Disease Control and the NIH. This should increase contracting opportunities for private-sector employers in the vicinity of these agencies and should lead to increased employment for Suburban Maryland. Full Service PSF $36 $34 $32 $30 $28 $26 $24 $22 $ All Classes Class A, $ PSF Cushman & Wakefield 8

9 Pike Corridor Market Indicators *Arrows = Current Qtr Trend 15.1% Net Absorption 107,000 SF Under Construction 99,000 SF Deliveries 0 SF $26.58 FS Despite a slow start at the beginning of the year, the Pike Corridor gained momentum in the second quarter of Year-to-date net absorption registered 51,814 square feet (SF) and direct vacancy contracted 770 basis points (BP) year-over-year to end the second quarter 2016 at 15.1%. Intelius Inc. moved into 36,000 square feet (SF) at 1401 Rockville Pike, and Credible Behavioral occupied 15,000 SF at 121 Rockville Pike. The submarket also saw a significant jump in new leasing activity, with a total of 294,584 SF leased of which 215,249 was leased in second quarter Leasing activity increased 55.1% from the second quarter of The largest lease signed during second quarter 2016 was that by Abt Associates for 151,000 SF at 6130 Executive Boulevard.. There were no new investment sales in the second quarter Year to date, the only transactions have been the purchase of North Bethesda Place I & II by Hines from The JBG Companies for $54.6 million, and the sale of Twinbrook Parkway to Artemis Real Estate Partners for $15.5 million. There were no deliveries during the second quarter of 2016, but there is one project under construction at Parklawn Drive, expected to deliver in the second half of the year. Net Absorption Deliveries Net Absorption Deliveries Rate New Leasing Activity % 20.0% 15.0% 10.0% 5.0% 0.0% Rate Q1 Q2 Q3 Q4 $36 Outlook Only 99,000 SF of space is currently under construction at Parklawn Drive, and there have been no additional spec groundbreakings since the end of The vacancy rate should start to decline modestly over the next 12 months. With the expected growth of the medical research and biotech industries with programs such as Relevant Health geared towards health technology startups activity should be evenly distributed throughout Montgomery County. Full Service PSF $34 $32 $30 $28 $26 $24 $22 $ Class A Class B, $ PSF cushmanwakefield.com 9

10 I-270/Rockville Market Indicators *Arrows = Current Qtr Trend 25.8% Net Absorption 132,900 SF Under Construction 0 SF Deliveries 135,000 SF $28.06 FS The I-270 Corridor experienced less-than-favorable conditions during second quarter The vacancy rate rose 160 basis points (BP) from a year ago to end the quarter at 25.8%. Contributing to the significant increase in vacancy was Lockheed Martin, which vacated 115,000 square feet (SF) at 9221 Corporate Boulevard. Overall absorption registered negative 132,933 SF for 2Q16, but year-to-date absorption posted positive 33,314 SF. New leasing activity was modest compared to 2015, contracting 8.4% year-over-year to 130,788 SF. The top two leases executed during second quarter 2016 were those by Lafayette Federal Credit Union for 29,308 SF at 2701 Tower Oaks Boulevard, and Morgan Stanley & Co. for 16,534 SF at Park Potomac Avenue. Renewal activity accounted for 113,083 SF, a 334% increase from second quarter The most significant renewal was that executed by Otsuka America Pharmaceutical for 63,539 SF at 2440 Research Boulevard. Investment sales totaled $22.9 million during second quarter The most noteworthy investment transaction was Washington Property s purchase of 1 Research Court. The building traded for $17 million or $151 per square foot (PSF). There were no deliveries in the second quarter of Net Absorption Deliveries Net Absorption Deliveries Rate New Leasing Activity % 25% 20% 15% 10% 5% 0% Rate Q1 Q2 Q3 Q4 Outlook Despite the slower start in the first half of 2016, we expect market activity to improve throughout the second half of The limited construction pipeline will aid in suppressing the vacancy rate. We also anticipate that private industry, especially the biotechnology and life sciences, will continue to express favorable interest in the area and spur tenant demand as 2016 progresses. Full Service PSF $36 $34 $32 $30 $28 $26 $24 $22 $ Class A Class B, $ PSF Cushman & Wakefield 10

11 Gaithersburg/Germantown Market Indicators *Arrows = Current Qtr Trend 22.2% Net Absorption 37,500 SF Under Construction 0 SF Deliveries 0 SF $24.11 FS The Gaithersburg/Germantown office market experienced minimal leasing demand in second quarter 2016, but both markets posted positive absorption. Gaithersburg ended the quarter at with 9,337 square feet (SF) of absorption, and Germantown posted 8,524 SF. rates in both areas declined slightly from a year ago. The direct vacancy rate in Gaithersburg at the end of second quarter 2016 was 20.2% down 130 basis points (BP) from 2Q15, and vacancy in Germantown was 23.1% down 10 BP. Direct rental rates in each market varied: those in Gaithersburg contracted by 1.0% to $23.68 per square foot (PSF) and Germantown increased 1.0% to $24.63 PSF. There have been no investment sales or office deliveries in 2016 to date. Net Absorption Deliveries Net Absorption Deliveries Rate 25% 20% 15% 10% 5% 0% Rate New Leasing Activity Q1 Q2 Q3 Q4 Outlook We expect leasing activity in Gaithersburg/Germantown to pick up over the course of However, companies will continue the trend of renewing existing space over inking new deals. As market conditions improve, we expect rents to gain slight traction during the second half of Buildings with access to I-270 that have richer amenities will see rent growth sooner. Given the limited construction pipeline, this submarket should be able to work off some of its existing inventory and thus be able to experience substantial growth in the future. Full Service PSF $29 $27 $25 $23 $21 $19 $17 $ Class A Class B, $ PSF cushmanwakefield.com 11

12 Silver Spring Market Indicators *Arrows = Current Qtr Trend 11.8% Net Absorption 17,900 SF Under Construction 0 SF Deliveries 0 SF $28.84 FS Silver Spring experienced a significant increase in tenant demand during the first half of the year compared to the same period a year ago. Year-to-date new leasing activity totaled 95,330 square feet (SF), a 52.9% increase from second quarter The most significant lease executed was that by Conflulytics for 22,255 SF at 8757 Georgia Avenue. The vacancy rate ended the quarter at 11.2%, a 140-basis-points (BP) increase from second quarter The vacancy rate has been inflated since the third quarter of 2015, when the General Services Administration (GSA) vacated 70,000 square feet (sf) at 8455 Colesville Road. At the end of second quarter 2016 direct absorption registered 16,301 square feet (SF). Average direct rental rates increased 7.0% from a year ago to end the second quarter of 2016 at $28.83 per square foot (PSF). Class A rates have been in the $30.00 range since 2Q15 and finally edged up to $31.61 PSF. There were no notable investment transactions or deliveries in second quarter 2016 Net Absorption Deliveries Net Absorption Deliveries Rate New Leasing Activity % 12% 11% 10% 9% 8% Rate Q1 Q2 Q3 Q4 Outlook Silver Spring s market conditions are expected to continue improving as the private sector, mainly the life sciences industry, shows an increased interest in the area. United Therapeutics Corp. has announced plans to expand its Silver Spring campus and to hire about 100 employees in the next three to six years. The new facility is expected to house 100 people in new divisions yet to be created and the company plans to issue a request for proposals to demolish the existing parking garage as early as this fall. The vacancy rate is expected to contract throughout 2016 as smaller tenants continue to drive leasing demand. We also expect asking rents to gradually escalate during the second half of 2016 as a result of new economic development and declining vacancy rates. Full Service PSF $38 $36 $34 $32 $30 $28 $26 $24 $22 $ Class A Class B, $ PSF Cushman & Wakefield 12

13 Prince George s County Market Indicators *Arrows = Current Qtr Trend 29.4% Net Absorption 68,500 SF Under Construction 0 SF Deliveries 0 SF $21.69 FS Prince George s County continued to experience varied conditions in the first half of Year-to-date absorption registered at 63,651 square feet (SF), 71,750 SF of which was during 2Q16. A majority of the positive demand was from mid-size and smaller tenants. The U.S. Department of Treasury vacated 3700 East West Highway and relocated to 6505 Belcrest Road, resulting in no net absorption. Compared to a year ago, vacancy rates were flat and hovered around 29.0%. Class B vacancy declined by 300 basis points (BP) from 2Q15, ending the second quarter of 2016 at 28.3%. The County has seen a substantial amount of positive activity. Education giant 2U will be relocating and expanding their corporate headquarters to 7900 Harkins Road. In addition, the anticipated opening of the MGM National Harbor project is making headlines as more details are revealed. Recently announced, added restaurant venues include Ginger, TAP Sports Bar, Bellagio Patisserie and National Market. The much-anticipated project is expected to deliver in fourth quarter Tenant demand was very strong at the beginning of the year, but tapered off in second quarter Year-to-date new leasing activity totaled 327,870 SF. Leasing activity is still substantially stronger than in 2015, having increased 18.2% increase year-overyear and 2U s lease remaining as the largest new lease in THSF Net Absorption Deliveries Net Absorption Deliveries Rate New Leasing Activity 30, , , , % 28% 24% 20% 16% 12% 8% 4% 0% Rate 10, , Q1 Q2 Q3 Q4 $25 Outlook With increasing interest from the private sector, office conditions are expected to be conservative in the coming quarters and rents are expected to increase slightly as large blocks of space are removed from the market. We expect leasing to remain active, but less aggressive in the second half of the year. We look for market activity increases in other commercial sectors, such as multifamily and retail particularly in Greenbelt and College Park, which could spark continued interest in the office leasing sectors. Full Service PSF $24 $23 $22 $21 $20 $19 $ Class A Class B, $ PSF cushmanwakefield.com 13

14 Appendix Table Summaries Metro Washington Office Market Summary 13 Employment Data 13 Office Availability,, and Net Absorption 14 Metro Washington Office Market Summary: Second Quarter 2016p Inventory Total Vacant Space Rate Q22016 Absorption Year to Date Absorption Washington, DC 109,154,672 12,723, % 475, ,193 Northern Virginia 130,922,599 28,258, % 370,820 51,688 Suburban Maryland 56,710,165 12,035, % 118, ,192 Regional Totals 296,787,436 53,017, % 964, ,073 Trailing 12-Month Data 15 Historical Year-End Data 16 Market Statistics by Class Survey of New Office Space by Submarket Methodology & Definitions 23 Metro Washington Current Employment Data Non Farm Employment (Jan-Jun 2016) Non Farm Employment (Jan-Jun 2016p) Jobs Added/ Lost* Percent Change Washington, DC 765, ,467 10, % Northern Virginia 1,393,667 1,426,933 33, % Suburban Maryland 971, ,567 21, % Regional Totals 3,130,884 3,196,967 66, % SOURCE: U.S. Bureau of Labor Statistics (Not seasonally adjusted) * Average per year to date p - preliminary Cushman & Wakefield 14

15 Appendix Office Availability,, and Net Absorption, Second Quarter 2016p Total Inventory New/Relet Space Vacant Sublet Space Vacant Total Space Vacant Rate (%) New/Relet Space Absorption Sublet Space Absorption Total Net Absorption Bethesda/Chevy Chase 8,612, , ,034 1,049, % -10,745 60,312 49,567 Rock Spring Park 4,240,001 1,190,350 28,746 1,219, % 16,274 (52,193) -35,919 Pike Corridor 10,772,914 1,519, ,852 1,624, % 131,551 (24,586) 106,965 I-270/Rockville 9,733,771 2,336, ,146 2,510, % -151,281 18, ,933 Gaithersburg 2,157, ,616 35, , % 16, ,689 Germantown 1,908, ,332 4, , % -8,358 29,339 20,981 Silver Spring 4,806, ,477 29, , % -11,716 29,615 17,899 North Silver Spring 1,055, ,013 1, , % -1,164 7,736 6,572 Montgomery County 43,286,520 7,539, ,669 8,091, % -19,235 69,056 49,821 Prince George's County 13,423,645 3,851,409 92,922 3,944, % -116, ,298 68,458 Suburban Maryland 56,710,165 11,390, ,591 12,035, % -136, , ,279 p - preliminary cushmanwakefield.com 15

16 Appendix Trailing 12-Month Data Total Inventory Rate (%) Total Absorption 3rd Qtr th Qtr st Qtr 2016p 2nd Qtr 2016p 3rd Qtr th Qtr st Qtr 2016p 2nd Qtr 2016p 2nd Qtr rd Qtr th Qtr 2015p 2nd Qtr 2016p Bethesda/Chevy Chase 8,612,795 8,612,795 8,612,795 8,612, % 13.1% 12.6% 12.2% 35,868 (26,319) 14,345 49,567 Rock Spring Park 4,079,001 4,079,001 4,240,001 4,240, % 28.2% 27.2% 28.8% (146,743) (4,608) (1,224) (35,919) Pike Corridor 10,772,914 10,772,914 10,772,914 10,772, % 16.9% 16.2% 15.1% 186,075 93,969 (55,151) 106,965 I-270/ Rockville 9,536,528 9,536,528 9,671,528 9,733, % 24.2% 23.9% 25.8% (130,860) 134, ,247 (132,933) Gaithersburg 2,157,113 2,157,113 2,157,113 2,157, % 21.0% 21.0% 20.2% (6,251) 16, ,689 Germantown 1,908,759 1,908,759 1,908,759 1,908, % 24.2% 23.6% 23.1% (33,039) 13,268 (83) 20,981 Silver Spring 4,806,040 4,806,040 4,806,040 4,806, % 12.2% 12.2% 11.8% (72,731) (3,332) 3,129 17,899 North Silver Spring 1,055,127 1,055,127 1,055,127 1,055, % 24.9% 23.6% 23.0% (23,645) 1,259 13,753 6,572 Montgomery County 42,928,277 42,928,277 43,224,277 43,286, % 19.0% 18.6% 18.7% (191,326) 225, ,204 49,821 Prince George's County 13,515,386 13,515,386 13,423,139 13,423, % 28.2% 28.1% 29.4% 186,026 (6,124) (7,291) 68,458 Suburban Maryland 56,443,663 56,443,663 56,647,416 56,710, % 21.2% 20.8% 21.2% (5,300) 219, , ,279 p - preliminary Cushman & Wakefield 16

17 Appendix Historical Year-End Data Total Inventory Rate (%) Total Absorption p p p Bethesda/Chevy Chase 8,386,443 8,612,795 8,612,795 8,612, % 12.9% 13.1% 12.2% 145,661 (13,664) (37,285) 63,912 Rock Spring Park 4,055,404 4,055,404 4,079,001 4,240, % 25.0% 28.2% 28.8% (17,602) 13,911 (156,722) (37,143) Pike Corridor 10,202,272 10,693,270 10,772,914 10,772, % 21.8% 16.9% 15.1% 176,566 (415,229) 265,303 51,814 I-270/ Rockville 9,464,827 9,488,710 9,536,528 9,733, % 24.5% 24.2% 25.8% 96,808 (421,930) (15,436) 33,314 Gaithersburg 2,122,113 2,122,113 2,157,113 2,157, % 21.9% 21.0% 20.2% 63,470 (28,431) 23,240 16,877 Germantown 1,908,759 1,908,759 1,908,759 1,908, % 23.6% 24.2% 23.1% 71,144 (11,331) (12,067) 20,898 Silver Spring 4,877,684 4,806,040 4,806,040 4,806, % 10.5% 12.2% 11.8% 6,651 (2,876) (80,969) 21,028 North Silver Spring 1,055,127 1,055,127 1,055,127 1,055, % 23.2% 24.9% 23.0% (47,915) 12,024 (18,302) 20,325 Montgomery County 42,072,629 42,742,218 42,928,277 43,286, % 19.8% 19.0% 18.7% 494,783 (867,526) (32,238) 191,025 Prince George's County 13,430,890 13,417,890 13,515,386 13,423, % 24.7% 28.2% 29.4% (99,453) (110,601) (83,804) 61,167 Suburban Maryland 55,503,519 56,160,108 56,443,663 56,710, % 21.0% 21.2% 21.2% 395,330 (978,127) (116,042) 252,192 p - preliminary cushmanwakefield.com 17

18 Market Statistics Suburban Maryland 2nd Quarter 2016 Market Statistics Buildings Total Inventory (SF) New/Relet (%) Sublet (%) Total * (%) Net Absorption Current QTR (SF) Under Construction (SF) Average (FS) Bethesda/Chevy Chase Class A 22 4,936, % 1.4% 10.6% 21,112 0 $46.25 B 25 2,931, % 3.5% 14.8% 28,443 0 $33.83 C , % 0.3% 12.2% 12 0 $31.31 TOTAL 63 8,612, % 2.0% 12.2% 49,567 0 $39.65 Rock Spring Park Class A 14 3,074, % 0.7% 31.2% (34,677) 0 $31.04 B 9 1,004, % 0.7% 24.0% (1,242) 0 $26.46 C 1 161, % 0.0% 11.0% 0 0 $20.00 TOTAL 24 4,240, % 0.7% 28.8% (35,919) 0 $30.02 Pike Corridor Class A 31 5,167, % 0.1% 16.5% 59,459 0 $29.51 B 47 4,825, % 2.1% 14.4% 46,358 99,000 $24.43 C , % 0.0% 9.8% 1,148 0 $21.59 TOTAL 92 10,772, % 1.0% 15.1% 106,965 99,000 $26.58 I-270/Rockville Class A 47 6,614, % 2.0% 24.0% (126,342) 0 $30.10 B 33 2,949, % 1.5% 29.5% (5,494) 0 $27.78 C 3 169, % 0.0% 32.3% (1,097) 0 $24.09 TOTAL 83 9,733, % 1.8% 25.8% (132,933) 0 $28.06 Gaithersburg Class A 8 810, % 4.4% 30.3% 4,060 0 $23.84 B , % 0.0% 15.4% 5,569 0 $23.30 C , % 0.0% 11.2% 7,060 0 $22.82 TOTAL 34 2,157, % 1.6% 20.2% 16,689 0 $23.61 * Total - the vacancy rate is calculated using the combined total of relet, sublet and new vacant space. Cushman & Wakefield 18

19 Market Statistics Suburban Maryland 2nd Quarter 2016 Market Statistics Buildings Total Inventory (SF) New/Relet (%) Sublet (%) Total * (%) Net Absorption Current QTR (SF) Under Construction (SF) Average (FS) Germantown Class A 5 662, % 0.5% 20.5% 0 0 $28.00 B 18 1,246, % 0.1% 24.6% 20,981 0 $23.02 C 0 0 #DIV/0! #DIV/0! #DIV/0! 0 0 N/A TOTAL 23 1,908, % 0.2% 23.1% 20,981 0 $24.64 Silver Spring Class A 14 2,901, % 0.9% 12.0% (10,127) 0 $31.63 B 6 902, % 0.2% 12.6% 20,564 71,664 $26.26 C 21 1,002, % 0.2% 10.7% 7,462 0 $23.73 TOTAL 41 4,806, % 0.6% 11.8% 17,899 71,664 $28.84 North Silver Spring Class A 4 222, % 0.0% 2.6% 1,700 0 N/A B , % 0.2% 28.4% 4,872 0 $24.43 C 0 0 #DIV/0! #DIV/0! #DIV/0! 0 0 N/A TOTAL 20 1,055, % 0.2% 23.0% 6,572 0 $24.43 Prince Georges County Class A 39 4,592, % 0.6% 31.4% $23.01 B 134 7,180, % 0.9% 29.2% 154,780 0 $20.80 C 55 1,651, % 0.0% 24.7% (86,514) 0 $23.56 TOTAL ,423, % 0.7% 29.4% 68,458 0 $21.69 Suburban Maryland Class A ,981, % 1.1% 21.0% (84,623) 0 $29.98 B ,823, % 1.4% 22.5% 274, ,664 $23.67 C 121 4,905, % 0.1% 16.3% (71,929) 0 $24.31 TOTAL ,710, % 1.1% 21.2% 118, ,664 $26.77 * Total - the vacancy rate is calculated using the combined total of relet, sublet and new vacant space. cushmanwakefield.com 19

20 Survey of Office Space Under Construction/Under Renovation Rockville BUILDING ADDRESS OWNER/DEVELOPER RENTAL RATE STATUS DELIVERY DATE RENTABLE BUILDING AREA AVAILABLE SPACE PERCENT PRELEASED MAJOR TENANTS Parklawn Drive Greencourt Property Group N/A U/C 2Q16 99,000 99,000 0% N/A 1320 Fenwick Lane Weir-Alderdice Management Co / US GSA N/A U/R 3Q16 71,644 71,644 0% The Foulger-Pratt Companies Total 170, ,644 0% Suburban, MD Summary RENTABLE BUILDING AREA AVAILABLE SPACE PERCENT PRELEASED 2016 DELIVERIES 170, ,644 0% TOTAL CURRENTLY UNDER CONSTRUCTION/RENOVATION 170, ,644 0% Status Operating Expense and Real Estate Tax Base U/C = Under Construction FS = Full Service NN = Plus Electric & Char U/R = Under Renovation N = Plus Electric NT = Plus Taxes NNN = Net of all Operating Expenses and Taxes Cushman & Wakefield 20

21 Suburban Maryland Survey of New Office Space 2016 Deliveries BUILDING ADDRESS OWNER/DEVELOPER STATUS RENTAL RATE SUBMARKET RENTABLE BUILDING AREA NEW SPACE AVAILABLE VACANCY RATE (AS OF CURRENT QUARTER)* PERCENT LEASED UPON DELIVERY Park Potomac Foulger-Pratt Delivered 1Q16 $44.50 FS I-270/Rockville 156, ,823 67% 33% Total 156, ,823 67% 33% 2015 Deliveries BUILDING ADDRESS OWNER/DEVELOPER STATUS RENTAL RATE SUBMARKET 7800 Harkins Road Maryland Department of Housing and Community Development RENTABLE BUILDING AREA NEW SPACE AVAILABLE VACANCY RATE (AS OF CURRENT QUARTER)* PERCENT LEASED UPON DELIVERY Berman Enterprises Delivered 3Q15 N/A Central PGC 110, % 100% Total 110,000-0% 100% 2014 Deliveries BUILDING ADDRESS OWNER/DEVELOPER STATUS RENTAL RATE SUBMARKET RENTABLE BUILDING AREA NEW SPACE AVAILABLE VACANCY RATE (AS OF CURRENT QUARTER)* PERCENT LEASED UPON DELIVERY 4500 East West Highway Carr Properties Delivered 4Q14 Withheld Bethesda/ Chevy Chase 226, ,604 67% 12% Grand Park Avenue Pike & Rose Building 11 Federal Realty Investment Trust Delivered 3Q14 $45.00 FS North Bethesda 80, % 50% 5601 Fishers Lane The JBG Companies Delivered 2Q14 N/A Rockville 490, % 100% Shady Grove Road Lerner Enterprises Delivered 2Q14 Withheld North Rockville 101,181 82,897 82% 0% Total 898, ,501 26% 74% Operating Expense and Real Estate Tax Base * rate for new space- does not include relet or sublet space available FS = Full Service NN = Plus Electric & Char N = Plus Electric NT = Plus Taxes NNN = Net of all Operating Expenses and Taxes cushmanwakefield.com 21

22 Suburban Maryland Survey of New Office Space 2013 Deliveries BUILDING ADDRESS OWNER/DEVELOPER STATUS RENTAL RATE SUBMARKET RENTABLE BUILDING AREA NEW SPACE AVAILABLE VACANCY RATE (AS OF CURRENT QUARTER)* PERCENT LEASED UPON DELIVERY 121 Rockville Pike Rockville Metro Plaza II The Foulger-Pratt Companies Delivered 2Q13 $44.50 FS Rockville 184,720 20,818 11% 75% 9609 Medical Center Drive National Cancer Institute The JBG Companies Delivered 1Q13 N/A North Rockville 575, % 100% 9905 Medical Center Drive Aquilino Cancer Center Shady Grove Medical Building Delivered 3Q13 N/A North Rockville 41, % 100% Milestone Center Court Milestone Building 5 MEPT/New Tower Trust Company Delivered 1Q13 $28.00 FS Gaithersburg/ Germantown 162,285 28,116 17% 83% Total 963,161 48,934 5% 92% 2012 Deliveries BUILDING ADDRESS OWNER/DEVELOPER STATUS RENTAL RATE SUBMARKET RENTABLE BUILDING AREA NEW SPACE AVAILABLE VACANCY RATE (AS OF CURRENT QUARTER)* PERCENT LEASED UPON DELIVERY 7550 Wisconsin Avenue Akridge Delivered 4Q12 Withheld Bethesda/ Chevy Chase 105, % 0% 7700 Old Georgetown Road Chevy Chase Garden Plaza B.F. Saul Delivered 1Q12 Negotiable Bethesda/ Chevy Chase 185,470 14,150 8% 15% Landsdown Street 3 White Flint North - NRC Headquarters LCOR / USAA Real Estate Delivered 4Q12 N/A North Bethesda 362, % 100% 5830 University Research Court NOAA Building University of Maryland Medical System/Corporate Office Properties Trust Delivered 3Q12 N/A Northern Prince George's 269, % 100% Total 921,970 14,150 2% 71% Operating Expense and Real Estate Tax Base * rate for new space- does not include relet or sublet space available FS = Full Service NN = Plus Electric & Char N = Plus Electric NT = Plus Taxes NNN = Net of all Operating Expenses and Taxes Cushman & Wakefield 22

23 Methodology & Definitions Methodology Market statistics are calculated from a base building inventory made up of office properties deemed to be competitive in the typical Washington, DC office market. Single-tenant buildings and privately-owned buildings in which the federal government leases space are included. Generally, owneroccupied and federally-owned buildings are not included. Older buildings unfit for occupancy or ones that require substantial renovation before tenancy are generally not included in the competitive inventory. Vacant space is defined as space that is physically vacant and available immediately. Sublet space still occupied by the tenant is not counted as vacant space. Explanation of Terms Total Inventory: The total amount of office space (in buildings greater than 10,000 square feet) that can be rented by a Fourth party. New Space Vacant: First generation, never-occupied office space in newly constructed or substantially renovated buildings, being actively marketed by a landlord. Relet Space Vacant: Secondgeneration, unoccupied office space being actively marketed by a landlord. (Space that is marketed but largely occupied is not counted as vacant space.) Sublet Space Vacant: Secondgeneration, unoccupied space being actively marketed by a tenant. (Sublet space that is marketed but still occupied is not counted as vacant space.) Total Space Vacant: The sum of new, relet, and sublet space that is unoccupied and being actively marketed. Rate: The amount of unoccupied space (new, relet, and sublet) expressed as a percentage of total inventory. (Total Space Vacant divided by Total Inventory.) Total Space Available: The total amount of space, both vacant and occupied, being actively marketed for lease by a tenant or landlord. (This includes space that is currently occupied but marketed for future availability.) Availability Rate: The total amount of space being actively marketed for lease (both vacant and occupied) expressed as a percentage of total inventory. (Total Space Available divided by Total Inventory.) Absorption: The net change in occupied space between two points in time. (Total occupied space in the previous quarter minus total occupied space in the current quarter, quoted on a net, not gross, basis.) New/Relet/Sublet Absorption: The net change in occupied new, relet, and sublet space between two quarters. Total Absorption: The net change in total occupied (new, relet, and sublet) space between two quarters. New Leasing Activity: The sum of all square footage underlying any leases between two quarters. This includes pre-leasing activity as well as expansion. It does not include renewals. Disclaimer This report and other research materials may be found on our website at This is a research document of Cushman & Wakefield in Washington, DC. Questions related to information herein should be directed to the Research Department at Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or on Twitter. cushmanwakefield.com 23

24 Visit cushmanwakefield.com for more information on the full range of Cushman & Wakefield commercial real estate services or contact: Nathan Edwards Regional Director 2101 L Street, NW, Suite 700 Washington, DC Richelle Wilson Research Analyst 2101 L Street, NW, Suite 700 Washington, DC Joseph Wood Research Analyst 2101 L Street, NW, Suite 700 Washington, DC Core Services Capital Markets - Debt Placement - Investment Sales - Note Sales - Structured Finance Corporate Services - Facilities Management - Portfolio Administration - Project Management - Strategic Consulting - Transaction Management Project Leasing Project and Development Services Property Management Tenant Representation Practices and Specialties Auction Services Distressed Assets Financial Advisory Food and Beverage Golf and Resort Properties Government Contracting Government Services Healthcare Higher Education Hospitality Law Firm Life Sciences Location Advisory and Incentives Mission Critical Net Lease Not-for-profit Private Client Supply Chain Sustainability Services About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive Real Estate Types Industrial Land Multi-family Office Retail platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or on Twitter. Publication date: Copyright 2016 Cushman & Wakefield. All rights reserved.