Q2 2013 OFFICE SUBURBAN MARYLAND SUBURBAN MARYLAND MARKET REPORT Second Quarter: Suburban Maryland s Uptick in has yet to be Realized in Numbers Updated May 2012 MARKET INDICATIONS Q2 2013 Q3 2013 (p) NET ABSORPTION CONSTRUCTION MARKET OVERVIEW Despite a slight resurgence in leasing activity in Suburban Maryland, net absorption during the second quarter of 2013 remained negative. Bozzuto & Associates, a mid-atlantic regional residential developer, came to terms on a 75,000-square-foot deal at 6406 Ivy Lane in the Greenbelt submarket. This is one of the first times in recent memory that the largest deal in Suburban Maryland was larger than any that occurred in the District., on the other hand, continued to remain negative and was considerably less than what was recorded during the first quarter. This moderate uptick in deal volume will likely not be absorbed into the market for several quarters. ABSORPTION For four quarters in a row and thus far in all of 2013, Suburban Maryland registered negative absorption; the majority was focused in the Prince Georges County and in class B space from a quality standpoint. Prince George s County s negative 126,000 square feet of absorption brought the year to date absorption to negative 258,000 square feet. Montgomery County, however, saw positive absorption gains. The largest contributor was Adventist Healthcare s 69,379-square-foot move into 820 W Diamond Avenue in the Gaithersburg submarket. They vacated roughly 50,000 square feet from their former offices at 1801 Research Drive in the Rockville submarket. RENTAL RATE UPDATED SUMMARY STATISTICS RECENT SALES TRANSACTIONS Q2 2012 Q2 2013 Property Submarket Sale Price Size SF Price/ Buyer Seller RATE: 15.1% 15.1% ABSORPTION : (180,615) (190,655) DELIVERIES : 0 194,400 UNDER 9801 Washington Boulevard Gaithersburg $85,250,000 (as allocated part of portfolio sale) SF 321,007 $266 KBS Real Estate Investment Trust CBRE Global Investors CONSTRUCTION: 1,303,575 847,158 15201 Diamonback Greater Capital Washington ASKING RENTS/SF: $25.62 $25.65 Drive Rockville $12,250,000 58,346 $210 Area Association Property of Realtors Company www.colliers.com/washingtondc
ABSORPTION 300,000 200,000 100,000 0 Q4 2011 Q1 2011 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013-100,000-200,000-300,000-400,000 15.2% 15.0% 14.8% 14.6% 14.4% 14.2% 14.0% 13.8% 13.6% Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 RENTAL RATES On the heels of significant vacancy increases last quarter, the vacancy rate for the Suburban Maryland submarket was flat throughout the second quarter. In Prince George s County, the Beltsville submarket saw the largest vacancy increase, up by over 4 percentage points to finish the quarter at 29.4 percent. Prince George s County overall vacancy increased 1.1 percent to end the quarter at 20 percent. Montgomery County registered a slight decrease in vacancy, falling 20 basis points and ending the quarter at 13.3 percent. Gaithersburg and Rockville saw the largest vacancy decreases, both dropping over a percentage point and ending the second quarter at 11.1 and 13.9 percent respectively. DELIVERIES AND CONSTRUCTION The Rockville Metro Plaza II, located at 121 Rockville Pike, delivered in the second quarter. It is a 200,000-square-foot, Class A office building in the Rockville submarket that was over 70 percent preleased at the time of delivery. Just over one million square feet is still under construction in the Suburban Maryland market, the majority of which is already accounted for. LOOKING FORWARD As the national economy continues to improve and job numbers increase, demand should follow suit in Suburban Maryland, however, we expect the Suburban Maryland market to be the last of the three to see positive increases. A more favorable business climate in Virginia and the Districts centralized location should have tenants choosing those two locations at a higher rate all things being equal. Regionally, the footprint of tenants is shrinking. Tenants are getting more out of less space and the efficiency of a building s mechanics and floor plan layout has never been more important. As we have already seen extensively in Northern Virginia and Washington, DC, Suburban Maryland owners will need to redevelop their vintage product. $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Class A Class B Class C RENTAL RATES Asking rental rates in the Suburban Maryland market continued to rise this quarter, up 10 cents to finish at $25.65 on a full service basis. Both Montgomery and Prince Georges Counties asking rates rose this quarter, up 15 and 35 cents, respectively. Class A and B rents continued to rise in the market, with Class C buildings asking rates declining slightly. Prior Qtr Lease SUBURBAN MARYLAND CLASS A TOTALS Suburban Maryland 262 43,209,039 14.8% 1.0% 15.7% 16.2% 585,956 187,462 (17,592) $28.93 SUBURBAN MARYLAND CLASS B TOTALS Suburban Maryland 791 40,231,849 15.3% 0.5% 15.8% 15.5% 297,712 (233,676) (350,185) $23.57 SUBURBAN MARYLAND CLASS C TOTALS Suburban Maryland 311 8,879,256 8.5% 0.2% 8.6% 8.9% 38,159 22,621 38,959 $19.22 SUBURBAN MARYLAND CLASS A,B,C TOTALS Suburban Maryland 1,364 92,320,144 14.4% 0.7% 15.1% 15.1% 921,827 (23,593) (328,818) $25.65 P. 2 COLLIERS INTERNATIONAL
MONTGOMERY COUNTY Prior Qtr Lease BETHESDA A 25 5,413,812 11.7% 0.9% 12.5% 13.4% 151,378 46,977 38,575 $43.13 B 73 5,460,447 8.2% 0.7% 8.9% 8.6% 71,159 (14,666) (66,162) $34.06 C 28 653,973 5.6% 0.2% 5.8% 5.2% 2,300 (3,640) (14,903) $25.46 Subtotal 126 11,528,232 9.7% 0.7% 10.4% 10.6% 224,837 28,671 (42,490) $37.12 GAITHERSBURG A 11 2,382,493 11.7% 0.3% 12.0% 14.5% 6,520 60,684 (46,999) $24.52 B 73 3,875,979 11.2% 0.2% 11.4% 11.7% 24,634 12,329 1,550 $21.55 C 27 764,771 6.7% 0.0% 6.7% 7.7% 6,461 7,837 8,042 $17.41 Subtotal 111 7,023,243 10.9% 0.2% 11.1% 12.2% 37,605 80,850 (37,407) $22.39 GERMANTOWN A 12 1,314,468 24.6% 1.2% 25.8% 24.9% 4,723 (12,072) 9,957 $27.52 B 40 1,725,121 11.6% 0.0% 11.6% 44.4% 18,193 (3,712) 15,145 $23.52 C 1 13,508 0.0% 0.0% 0.0% 3.0% 0 400 400 $15.00 Subtotal 53 3,053,097 17.1% 0.5% 17.6% 17.1% 22,916 (15,384) 25,502 $25.22 KENSINGTON A 2 165,000 9.8% 1.8% 11.6% 11.6% 0 0 (1,544) $33.00 B 31 1,246,167 29.0% 0.1% 29.0% 29.9% 16,669 11,003 9,960 $22.12 C 16 370,670 8.2% 2.7% 10.9% 10.7% 0 (875) (25) $20.78 Subtotal 49 1,781,837 22.9% 0.8% 23.7% 24.2% 16,669 10,128 8,391 $23.46 NORTH BETHESDA A 32 7,013,797 14.2% 1.1% 15.3% 16.5% 80,044 84,819 123,729 $31.50 B 46 3,063,551 12.1% 1.3% 13.4% 11.2% 30,020 (67,648) (83,565) $27.24 C 19 872,050 8.2% 0.0% 8.2% 7.9% 398 (2,456) 13,410 $19.80 Subtotal 97 10,949,389 13.1% 1.1% 14.2% 14.4% 110,462 14,715 53,574 $29.68 NORTH ROCKVILLE A 58 7,860,765 13.5% 1.7% 15.2% 14.8% 130,778 (30,608) (51,636) $28.77 B 71 4,523,025 15.5% 1.4% 16.9% 16.8% 32,424 (5,442) (13,736) $23.63 C 13 560,969 17.1% 0.0% 17.1% 18.4% 0 7,510 (392) $20.07 Subtotal 142 12,944,759 14.3% 1.6% 15.9% 15.7% 163,202 (28,540) (65,764) $26.39 N. SILVER SPRING A 7 1,399,928 1.1% 0.0% 1.1% 2.1% 4,139 14,178 13,561 $24.84 B 40 1,881,390 20.8% 0.6% 21.4% 13.9% 6,405 (141,427) (159,550) $23.78 C 6 150,875 4.7% 0.0% 4.7% 4.0% 0 (1,057) (1,057) $15.99 Subtotal 53 3,432,193 12.0% 0.3% 12.4% 8.6% 10,544 (128,306) (147,046) $23.72 OUTLYING MONTGOMERY A 6 837,528 1.4% 0.0% 1.4% 1.4% 0 0 0 $28.54 B 19 436,048 10.7% 0.0% 10.7% 10.5% 0 (1,067) (2,308) $27.74 C 8 163,461 12.8% 0.0% 12.8% 12.8% 0 0 766 $25.36 Subtotal 33 1,437,037 5.5% 0.0% 5.5% 5.4% 0 (1,067) (1,542) $27.64 ROCKVILLE A 26 3,911,456 18.9% 1.0% 19.9% 18.4% 59,789 101,785 96,656 $31.24 B 58 3,800,574 10.5% 0.2% 10.7% 11.1% 36,622 23,071 16,804 $24.51 C 38 1,377,839 5.3% 0.0% 5.3% 5.4% 2,763 684 24,082 $19.80 Subtotal 122 9,089,869 13.3% 0.5% 13.9% 15.2% 99,174 125,540 137,542 $27.61 SILVER SPRING A 19 4,184,526 10.1% 0.8% 10.9% 11.0% 10,855 2,080 (31,747) $30.17 B 40 1,991,121 9.4% 0.7% 10.0% 10.4% 12,357 7,849 8,901 $24.65 C 32 745,641 15.8% 0.5% 16.3% 17.1% 9,787 5,868 21,285 $20.19 Subtotal 91 6,921,288 10.5% 0.7% 11.3% 11.5% 32,999 15,797 (1,561) $27.50 MONTGOMERY CO. A 198 34,483,773 13.0% 1.1% 14.1% 14.9% 448,216 267,843 150,552 $31.10 B 491 28,003,423 12.6% 0.7% 13.3% 12.6% 248,483 (179,710) (272,961) $25.76 C 188 5,673,757 8.9% 0.3% 9.2% 9.4% 21,709 14,271 51,608 $20.51 Subtotal 877 68,160,953 12.5% 0.8% 13.3% 13.5% 718,408 102,404 (70,801) $28.11 P. 3 COLLIERS INTERNATIONAL
PRINCE GEORGES COUNTY Prior Qtr Lease BELTSVILLE A 6 751,902 40.0% 1.1% 41.1% 28.0% 8,768 (97,777) (99,737) $20.81 B 16 710,905 25.0% 0.0% 25.0% 28.0% 0 25,340 5,881 $18.69 C 8 205,989 1.7% 0.0% 1.7% 1.7% 0 0 (820) $18.16 Subtotal 30 1,668,796 28.9% 0.5% 29.4% 25.0% 8,768 (72,437) (94,676) $18.98 BOWIE A 6 688,392 23.0% 0.0% 23.0% 27.0% 16,620 27,129 26,449 $26.66 B 31 1,015,982 8.8% 0.4% 9.2% 9.4% 3,436 2,532 (17,539) $18.80 C 6 161,649 4.1% 0.0% 4.1% 4.1% 0 0 600 $12.04 Subtotal 43 1,866,023 13.6% 0.2% 13.8% 15.4% 20,056 29,661 9,510 $20.49 BRANCH AVENUE B 38 1,534,433 8.7% 0.0% 8.7% 6.6% 0 (31,201) (38,436) $20.31 C 18 629,714 3.7% 0.0% 3.7% 4.1% 2,070 2,670 (715) $17.67 Subtotal 56 1,264,147 7.2% 0.0% 7.2% 5.9% 2,070 (28,531) (39,151) $19.89 COLLEGE PARK A 10 1,847,973 5.5% 0.0% 5.5% 6.0% 0 9,910 (89,062) $28.50 B 32 1,852,346 32.6% 0.2% 32.7% 32.6% 4,128 (2,209) (22,506) $20.89 C 28 854,463 14.2% 0.0% 14.2% 13.4% 2,053 (7,288) (27,544) $18.83 Subtotal 70 4,554,782 18.1% 0.1% 18.2% 18.2% 6,181 413 (139,112) $20.58 UPPER MARLBORO A 1 54,000 0.0% 0.0% 0.0% 0.0% 0 0 0 - B 4 136,690 0.9% 0.0% 0.9% 1.7% 0 1,066 0 $18.59 C 7 95,251 3.7% 0.0% 3.7% 3.7% 0 0 (507) $18.45 Subtotal 12 285,941 1.6% 0.0% 1.6% 2.0% 0 1,066 (507) $18.52 GREENBELT A 18 2,166,286 30.9% 1.3% 32.2% 32.1% 80,542 (629) (11,169) $22.66 B 41 1,402,228 22.0% 0.8% 22.8% 22.4% 3,286 (5,452) 22,195 $20.11 C 3 79,234 0.0% 0.0% 0.0% 0.0% 0 0 0 $18.00 Subtotal 62 3,647,748 26.8% 1.1% 27.9% 27.7% 83,828 (6,081) 11,026 $21.67 LANDOVER A 8 1,139,735 23.9% 0.0% 23.9% 23.9% 4,608 347 4,671 $21.28 B 36 1,901,398 24.1% 0.0% 24.1% 23.1% 11,199 (18,991) (15,579) $21.19 C 18 442,774 2.3% 0.0% 2.3% 2.5% 0 934 84 $11.23 Subtotal 62 3,483,907 21.3% 0.0% 21.3% 20.8% 15,807 (17,710) (10,824) $19.55 LANHAM A 2 447,000 1.2% 2.2% 3.4% 3.4% 0 4,141 4,141 $23.00 B 33 1,361,020 26.6% 0.0% 26.6% 27.6% 4,448 13,589 2,940 $18.08 C 8 144,802 7.3% 0.0% 7.3% 12.7% 8,545 7,825 4,691 $17.32 Subtotal 43 1,952,822 19.3% 0.5% 19.8% 21.1% 12,993 25,555 11,772 $18.09 LAUREL A 6 840,547 9.1% 1.1% 10.3% 10.3% 22,688 0 (75) $19.33 B 44 1,546,237 22.1% 0.2% 22.3% 20.0% 12,637 (35,463) (10,660 $18.32 C 11 275,929 3.6% 0.0% 3.6% 3.9% 735 735 2,134 $15.96 Subtotal 61 2,662,713 16.1% 0.5% 16.6% 15.3% 36,060 (34,728) (8,601) $18.51 NATIONAL HARBOR A 4 460,752 19.8% 0.0% 19.8% 14.7% 4,514 (23,502) (3,362) $26.11 B 17 555,262 20.1% 0.0% 20.1% 20.3% 10,095 1,023 680 $24.25 C 6 167,364 23.0% 0.0% 23.0% 24.2% 0 1,900 7,854 $16.90 Subtotal 27 1,183,378 20.4% 0.0% 20.4% 18.7% 14,609 (20,579) 5,172 $24.10 PENN AVE CORRIDOR A 3 328,679 63.1% 0.0% 63.1% 63.1% 0 0 0 $22.50 B 8 211,925 15.5% 0.0% 15.5% 13.5% 0 (4,200) (4,200) $20.00 C 10 148,330 12.7% 0.0% 12.7% 13.8% 3,047 1,574 1,574 $18.77 Subtotal 21 688,934 37.6% 0.0% 37.6% 37.2% 3,047 (2,626) (2,626) $22.84 PRINCE GEORGES CO. A 64 8,725,266 21.6% 0.6% 22.2% 21.3% 137,740 (80,381) (168,144) $21.70 B 300 12,228,426 21.4% 0.2% 21.6% 21.2% 49,229 (53,966) (77,224) $20.12 C 123 3,205,499 7.7% 0.1% 7.7% 8.0% 16,450 8,350 (12,649) $17.18 Subtotal 487 24,159,191 19.6% 0.3% 20.0% 18.9% 203,419 (125,997) (258,017) $20.39 P. 4 COLLIERS INTERNATIONAL
MARKET REPORT KEY TERMS Q2 2013 OFFICE SUBURBAN MARYLAND DEFINITIONS OF KEY TERMS FOUND IN THIS REPORT Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property. Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of tenant) trying to sublet a space that has already been leased. Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation. Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings. : Average Asking Rental s: by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reports on an annual per square foot basis. Rentable Building Area (RBA): The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant s rental obligation. This report tracks buildings with 10,000 square feet or more of speculative space. Includes competitive space in Class A, B and C single and multitenant buildings. Excludes buildings that were built with the intent to house only medical users and government owner-occupied buildings. Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. space is sometimes referred to as sublet space. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. 482 offices in 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 Asia: 38 EMEA: 85 Australia/New Zealand: 157 $2 billion in annual revenue 1.12 billion square feet under management Over 13,500 professionals RESEARCHERS: Andrew Wellman TEL + 1 202 534 3632 andrew.wellman@colliers.com Robert Hartley TEL + 1 703 394 4852 robert.hartley@colliers.com The net change in occupied space over a given period of time. Unless otherwise noted, includes direct and sublease space. Inventory: Includes all existing multi- or single-tenant leased and owner-occupied office properties greater than or equal to 10,000 square feet (net rentable area). Does not include medical or government buildings. Accelerating success.