dtz md survey 2q15

Market Report Suburban Maryland | 2nd Quarter 2015

DTZ | 2

DC Metropolitan Area Overview.....................................................................................................3

Suburban Maryland & Map.........................................................................................................4-6

Bethesda/Chevy Chase.....................................................................................................................7

North Bethesda...................................................................................................................................8

Rockville..............................................................................................................................................9

North Rockville..................................................................................................................................10

Gaithersburg/Germantown.............................................................................................................11

Silver Spring..............................................................................................................................................12

Prince Georges County..........................................................................................................................13

Appendix..................................................................................................................................................14

Tables..................................................................................................................................................14-22

Methodology & Definitions..................................................................................................................23

About DTZ...............................................................................................................................................24

Contents

www.dtz.com | 3

Washington, DC Metropolitan Area

Net Absorption/Asking Rent 4Q TRAILING AVERAGE

Washington, DC Metropolitan Area NET ABSORPTION - DELIVERIES - VACANCY

WASHINGTON, DC METRO

Economic IndicatorsQ2 14 Q2 15 12-Month Forecast

DC Metro Employment 3.11M 3.18M

DC Metro Unemployment 5.0% 4.6%

U.S. Unemployment 6.1% 5.3%

Market IndicatorsQ2 14 Q2 15 12-Month Forecast

Overall Vacancy 15.6% 16.1%

Net Absorption 154K 666K

Under Construction 3.9M 5.8M

Deliveries 2.1K 567K

Average Asking Rent (FS) $35.91 $35.29

DC Metro Region Rises off the Bottom

After a lackluster performance in 2014, by midyear 2015 it was clear that the DC Metro economy is back on track. Job growth in 2014 was below average with just over 19,000 new nonfarm payroll jobs for the year; in fact the DC Metro Region was last among major metropolitan regions in job growth in 2014. Compare that to June 2015: over-the-year employment in the region was 64,000 net new jobs well above the historical average of 35,000 jobs per year. Adding to the good news is the return of office-using job growth to the region. Overall office-using employment (including federal government employment) in the DC Region shrank by 12,000 jobs in 2014. At midyear 2015, office-using employment had turned positive, driven by a surge of over 20,000 jobs in the high- paying Professional and Business Services sector since June of 2014. A closer examination of that very important sector shows that consulting has been leading the way in employment growth, adding 9,500 jobs from since June 2014, administrative jobs adding 8,100 positions and an even a modest growth in executive level management and legal services in the region.

Major regional demand drivers are at an inflection point. After being a drag on the local economy for the last four years, the Federal Government has reached stabilization both in terms of spending and employment. The federal contracting community that is an integral part of the suburban office landscape is estimated to be about 65% of the way through its round of downsizing. Finally, about 80% of law firms that account for a third of the District of Columbias downtown core market footprint have transacted deals. While these law firms as a whole have reduced size requirements and returned 1.2 million square feet to the market from 2011-2014, the impact of any future downsizing will be far less dramatic.

In retrospect, it appears that the DC Metro regions office market hit bottom in 2014 and is now poised for positive, if modest, conditions moving forward in the near term. The vacancy rate for the region stands at 16.1%, a 0.1% decrease from its level in the first quarter of 2015. More importantly, the decrease in regional vacancy signals a reversal from 15 straight quarters of flat or rising vacancy. The downtick in vacancy coincides with overall positive absorption of 670,000 sf for the second quarter, bringing the midyear absorption total to 390,000 sf. With this as a backdrop, investment in the region continues unabated. As of midyear 2015, $4 billion in transaction volume had occurred in the office sector signaling another robust year for investors bullish on prospects for the future of the DC Region.

0%

4%

8%

12%

16%

-4

-2

0

2

4

6

8

10

12

05 06 07 08 09 10 11 12 13 14 YTD15

Vac

ancy

Rat

e

MS

F

Net Absorption Deliveries Vacancy Rate

$33.50

$34.00

$34.50

$35.00

$35.50

$36.00

$36.50

-1.0

0.0

1.0

2.0

2010 2011 2012 2013 2014 2015

Net Absorption, MSF Asking Rent, $ PSF

DTZ | 4

Suburban Maryland

Overall Vacancy

Large Blocks of Contiguous Space

Submarket Comparison MAJOR TENANT VACANCIES VS. PENDING

Market IndicatorsQ2 14 Q2 15 12-Month Forecast

Overall Vacancy 17.6% 18.5%

Net Absorption 333K (80K)

Under Construction 508K 634K

Deliveries 592K 0

Average Asking Rent $26.06 $26.12

0

200

400

600

800

1,000

1,200

1,400

Bethesda/CC N Bethesda Rockville N Rockville Gaith./Germ. PG County

Squ

are

Feet

, 000

s

Vacated (Q4 13 to Q1 15) Pending Vacancies (Remaining 2015)

0 10 20 30

Bethesda/ Chevy Chase

North Bethesda

Rockville

North Rockville

Gaithersburg/ Germantown

Silver Spring

Northern PGC

Central PGC

Southern PGC

# of Blocks

25k to 50k50k to 100k100k to 150k150k to 200k200k +

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

2010 2011 2012 2013 2014 2015

Historical Average = 16.2%

EconomyWhile DC metro is among the most competitive job markets across the country

with a 4.6% unemployment rate, Montgomery County, in particular, has shown

strong employment numbers. The county had a 4.0% unemployment rate as

of the end of June 2015a 20 basis-point decline from January 2015 and down

30 basis points year-over-year. Employment growth in Suburban Maryland

was equally robust with 19,000 more jobs in May 2015 compared to a year

prior. While the employment growth was predominantly in non-office-using

sectors, Suburban Maryland did see modest gains in Professional and Business

Services employment. Suburban Maryland continues to see activity in many

major sectors driven by federal government spending. After four consecutive

years of budget cuts, the spending bill (so-called CR-Omnibus budget)

passed by Congress late last year will likely drive demand out of agencies such

as the Centers for Disease Control and the National Institutes of Health. The

effect of this demand on the office sector is not expected to be entirely positive

as many of the large federal leases in the market will consist of consolidations

and moves to federally owned space, thus bringing more large blocks to market.

Market OverviewAfter registering positive demand at the beginning of 2015, the Suburban

Maryland office market experienced a return to negative growth during the

second quarter of 2015. Net absorption registered a negative 79,600 square

feet (sf), bringing year-to-date absorption to 36,600 sf. The overall vacancy

rate increased 0.1 percentage points from the previous quarter, rising to

18.5% at the end of the second quarter. Suburban Maryland typically relies

heavily on the public sector to pace absorption in the region, but during

the second quarter government demand was anemic, consisting mainly of

renewals. In fact, the largest lease signed in Suburban Maryland during the

second quarter of 2015 was a renewal: the General Services Administration

(GSA) renewed for 80,000 sf at 7700 Wisconsin Avenue in the Bethesda/

Chevy Chase submarket. In addition to weak public sector demand, the

private sector also failed to generate significant leasing momentum. The

largest non-renewal signed during the second quarter was that of Berkeley

Point Capital which signed for 22,800 sf, also at 7700 Wisconsin Avenue.

With demand still tepid in Suburban Maryland, average asking rents have

remained relatively flat over the past few months. Rents increased, albeit

slightly, by $0.05 from the previous quarter and $0.14 from a year ago to

end the second quarter at $26.12 per square foot (psf) on a full service basis.

Rent growth in the near term could be limited as some owners have dropped

asking rates by a couple of dollars for credit tenants in the face of future

tenant rollover. Retaining current tenants and attracting new ones continues

to be a challenge for building owners, particularly with the intense focus on

space efficiency across industry sectors.

www.dtz.com | 5

Maryland Office SubmarketsMaryland Office Submarkets

Shady Grove

Rockville

Twinbrook

White Flint

Medical Center

Bethesda

Silver Spring

Takoma

Fort Totten

Forest Glen

Wheaton

Friendship Heights

Grosvenor-StrathmoreM

ONTG

OMER

Y CO

UN

TY

HOWARD COUNTY

MARY

LAND

VIRG

INIA

PRIN

CE G

EORG

ES

COU

NTY

POTOMAC

NORTH POTOMAC

OLNEY

CLARKSBURG

WHEATON

270

270

370

32

495

29

1

124

124

27

355

190

190

187

2897

183

185

193

650 410

650

650

28

200

200

495

355

355

DIST

RICT

OF CO

LUMB

IAGlenmont

PRINCE GEORGESCOUNTY

NORTH SILVER SPRING

SILVER SPRINGBETHESDA /CHEVY CHASE

NORTH BETHESDA

ROCKVILLE

NORTH ROCKVILLE

GERMANTOWN /GAITHERSBURG

DTZ | 6

Suburban Maryland Office MarketInventory by Class and Vacancy by Submarket, Second Quarter 2015

Top Transactions

Suburban Maryland Office MarketNet Absorption - Deliveries - Vacancy, Second Quarter 2015

Key Sales Transactions 2Q 15

Key Lease Transactions 2Q 15

0%

4%

8%

12%

16%

20%

-1.5

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05 06 07 08 09 10 11 12 13 14 YTD15

Vaca

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PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

7700 Wisconsin Avenue 80,000 GSA Renewal Bethesda/Chevy Chase

14400 Sweitzer Lane 60,500 SI Corporation Renewal Northern PGC

7700 Wisconsin Avenue 22,800 Berkeley Point Capital Relet Bethesda/Chevy Chase

2273 Research Boulevard 22,700 Turning Point Global Solutions Relet North Rockville

820 W Diamond Aveneu 13,500 Icon Clinical Research Relet Gaithersburg

9601 Blackwell 13,400 Shady Grove Orthopedics Relet Rockville

7845 Walker Drive 13,300 GSA Probation and Parole Relet Northern PGC

4520 East-West Highway 10,100 3E Company Renewal Bethesda/Chevy Chase

PROPERTY SF SELLER/BUYER PRICE SUBMARKET

7315 Wisconsin Avenue 353,000 MRP JV Rockpoint / JP Morgan $150,000,000 Bethesda / Chevy Chase

4520 East-West Highway 174,400 Intelligent Decisions / EBA Engineering $63,500,000 Bethesda / Chevy Chase

9600 Blackwell Road 102,600 LNR Partners / True North $17,175,000 North Rockville

6710 Oxon Hill Road 118,300 PPM America / Rickman Development $14,630,000 Southern PGC

0%

5%

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30%

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4

6

8

10

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18

20

Gaith./Germ. Silver Spring Rockville N Bethesda Bethesda/CC N Rockville PG County

Vaca

ncy

Rat

e

MS

F

Class A Class B Class C Vacancy %

www.dtz.com | 7

Bethesda/Chevy Chase

Demand was tepid in the Bethesda/Chevy Chase (BCC) submarket during the second quarter of the year. Following two consecutive quarters of positive absorption, BCC experienced negative absorption of 36,700 sf which brought net absorption for the first six months of 2015 from a positive to negative 17,000 sf. The main driver of negative demand during the second quarter was Microsoft returning two full floors (53,500 sf) to the market at 5404 Wisconsin Avenue. With space being returned, vacancy rose by 30 basis points to 11.8%. Despite negative demand from Class A buildings during the second quarter, high-quality product is still performing quite well in the submarket. BCCs relet vacancy rate for Class A buildings remains the lowest in Suburban Maryland at 7.3%.

Gross leasing activity in Bethesda/Chevy Chase during the second quarter was also relatively slow. The largest lease signed in Suburban Maryland during the second quarter of 2015 was a renewal: the General Services Administration (GSA) renewed for 80,000 sf at 7700 Wisconsin Avenue. In addition to weak public sector demand, the private sector also failed to generate significant leasing momentum. The largest non-renewal lease during the second quarter was that of Berkeley Point Capital which signed for 22,800 sf, also at 7700 Wisconsin Avenue. Other notable leases in the area consisted of Kalamata Capital at 7315 Wisconsin Avenue for 2,400 sf and NorthMarq Capital at 7600 Wisconsin Avenue for 6,900 SF.

Asking rents across all classes averaged $36.28 psf on a full service basis, up 1.6% from the first quarter of 2015. Class A asking rents recovered from the previous quarter, increasing nearly $0.40 back to $39.85 psf. After Carr Properties delivery of 4500 East West Highway in the final quarter of 2014, no other projects have been completed and no buildings are under construction. Vacancy has been inching upward in the submarket since last year, but with no deliveries during the remainder of 2015 existing product should capture demand and vacancy will likely stabilize.

Outlook Governor Larry Hogan approved the Metro Purple line over this past quarter. Expect the governor to take serious measures in order to match the necessary funding needed for the projects success. This is a big step for Suburban Maryland and commuters throughout Montgomery and Prince Georges County.

With NIHs rumored consolidation to their Bethesda campus, expect up to 2,600 workers to move out of previously leased space and into the 90 building campus, leaving numerous buildings throughout suburban Maryland vacant.

Large blocks of space are becoming increasingly rare in Bethesda. With several deals in the works for the remaining spaces, demand should start to creep up the I-270 Corridor.

Market Indicators*Arrows = Current Qtr Trend

Asking Rent

Net Absorption Deliveries Vacancy

Vacant and Available Space

Asking Rent$36.25 FS

Net Absorption(36,700) SF

Vacancy11.8%

Deliveries0 SF

Under Construction0 SF

0%

4%

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05 06 07 08 09 10 11 12 13 14 YTD15

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1.0 1.2 1.0 1.11.3 1.3

0.5 0.2 0.40.5

0.5 0.5

0.00.20.40.60.81.01.21.41.61.82.0

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15 Q2 15

MS

F

Vacant Marketed Available (not yet vacant)

$25$27$29$31$33$35$37$39$41$43$45

2009 2010 2011 2012 2013 2014 2015

Full

Ser

vice

PS

F

Class A Class B

DTZ | 8

North Bethesda

0%

4%

8%

12%

16%

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24%

-600-500-400-300-200-100

0100200300400500

05 06 07 08 09 10 11 12 13 14 YTD15

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In the second quarter of 2015, North Bethesda absorbed 11,400 sf bringing its midyear-absorption total to 91,900 sf. North Bethesdas mid-year 2015 absorption total is the highest in Suburban Maryland. The fact that no Suburban Maryland submarket has a midyear-absorption total greater than 100,000 sf however is a testament to the waning demand of Marylands leasing landscape. Demand was positive for first-generation space during the second quarter of the year. New space absorption registered 61,500 sf while relet and sublet space both posted negative totals. The largest lease signed during the second quarter in North Bethesda was that of Global Engineering Solutions which leased 14,000 sf in Building A at 6700 Rockledge Drive. Leasing activity during the quarter was down substantially as the Global Engineering deal was the only lease signed greater than 10,000 sf.

With positive demand, albeit modest, vacancy dropped by 0.1 percentage point from the previous quarter to 21.8%. Although North Bethesdas vacancy is currently higher than most Suburban Maryland submarkets, vacancy in the area could likely fall soon due to two reasons. First, the availability rate in North Bethesda is a mere 1.4 percentage points above its vacancy rate which means there is a shortage of supply coming back on the market from existing buildings. Also, there are no developments currently under construction in the submarket that would pull existing tenants from older buildings or add to inventory. These two factors combined with stable demand should see vacancy trend downward. Class A properties captured most of the demand in the submarket, registering 10,738 sf of positive absorption followed by Class B properties with a positive 992 sf. Class A asking rents fell $0.65 over the second quarter to $30.64, contributing to the decrease in overall asking rent from $29.72 psf to $29.67 psf.

Outlook While currently at a standstill, NIHs consolidations are

still expected to continue throughout 2015, returning significant space to the market, notably at Executive Boulevard.

Five million square feet of leases in Suburban Maryland are set to expire from 2015-2017. The continued focus of the federal government/GSA on consolidation, value and efficiency will bring more space to market and drive rents further downward

Marriotts pending relocation could add more than 900,000 sf of vacancy to the market, but vacancy should remain stagnant in the near-term with the hotel companys lease expiring in 2022 and most believing that the tenant is only in the market for a hefty incentive package from the state rather than a move to the District or NoVA.



1.4 1.41.7

2.3 2.2 2.2

0.61.0

0.80.1 0.0 0.1

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1.0

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Q4 11 Q4 12 Q4 13 Q4 14 Q1 15 Q2 15

MS

F


$25

$27

$29

$31

$33

$35

$37

2009 2010 2011 2012 2013 2014 2015

Full

Ser

vice

PS

F

Class A Class B


Net Absorption11,400 SF

Vacancy21.8%

Deliveries0 SF


Asking Rent


www.dtz.com | 9

Rockville

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Rockville finally bucked the trend of consecutive quarters of negative demand and registered positive net absorption of 7,600 square feet (sf) during the second quarter of 2015. The overall vacancy rate fell 10 basis points from 17.1% from the first quarter of 2015 to 17.0% in the second quarter. Home to the largest lease of the first quarter, Rockville experienced lighter leasing activity with the exception of a 19,400 sf lease at 9601 Blackwell and Shady Grove Orthopedics lease for 13,400 sf. These two leases accounted for nearly 60% of the 58,400 sf of leasing activity across the submarket. The rest of the leasing activity was dominated by smaller leases, the next largest being that of Realty Capital Investments sublet for 8,700 sf at 1201 Seven Locks Road.

12358 Parklawn Drive and 12435 Park Potomac remain under construction and are expected to deliver in November 2015 and January 2016, respectively. This will bring another 205,000 sf of office space to the submarket, only 10% of which is preleased to Foulger Pratt Companies. There will be one new delivery coming up at the beginning of the third quarter at 275 N Washington Street, which consists of 23,600 sf. With 11,700 sf of office space still available on the second floor and only a block away from the Rockville Metro, expect the building to see some activity in the near future. These three deliveries will likely boost demand and leasing activity back to quarterly averages.

Outlook Medical tenants will continue to drive demand for office

space in the Rockville submarket, as they have been throughout the recovery.

The vacancy rate will remain stable as no major vacancies are anticipated in 2015, except in spec development in the submarket.



1.2 1.2 1.31.5 1.5 1.5

0.10.4 0.3

0.2 0.20.3

0.00.20.40.60.81.01.21.41.61.82.0

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15 Q2 15

MS

F


$20$22$24$26$28$30$32$34$36$38

2009 2010 2011 2012 2013 2014 2015

Full

Ser

vice

PS

F

Class A Class B



Vacancy17.0%

Deliveries0 SF

Under Construction216,600 SF

Asking Rent


DTZ | 10

North Rockville

As was the case in the rest of Suburban Maryland, gross leasing activity in North Rockville slowed during the second quarter of 2015 to a total 132,900 sfwell below the submarkets historical quarterly average of 228,000 sf. North Rockville continued to follow the trend towards smaller leases, with only two deals over 10,000 sf executed during the quarter, on par with the previous quarter. On a positive note, the submarket boasted the highest level of demand in Suburban Maryland, registering 77,800 sf of absorption over the quarter. This is the second quarter in a row with positive demand, a much needed development following a very poor year in 2014. The largest deal of the quarter in North Rockville was signed by TurningPoint Global Solutions. The software services firm leased the entire fourth floor (22,800 sf) at 2273 Research Boulevard.

The submarkets overall vacancy rate declined by 0.7 percentage points to end the second quarter at 17.6%, primarily due to the absorption of relet space. The North Rockville submarket consists of 8.2 msf of Class A product with a vacancy rate of 12.4%. Class A product continued to perform well over the quarter, with 37,300 sf of high-quality product absorbed. Asking rents in the submarket currently average $25.67 psf with Class A rents at $27.42 psf. No new or spec projects have broken ground over the past year as developers postponed suburban development in favor of core development in the District of Columbia.

Outlook North Rockville will continue to attract tenants from

within the I-270 Corridor as average asking rents remain an economical alternative to those in North Bethesda and Rockville.

With fewer large biotech and lab spaces available throughout the 270 corridor, the market for such existing space may tighten in the near future.




Vacancy17.6%

Deliveries0 SF


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1.6 1.5 1.62.1 2.1 2.0

0.4 0.40.8

0.5 0.4 0.5

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F


$20

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$32

2009 2010 2011 2012 2013 2014 2015

Full

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vice

PS

F

Class A Class B

Asking Rent


www.dtz.com | 11

Gaithersburg/Germantown

After a first quarter of modest growth, Gaithersburg/Germantown stumbled during the second quarter of 2015 posting negative 700 sf of absorption. With leasing activity decreasing in the second quarter, Gaithersburg/Germantowns midyear absorption total fell to 15,100 sf. After returning less than 1,000 sf to the market during the quarter, vacancy in the submarket remained unchanged from the previous quarter at 18.5%. Demand has faltered over the last year in the submarket, as the last four quarters have produced just 39,200 sf of absorption. Gross leasing activity was noticeably down during the second quarter as well. Typically, the submarket sources 113,000 sf of activity during per quarter, but in the most recent quarter leasing activity decreased by more than half at 51,900 sf. Smaller deals were the primary of demand with only one deal eclipsing the 5,000 sf mark. The largest lease in the submarket during the quarter was that of Icon Clinical Research which signed for 13,500 sf at 820 West Diamond Avenue in Gaithersburg.

Gaitherburg/Germantown is one of the few Suburban Maryland submarkets where demand for Class B product exceeded that of Class A. With tenants displaying of preference for top-quality space over the past few quarters, it was surprising to see a negative total for Class A absorption during the second quarter. Vacancy for Class A buildings in the submarket also exceeds that of older legacy product. As of the end of the second quarter, Class A vacancy was 6.4 percentage points above commodity product at 23.0%. Average rents in the submarket rose by $0.29 over the quarter. Class A Rents, however, fell by $0.07 while Class B rents rose by $0.04. This indicates that perhaps more cost conscious tenants will locate in the submarket moving forward.

Outlook As activity tends to move north up the I-270 Corridor,

tightening conditions in Bethesda may lead to movement towards cheaper alternatives in Gaithersburg/Germantown.

With less than ten spec suites currently listed on the market for lease, look for owners with stagnant leasing activity to convert existing inventory into spec suites to capture demand for tenants with immediate requirements.

Numerous properties in the Gaithersburg/Germantown submarket offer large blocks of available space (greater than 25,000 sf) allowing the submarket to accommodate large tenant requirements.



Net Absorption(700) SF

Vacancy18.5%

Deliveries0 SF


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Q4 11 Q4 12 Q4 13 Q4 14 Q1 15 Q2 15

MS

F


$20$21$22$23$24$25$26$27$28$29

2009 2010 2011 2012 2013 2014 2015

Full

Ser

vice

PS

F

Class A Class B

Asking Rent


DTZ | 12

Silver Spring

Silver Spring registered the second highest levels of absorption in all of Suburban Maryland: 36,800 sf. This marked the second straight quarter with positive absorption. Positive demand consisted of multiple leases fewer than 10,000 sf. Some buildings with notable activity included 8115 Fenton Street, 8484 Georgia Avenue, and 1100 Wayne Avenue which accounted for 4,000 sf, 5,500 sf, and 10,400 sf respectively. Due to a steady increase in absorption over the last two quarters, the vacancy rate continued to drop, declining 0.7 percentage points since year end 2014.

Despite all the positive metrics, total leasing activity was only 49,400 sf. This is the second lowest leasing volume experienced by the submarket over the past 10 years, with only last quarter being lower at 44,700 sf. The majority of leases were for space in Class A buildings; in fact, Class A space accounted for almost 80 percent of all positive demand at 34,100 sf. Class B was the only class that saw more move-outs than move-ins, resulting in negative absorption of 6,200 sf.

After a number of years without any deliveries, one building is currently under construction in Silver Spring: Lee & Associates 4009 Sandy Spring Road. The building will deliver 16,800 sf of office space to the area referred to as North Silver Spring as vacant. Rents throughout the submarket have not grown significantly over the past four quarters, only up 1.7% year-over-year. Previously reported, Petrie Ross Ventures had plans for a 210,600 sf project at 8645 Colesville Road. Upon further review, the developer has not begun construction and has currently put a hold on the project. With limited development in the pipeline and only one small building currently under construction, expect the market to remain flat over the near term.

Outlook With a Class B office vacancy rate of 18.1% at the end of

2014, expect rents in this segment to further decline.

Tenant-favorable conditions are likely to persist over the short term.




Vacancy11.8%

Deliveries0 SF


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1.0 0.91.1 1.0 1.0 0.9 0.9

0.3 0.40.3

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0.0

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Q4 11 Q4 12 Q4 13 Q2 14 Q3 14 Q1 15 Q2 15

MS

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$20

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$34

2009 2010 2011 2012 2013 2014 2015

Full

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Class A Class B

Asking Rent


www.dtz.com | 13

Prince Georges County

Prince Georges County (PGC) was home to two of the largest lease transactions in all of Suburban Maryland over the second quarter of 2015. The largest was that of SI Organization, an engineering services company, which signed a new deal for 60,500 sf. Although a large deal, this lease is only for half of the square footage that the company previously held. Another major transaction was the GSA/Probation and Paroles signing for 13,300 sf at 7855 Walker Drive. This was not only one of the few transactions over 10,000 sf across suburban Maryland but was also the second largest GSA lease in the DC Metro throughout the second quarter. A couple of buildings saw a flurry of medium-sized deals: 7,400 sf was leased at 7500 Greenway Center Drive and 7,200 sf at 7400 Executive Place.

Prince Georges County continually has the highest vacancy rate among major Suburban Maryland markets. The vacancy rate has increased a full percentage point over the last quarter to 25.2%. This is consistent with recent trends, as the vacancy rate has remained in the mid-twenties for the past six quarters. Dont expect the vacancy rate to shoot up much higher as the spread between availability and vacancy is only 3% and among the lowest throughout suburban Maryland. The submarket continued to show poor leasing fundamentals with negative demand of 176,700 sf bringing the midyear total to negative 181,195 sf. This was the fourth consecutive quarter in which the submarket has experienced negative demand.

With the ongoing poor leasing conditions, the development pipeline looks bleak. Only one building remains under construction and only a few others have been proposed for development. The one building that remains under construction is at 7800 Harkins Road. Berman Enterprises is building out 110,000 sf of office space for the Maryland Department of Housing and Community Development.

Outlook Anticipating a late 2016 opening, the MGM National

Harbor Casino will bring significant excitement and activity to the submarket. A top executive of MGM Resorts International refers to the new project as a destination and one that will attract not only local businesses but business from around the country.

Asking rents will remain flat to falling for the next 12 months as vacancy registered 7.9 percentage points above the submarkets historical norm. As the search for FBIs 2.1-msf headquarters location narrows to a short list of sites, prospects for PGC look pretty good.



Net Absorption(176,700) SF

Deliveries0 SF


0%

4%

8%

12%

16%

20%

24%

28%

-600-500-400-300-200-100

0100200300400

05 06 07 08 09 10 11 12 13 14 YTD15

Vac

ancy

Rat

e

Squ

are

Fee

t, 00

0s



3.8 3.9 3.8 4.3 4.24.4

0.2 0.20.9

0.7 0.8 0.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15 Q2 15

MS

F


$18

$19

$20

$21

$22

$23

$24

$25

2009 2010 2011 2012 2013 2014 2015

Full

Ser

vice

PS

F

Class A Class B

Asking Rent


Vacancy25.2%

DTZ | 14

Appendix

Table Summaries

Metro Washington Office Market Summary13

Employment Data13

Office Availability, Vacancy, and Net Absorption14

Trailing 12-Month Data15

Historical Year-End Data16

Market Statistics by Class17-18

Survey of New Office Space by Submarket19-22

Methodology & Definitions23

Metro Washington Current Employment Data

Metro Washington Office Market Summary: Second Quarter 2015p

SOURCE: U.S. Bureau of Labor Statistics (Not seasonally adjusted)* Average per year to datep - preliminary

TotalInventory

Total SpaceVacant

VacancyRate

Q2 2015Absorption

YTDAbsorption

Washington, DC 122,850,343 13,562,737 11.0% 275,133 250,129

Northern Virginia 162,377,414 30,463,789 18.8% 370,078 172,605

Suburban Maryland 72,887,967 13,466,110 18.5% (79,631) 36,624

Regional Totals 358,115,724 57,492,636 16.1% 665,580 459,358

Non Farm Employment

(Jan-June 2014)

Non FarmEmployment

(Jan-June 2015p)

Jobs Added/ Lost* Percent Change

Washington, DC 751,100 761,950 10,850 1.4%

Northern Virginia 1,376,800 1,397,000 20,200 1.5%

Suburban Maryland 956,550 974,250 17,700 1.9%

Regional Totals 3,101,550 3,155,450 53,900 1.7%

www.dtz.com | 15

AppendixO

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Ava

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DTZ | 16

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p - p

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www.dtz.com | 17

AppendixH

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p - p

relim

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DTZ | 18

Suburban Maryland 2nd Quarter 2015 Market Statistics

BuildingsTotal

Inventory(SF)

New Vacancy

(%)

Relet Vacancy

(%)

Sublet Vacancy

(%)

Total Vacancy*

(%)

Total Availability

(%)

Net Absorption

Current QTR(SF)

Under Construc-

tion(SF)

Average Asking Rent(FS)

Bethesda/Chevy Chase

Class

A 31 6,259,195 3.8% 7.3% 1.1% 12.1% 14.8% (53,566) 0 $39.59

B 52 4,476,641 0.0% 10.2% 1.9% 12.2% 17.6% 17,887 0 $33.90

C 19 497,926 0.0% 4.8% 0.1% 4.9% 6.3% (1,033) 0 $29.37

TOTAL 102 11,233,762 2.1% 8.3% 1.4% 11.8% 15.6% (36,712) 0 $36.25

North Bethesda

Class

A 33 7,249,555 2.0% 21.8% 0.3% 24.1% 24.7% 10,738 0 $30.64

B 30 2,251,558 0.0% 15.6% 1.0% 16.5% 18.0% (352) 0 $26.72

C 12 379,014 0.0% 9.0% 0.0% 9.0% 20.4% 992 0 $25.11

TOTAL 75 9,880,127 1.5% 19.9% 0.5% 21.8% 22.7% 11,378 0 $29.67

Rockville

Class

A 30 4,335,076 5.6% 15.8% 0.5% 21.9% 26.1% 27,650 216,613 $33.05

B 45 4,052,592 0.0% 9.8% 2.6% 12.5% 15.2% (19,516) 0 $26.76

C 18 421,848 0.0% 9.8% 0.0% 9.8% 9.9% (576) 0 $23.62

TOTAL 93 8,809,516 2.8% 12.8% 1.4% 17.0% 20.5% 7,558 216,613 $30.81

North Rockville

Class

A 63 8,150,921 1.6% 12.4% 2.0% 16.1% 19.8% 37,280 0 $27.42

B 43 2,876,160 0.0% 20.0% 1.0% 21.0% 26.5% 40,522 0 $23.27

C 5 338,926 0.0% 23.7% 0.0% 23.7% 30.2% 0 0 $19.55

TOTAL 111 11,366,007 1.2% 14.7% 1.7% 17.6% 21.9% 77,802 0 $25.67

* Total Vacancy - the vacancy rate is calculated using the combined total of relet, sublet and new vacant space.

Market Statistics

www.dtz.com | 19

Suburban Maryland 2nd Quarter 2015 Market Statistics

Market Statistics

BuildingsTotal

Inventory(SF)

New Vacancy

(%)

Relet Vacancy

(%)

Sublet Vacancy

(%)

Total Vacancy*

(%)

Total Availability

(%)

Net Absorption

Current QTR(SF)

Under Construc-

tion(SF)

Average Asking Rent(FS)

Gaithersburg/Germantown

Class

A 27 2,846,347 1.0% 20.4% 1.6% 23.0% 23.4% (14,966) 0 $25.57

B 59 3,173,699 0.0% 16.3% 0.3% 16.6% 29.4% 13,295 80,000 $21.75

C 11 508,597 0.0% 4.5% 0.0% 4.5% 37.2% 945 0 $21.37

TOTAL 97 6,528,643 0.4% 17.2% 0.9% 18.5% 24.4% (726) 80,000 $23.56

Silver Spring

Class

A 25 4,589,454 0.0% 7.7% 0.6% 8.3% 14.9% 34,119 227,408 $28.72

B 48 2,367,455 0.1% 17.3% 1.1% 18.5% 20.0% (6,235) 0 $23.83

C 21 697,743 1.5% 11.0% 0.2% 12.7% 20.0% 9,918 0 $22.23

TOTAL 94 7,654,652 0.1% 11.0% 0.7% 11.8% 17.0% 37,802 227,408 $26.26

Prince Georges County

Class

A 63 8,509,609 0.8% 26.2% 0.9% 28.0% 28.3% (125,788) 110,000 $22.40

B 151 7,285,250 0.0% 24.7% 0.4% 25.1% 29.3% (57,949) 0 $20.73

C 55 1,620,401 0.0% 11.1% 0.0% 11.1% 15.4% 7,014 0 $17.88

TOTAL 269 17,415,260 0.4% 24.2% 0.6% 25.2% 27.1% (176,723) 110,000 $21.22

Suburban Maryland

Class

A 272 41,940,157 2.0% 16.4% 1.0% 19.5% 21.3% (84,533) 554,021 $28.49

B 428 26,483,355 0.0% 17.0% 1.2% 18.2% 23.5% (12,348) 80,000 $23.84

C 141 4,464,455 0.0% 10.3% 0.0% 10.3% 18.0% 17,260 0 $20.47

TOTAL 841 72,887,967 1.2% 16.3% 1.0% 18.5% 22.0% (79,621) 634,021 $26.12

* Total Vacancy - the vacancy rate is calculated using the combined total of relet, sublet and new vacant space.

DTZ | 20

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www.dtz.com | 23

MethodologyMarket 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, owner-occupied 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 TermsTotal 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: Second-generation, 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: Second-generation, 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.

Vacancy 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 Space Absorption: The net change in occupied new space between two quarters.

Relet/Sublet Absorption: The net change in occupied relet and sublet space between two quarters.

Total Absorption: The The net change in total occupied (new, relet, and sublet) space between two quarters.

Methodology & Definitions

DisclaimerThis report and other research materials may be found on our website at www.dtz.com. This is a research document of DTZ in Washington, DC. Questions related to information herein should be directed to the Research Department at 202-463-2100. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof.

About DTZDTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The companys core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facility services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the companys culture of excellence, client advocacy, integrity and collaboration.

DTZ announced an agreement to merge with Cushman & Wakefield in a May 11 press release. The new company, which will operate under the Cushman & Wakefield brand, will have revenues over $5.5 billion, over 43,000 employees and will manage more than 4 billion square feet globally on behalf of institutional, corporate and private clients. The agreement is subject to customary closing conditions and is expected to close before the end of 2015. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.

Publication date: 7.30.15

Copyright 2015 DTZ. All rights reserved.

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Real Estate Types Industrial Land Multi-family Office Retail

About DTZDTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The companys core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facility services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the companys culture of excellence, client advocacy, integrity and collaboration.

DTZ announced an agreement to merge with Cushman & Wakefield in a May 11 press release. The new company, which will operate under the Cushman & Wakefield brand, will have revenues over $5.5 billion, over 43,000 employees and will manage more than 4 billion square feet globally on behalf of institutional, corporate and private clients. The agreement is subject to customary closing conditions and is expected to close before the end of 2015. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.

Visit www.dtz.com for more information on the full range of DTZ

commercial real estate services or contact:

Nathan EdwardsVice President2101 L Street, NW, Suite 700Washington, DC 20037+1 202 463 2100

Northern VirginiaCJ HardyResearch Analyst 2101 L Street, NW, Suite 700Washington, DC 20037+1 202 463 2100

Washington, DC & Suburban Maryland Joseph WoodResearch Analyst 2101 L Street, NW, Suite 700Washington, DC 20037+1 202 463 2100

dtz md survey 2q15

Documents

dc region

dc metro region

dc metro economy

dc metro economic indicatorsq2

year employment

dc metropolitan area

mdc metro unemployment

net new jobs