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Office Snapshot Q3 2015Northern Virginia

MARKETBEAT

NORTHERN VIRGINIA OFFICE

Overall Vacancy

Net Absorption/Asking Rent 4Q TRAILING AVERAGE

Market IndicatorsQ3 14 Q3 15 12-Month

Forecast

Overall Vacancy 18.4% 18.6%

Net Absorption (35K) 97K

Under Construction 1.9M 1.9M

Average Asking Rent $31.73 $31.50

Economic IndicatorsQ3 14 Q3 15 12-Month

Forecast

DC Metro Employment 3.11M 3.17M

DC Metro Unemployment 5.0% 4.3%

U.S. Unemployment 5.9% 5.1%

$26

$28

$30

$32

$34

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

2010 2011 2012 2013 2014 2015

Net Absorption, MSF Asking Rent, $ PSF

10%

12%

14%

16%

18%

20%

2010 2011 2012 2013 2014 2015

Historical Average = 16.2%

EconomyThe Washington, D.C. Metropolitan regional economy continued to gain momentum in the third quarter of 2015. The unemployment rate for the region stood at 4.3% as of August 2015, with year-over-year total nonfarm job growth totaling 64,000 positions. It is evident that the region will handily surpass the historical average employment creation of 30,000 net new jobs annually. In Northern Virginia (NoVA), it is clear that the economic slowdown of 2014 that resulted from the onset of sequestration has now passed. The unemployment rate for Alexandria, Arlington, Fairfax and Loudoun Counties all ended the third quarter of 2015 below 4.0%, with job growth surpassing 35,000 net new nonfarm positions compared to this same time last year. By sector, the largest employment gains were seen in Education and Healthcare and the Leisure and Hospitality industries. There was also stronger activity in the Professional and Business Services (PBS) sector. PBS – the largest, highest paying, and most office-intensive sector in the region added over 6,000 positions to Northern Virginia payrolls in August 2015 month-over-year, with concentrated growth in management-level and technical consulting subsectors.

Market OverviewThe stronger job growth witnessed in the NoVA market contributed to 97,400 sf of net absorption in the third quarter of 2015 bringing the year-to-date total for the market to 270,000 sf. Vacancy dropped another 0.2 percentage points (pp) to 18.6% at the end of the third quarter, and is down 0.4 pp from the start of the year.

Federal leasing by the General Services Administration (GSA) has picked up this quarter after little to no activity throughout the first half of the year. The leasing arm for the government relocated the Transportation Safety Administration (TSA) into 606,900 sf at 5001 Eisenhower Avenue, renewed the Department of Homeland Security in place for 120,400 sf at 1110 North Glebe Road, and renewed the U.S. Patent and Trademark office for 54,300 sf at 2051 Jamieson Avenue.

Outside of GSA activity, government contractor Calibre Systems signed a renewal for 72,400 sf in Springfield, WGL Energy Services signed for 51,200 sf in Tysons Corner, and accounting firm EY signed for 123,900 sf in Tysons Corner, as well. EY will be the anchor tenant at 1775 Tysons Boulevard which is expected to deliver in the first quarter of 2016. Both new and high quality existing spaces continue to outperform the suburban markets as a whole.

Looking forward, the onslaught of major consolidations within Northern Virginia’s government contractor community in the wake of sequestration appears to be nearing its end with only a few contractors out of Tysons Corner, Merrifield, and Fairfax Center currently in the market with headquarters-level requirements. Still, it remains to be seen whether recent shakeups in senior leadership in the House of Representatives will put a damper on the two year budget currently being negotiated – one whose passage would add much needed clarity to the Northern Virginia region’s largest employers.

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Office Snapshot Q3 2015Northern Virginia

MARKETBEAT

SUBMARKET TOTAL BLDG INVENTORY SUBLET

VACANTTOTAL

VACANTVACANCY

RATEAVAILABILITY

RATECURRENT

ABSORPTIONYTD

ABSORPTIONUNDER

CONSTRUC-TION

AVERAGE ASKING RENT

Rosslyn 38 8,817,402 31,936 2,701,158 30.6% 36.3% (54,607) 3,867 552,781 $39.78 Clarendon/Courthouse 37 5,122,147 62,126 831,801 16.2% 23.9% 149,088 108,374 - $42.45 Virginia Square 16 1,120,831 52,023 291,531 26.0% 36.9% 1,876 1,293 - $38.26 Ballston 33 7,821,644 46,671 1,385,250 17.7% 33.2% (63,287) 4,652 - $41.44 Crystal City 39 11,036,748 53,227 2,417,761 21.9% 24.8% 58,143 114,130 - $38.00 Pentagon City 6 1,781,463 0 791,219 44.4% 50.7% (509,463) (534,370) - -Arlington County 169 35,700,235 245,983 8,418,720 23.6% 31.0% (418,250) (302,054) 552,781 $39.69 R/B Corridor** 124 22,882,024 192,756 5,209,740 22.8% 32.6% 33,070 118,186 552,781 $40.78 Old Town 163 8,059,172 70,355 901,574 11.2% 17.3% (17,488) 3,687 - $32.61 Eisenhower 28 4,883,598 19,743 500,097 10.2% 11.1% (4,154) (3,386) 720,000 $38.83 I-395 60 7,914,855 236,919 2,577,243 32.6% 34.5% 559,873 320,702 - $29.18 Alexandria 251 20,857,625 327,017 3,978,914 19.1% 22.3% 538,231 321,003 720,000 $31.02 Inside the Beltway* 420 56,557,860 573,000 12,397,634 21.9% 27.8% 119,981 18,949 1,272,781 $36.78 Tysons Corner 170 26,087,223 375,341 4,690,828 18.0% 25.2% (11,668) 61,352 476,913 $31.05 Reston 177 18,308,262 208,411 2,571,812 14.0% 18.4% 95,924 66,666 - $28.69 Herndon 133 11,737,088 156,951 1,399,036 11.9% 23.5% (52,475) 92,001 - $26.21 Merrifield 92 7,878,879 24,524 1,421,396 18.0% 23.4% 2,622 (134,457) - $31.78 Vienna 26 1,170,945 0 58,507 5.0% 9.3% 26,283 21,540 - $27.40 Oakton 14 1,010,261 5,453 283,543 28.1% 27.1% (47,453) (51,028) - $25.80 Fairfax Center 64 6,538,055 31,486 1,011,943 15.5% 27.6% (45,432) (46,646) - $28.11 Fairfax City 89 3,352,765 9,788 476,681 14.2% 18.7% (27,940) (11,169) - $23.54 28 South 148 13,585,173 134,164 2,666,229 19.6% 27.9% 34,996 9,914 161,030 $24.69 Springfield/Newington 64 5,551,040 119,272 1,446,263 26.1% 38.4% 17,189 83,736 - $31.51 Fairfax County 977 95,219,691 1,065,390 16,026,238 16.8% 24.4% (7,954) 91,909 637,943 $28.52 50/66*** 285 19,950,905 71,251 3,252,070 16.3% 23.3% (91,920) (221,760) - $28.59 28 North 88 6,160,982 68,488 860,348 14.0% 15.8% (7,098) 59,085 - $23.92 Route 7 83 4,290,607 10,640 954,624 22.2% 21.2% (4,179) 91,851 - $22.99 Leesburg 31 1,048,948 6,560 127,540 12.2% 15.4% (3,345) 8,216 20,500 $24.21 Loudoun County 202 11,500,537 85,688 1,942,512 16.9% 18.0% (14,622) 159,152 20,500 $23.53 Outside the Beltway* 1,179 106,720,228 1,151,078 17,968,750 16.8% 22.9% (22,576) 251,061 658,443 $27.81

NOVA MARKET TOTALSTOTAL 1,599 163,278,088 1,724,078 30,366,384 18.6% 24.6% 97,405 270,010 1,931,224 $31.50

Key Lease Transactions 3Q 15PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

5001 Eisenhower Avenue 606,900 GSA - Transportation Security Administration Relet Eisenhower Avenue1775 Tysons Boulevard 123,900 Ernst & Young Relet Tysons Corner1110 North Glebe Road 120,400 GSA - Department of Homeland Security Renewal Ballston6354 Walker Drive 72,400 Calibre Systems Renewal Springfield2051 Jamieson Avenue 54,300 US Patent and Trademark Office Renewal Old Town8614 Westwood Center Drive 51,500 WGL Energy Services Relet Tysons Corner

*Inside the Beltway is comprised of Arlington County and Alexandria/Outside the Beltway is comprised of Fairfax and Loudoun Counties.**The Rosslyn/Ballston (R/B) corridor is comprised of Rosslyn, Clarendon/Courthouse, Virginia Square, and Ballston submarkets.***The 50/66 corridor is comprised of Merrifield, Vienna, Oakton, Fairfax Center, and Fairfax City submarkets.p - preliminary

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