WASHINGTON, DC OFFICE After a lackluster performance in 2014, the Washington, DC Metropolitan Regions (DC Metro) economy is surging back as of midyear 2015, with over-the-year employment in the region at 59,000 net new jobs well above the ten year average of 35,000 jobs per year. No small contributor to the regions return to greatness is the federal government. The importance of the federal government to the regions economy and therefore its office sector cant be overstated with over 55 million square feet occupied and 35% of the regional economy coming either directly or indirectly from federal sources. The past four years have seen decreases in government spending, reductions in the size of the federal workforce and a GSA hampered by aggressive mandates for efficiency. This has translated into uncertainty for the private sector with flat absorption and rising vacancy in the office sector. The worst appears to be behind us, however as federal spending in the region is poised for a return to modest growth, the contractions in the federal workforce are stabilizing and dysfunction in federal leasing is trending lower.

Examinations of federal lease transactions that have been executed in 2015 reinforce the stated federal goal of reducing its leased footprint. The United States Marshals Service in Crystal City and the Corporation of National and Community Service in Southwest both reduced their space by about 20% upon moving to a new location. There is some evidence recently however that indicate that there may be some backlash against the aggressive space reduction policies that may lessen the potential impact to the office market in the coming years. One example is the National Labor Relations Boards (NLRB) expansion at 1015 Half Street in the District of Columbias Capitol Riverfront submarket. The NLRB initially signed for 140,000 sf in early 2014 reducing the agencys prior real estate footprint by approximately 92,000 square feet. While its recent expansion is relatively minor, at just under 10,000 sf, the expansion is an indication that the GSA may be too aggressive in its effort to shrink the size of its leased portfolio and this could lead to a series of future expansions to accommodate growth. Other evidence of an efficiency backlash are the labor union disputes challenging the density of the National Science Foundations 660,000 sf prelease in Alexandria as well as the very public outing of failures in the Patent and Trademark Offices flagship telework program. These tenants will likely bring their employees back to a central workplace, thereby increasing sf/worker ratios, proving again that the future of federal space reduction isnt as certain as once thought.

WASHINGTON, DC

Government Leasing SnapshotMidyear 2015

Overview

Federal Employement Starting to StabilizeUS AND DC METRO

320,000

330,000

340,000

350,000

360,000

370,000

380,000

390,000

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

3,000,000

3,100,000

3,200,000

3,300,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Tota

l Job

s

US DC Metro (RHS)Source: BLS

Holdover in the DC Metro RegionTRENDING LOWER

2.0

3.2

2.3 2.2 2.4 2.32.6

3.2 3.02.3 2.4

1.01.3 1.2 1.4

1.71.2

0.7 0.8 0.9

00.5

11.5

22.5

33.5

4

January

Febru

ary

Marc

h

April

May

June

July

Augus

t

Septe

mber

Oct

ober

Nove

mbe

r

Dece

mbe

r

January

Febru

ary

Marc

h

April

May

201120122013 2014 2015

Sq

uar

e F

eet

(Mill

ion

s)

District of Columbia Maryland Northern Virginia

Federal Fiscal Drag FadingREAL GDP, % CHANGE IN FEDERAL GCE FROM QUARTER ONE YEAR AGO

-10%-8%-6%-4%-2%0%2%4%6%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2013 2014 2015

Defense Nondefense Total Federal

Federal Government GCE now experiencing

positive YOY growth

Source: BEA

GSA Lease ExpirationsWASHINGTON, DC MSA

Source: DTZ Research, GSA Source: DTZ Research, GSA

8.6

5.87.1

4.8 4.53.8 4.3 3.4

2.4

3.7

6.8

0

2

4

6

8

10

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025+

Square

Feet

(Mill

ions)

DC MD VA

Over half of the entire GSA leased real estate footprint-31 msf will roll in 2015-2019

www.dtz.com | 2

DEPARTMENT BUILDING SUBMARKET SF LEASE TYPE

US Marshals 1215 S Clark Street Crystal City 333,000 New

FBI 1025 F Street, NW East End 152,000 Renewal

FINCEN 2070 Chain Bridge Road Tysons Corner 125,000 Renewal

Corporation of National and Community Service 250 E Street, SW Southwest 88,000 New

HHS 7700 Wisconsin Avenue Bethesda 80,000 Renewal

Housing and Urban Development 425 3rd Street, SW Southwest 76,200 Renewal

US Courts 12200 Sunrise Valley Drive Reston 57,700 Renewal

National Institutes of Health (NIH) 10401 Fernwood Road North Bethesda 24,000 Expansion

National Labor Relations Board 1015 Half Street, SE Capitol Riverfront 9,800 Expansion

Major GSA Deals 2015 DC METRO AREA (DC-VA-MD)

GSA Prospectus Leases 2014 - 2015

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.

The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

Copyright 2015 DTZ. All rights reserved.

WASHINGTON, DC

Government Leasing SnapshotMidyear 2015

AGENCY SUBMARKET CURRENT SF PROPOSED SF SPACE GROWTH/ REDUCTION SPACE REDUCTION PERCENTAGE

Education Various DC 502,329 290,000 -212,329 -42.27%

State Rosslyn 320,313 343,000 22,687 7.08%

Justice Capitol Hill 129,035 114,000 -15,035 -11.65%

Justice Various 255,972 217,000 -38,972 -15.23%

Homeland Security Falls Church 190,181 176,000 -14,181 -7.46%

Homeland Security Ballston 115,640 123,000 7,360 6.36%

NIH Rockville 250,144 194,000 -56,144 -22.44%

Suburban GSA Exposure GSA EXPIRING LEASES BY SUBMARKET 2015 - 2019

The Federal Footprint - Not Shrinking (Yet) GSA OFFICE SPACE LEASED FROM THE PRIVATE SECTOR, 2011 VS. 2015

23.822.1

11.6

23.9

20.3

11.6

0

5

10

15

20

25

DC Nova SMD

Mill

ions

of S

quar

e Fe

et

2011 2015

Joseph Wood Research Analyst

Nathan Edwards Director of Research

2101 L Street, NW Suite 700 Washington, DC 20037 Tel: +1 202 266 1189 Fax: +1 202 223 2989 Email: nathan.edwards@dtz.com

2101 L Street, NW Suite 700 Washington, DC 20037 Tel: +1 202 266 1317 Fax: +1 202 223 2989 Email: joseph.wood@dtz.com

0500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,000

Source: DTZ Research, GSA Source: DTZ Research, GSA