MD Market Report

Market Report Suburban Maryland | 1st 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 IndicatorsQ1 14 Q1 15 12-Month Forecast

DC Metro Employment 3.09M 3.14M

DC Metro Unemployment 5.0% 4.7%

U.S. Unemployment 6.6% 5.5%

Market IndicatorsQ1 14 Q1 15 12-Month Forecast

Overall Vacancy 15.3% 16.2%

Net Absorption (1.1M) (106K)

Under Construction 4.3M 4.8M

Deliveries 800k 260k

Average Asking Rent (FS) $35.41 $32.29

Stronger Job Numbers Bode Well for a Robust 2015Job growth is the more influential predictor of office demand. During 2014, the economy in the Washington, DC Metropolitan region (DC Metro) created just over 19,000 net new nonfarm jobs well off the 35,000 jobs typically created annually. Including federal government jobs, office payrolls shrunk by nearly 12,000 in 2014. Rapidly falling unemployment and stellar job growth in markets around the nation made it clear that while other markets had entered a new phase of expansion, the DC Metro appeared in danger of being left behind.

Fortunately, the latest employment statistics have gone a long way to assuage the concerns wrought by 2014 job numbers. The dearth of office-using employment that plagued the region last year is reversing course. The metro-wide unemployment rate is currently a low 4.7%. Total nonfarm employment in February of 2015 was up by over 50,000 payrolls compared to February of 2014. Office-using job growth in 2015 is also off to a much more positive start with professional and business services employment up by 10,400 jobs compared to a year ago and federal government employment up by 400 jobs. While the latter sounds meager, it represents steady month-over-month gains and a clear reversal of the contracting federal workforce trend that has been in effect since 2011. Job growth forecasts from DTZ among others anticipate a return to above-average annual job growth for the next three years.

While there is positive news on the economic front, the office market statistics remind us that it does take time for job growth to translate into office demand. Activity in the DC Metro as a whole was largely flat during the first quarter of 2015. Vacancy in the region ticked up 0.1% to 16.2% at the end of the first quarter. Net absorption was a mixed bag basically flat in the District of Columbia, a negative 200,000 sf in Northern Virginia and a positive 100,000 sf in Suburban Maryland, for a total of negative 100,000 sf for the region. Average asking rents have remained relatively flat, falling $0.61 over the quarter.

Despite the tepid leasing market, the capital markets have remained robust with over $2 billion transaction volume in the office sector during the first quarter. Well-leased, well- located properties continue to command the highest pricing on record. Most activity was again in the District of Columbia which accounted for over 70% of the transaction volume. Foreign investment continues to drive the competition, with German, Korean, and South American investors buying assets in the first quarter of 2015. There are some early indications that the healthy activity in the first quarter may be in danger of decelerating as sellers; expectations are beginning to exceed what buyers are willing to pay and some marketed properties as a result not trading.

0%

4%

8%

12%

16%

-4

-2

0

2

4

6

8

10

12

05 06 07 08 09 10 11 12 13 14 Q12015

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 Q1 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 IndicatorsQ1 14 Q1 15 12-Month Forecast

Overall Vacancy 17.4% 18.4%

Net Absorption (968K) 116K

Under Construction 980K 634K

Deliveries 226K 0

Average Asking Rent $26.11 $26.07

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 Q1 2015

Historical Average = 16.1%

EconomyThe U.S. economy continues to accelerate at this point in the recovery. The nation is currently experiencing its strongest job growth in 15 years, unemployment continues to fall, currently at 4.7%, and job openings are at an all-time highexceeding pre-recession numbersand many of them office-using. After a slow start in 2014, the Washington, DC Metro region has been experiencing modest employment growth. The same is true for Suburban Maryland. Its premier submarket, Bethesda, is outperforming the DC Metro as a whole. Bethesdas unemployment rate remains low at 4.3%. Still, office-using jobs took a step backward as major consolidations in the Government and the Professional & Business Services sectors occurred throughout 2014. With the passage of the Continuing Resolution Omnibus $1.013 trillion spending bill in late 2014, capital is expected to flow into many government agencies in the DC Metro, including those agencies that drive demand for office space in Suburban Marylandthe Food and Drug Administration (FDA), the Centers for Disease Control (CDC) and the National Institutes of Health (NIH).

Market OverviewAfter a slow second half of 2014, the Suburban Maryland office market experienced noticeable growth at the beginning of 2015. Net demand registered 115,000 square feet (sf), a significant improvement from the 212,600 sf of negative absorption registered the previous quarter. Vacancy declined 0.1 percentage points from the fourth quarter of 2014 to 18.4% at the end of the first quarter of 2015. While the level of demand is not overly substantial, it is a welcome sign in a market that shed 1.1 million square feet (msf) during 2014. The GSAs only major transaction was that for NIH which expanded by 24,000 sf at 10401 Fernwood Road in Bethesda. With nearly 33 msf of GSA leased space due to expire over the next four years in the DC metro, there will likely be a handful of deals and renewals in the near future. GSA continues to pursue more efficient spaces across the DC metro areaa strategy which may also lead to a fair amount of consolidations.

Leasing volume in the first quarter of 2015 totaled 563,000 sfnearly half the quarterly average volume in Suburban Maryland. For a second consecutive quarter, the largest lease signed was for less than 70,000 sf. The largest lease signed during the first quarter was a renewal: that for iHeartRadio. The digital radio provider signed for 69,000 sf at 1801 Rockville Pike in Rockville, and thuslike some other tenants in Suburban Marylandshrank its footprint, in its case by nearly 4,000 sf. Newly renovated 7550 Wisconsin saw a flurry of deals: SunEdison signed for 16,000 sf and DARCARS for 11,100 sf. Over the quarter, full service asking rents rose above $26.00 to $26.07 per square foot (psf) nearly $0.25 up from rents in the final quarter of 2014. On a year-over-year basis, rents across the submarket have remained relatively flat, declining by only $0.04.

No new buildings broke ground in Suburban Maryland during the first quarter of 2015. Park Potomac, one of the major developments currently under construction, signed a few new tenants, bringing the building to nearly 50% preleased. The 105,000 sf development is expected to deliver in the first quarter of 2016. Throughout the remainder of 2015, nearly 530,000 sf is scheduled to deliver to the market, 23% of which is preleased. Tenants throughout the region have clearly demonstrated a demand for new, high quality space, so expect healthy leasing activity for new product to continue.

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, First Quarter 2015

Top Transactions

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

Key Sales Transactions YTD

Key Lease Transactions 1Q 15

0%

4%

8%

12%

16%

20%

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

05 06 07 08 09 10 11 12 13 14 Q1 15

Vaca

ncy

Rat

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MS

F


PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

1801 Rockville Pike 68,100 iHeartRadio Renewal Rockville

12410 Milestone Center Drive 37,600 Earth Networks Inc. Renewal Germantown

9711 Washingtonian Boulevard 24,100 Edgewood Management New North Rockville

10401 Fernwood Road 24,000 NIH Expansion North Bethesda

414 Hungerford Drive 21,500 Computer Packages Renewal Rockville

12410 Milestone Center Drive 15,300 Regus Relet Germantown

6710 Rockledge Drive 15,000 IBM Relet North Bethesda

7550 Wisconsin Avenue 11,100 Darcars Relet Bethesda/Chevy Chase

PROPERTY SF SELLER/BUYER PRICE SUBMARKET

4700 River Road 324,415 Government Properties Inc Trust / GSA $30,600,000 North PGC

15200 Omega Drive 77,534 LNR Partners / FINRA $18,750,000 Rockville

1350 Piccard 104,747 PPM America / Rickman Development $5,800,000 North Rockville

6100 Chevy Chase Road 41,000 Intelligent Decisions / EBA Engineering $4,030,000 North PGC

0%

5%

10%

15%

20%

25%

30%

0

2

4

6

8

10

12

14

16

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

In the first quarter of 2015, Bethesda/Chevy Chase (BCC) registered net absorption of 19,700 square feet (sf). This was the second consecutive quarter of positive demand in BCC after a slow start to 2014. The submarket was also home to nearly 106,000 sf of leasing volume during the quarter, and while that is an improvement from year-end statistics, it was still well below the submarkets average of 235,000 sf.

The largest deals across Suburban Maryland were renewals, but some new tenants also moved into the area that drove demand. A flurry of activity at 7550 Wisconsin Avenue dominated the BCC submarket. Both DARCARS and SunEdison signed leases in the first quarter for space in this property. DARCARS is opening up a management officeseparate from their dealerships in the Washington DC metro areaand took nearly 11,000 sf in the building. SunEdison signed for 10,000 sf. Rounding out the major new deals in BCC was Montgomery Orthopedics which signed for 11,000 sf at 8401 Connecticut. Offsetting some of this larger demand was Educational Services 8,000 sf contraction at 4350 East-West Highway and CIM groups 7,000 sf downsizing at 7250 Woodmont Avenue. Expect some medium-sized blocks to become available over the next couple months. 7401 Wisconsin will give back 12,000 sf in the next couple months as Monument Banks prepares to leave. GSA Health and Human Services has a prospectus out for leaving 7700 Wisconsin. If they cannot reach any agreement on a renewal, HHS will vacate up to 120,000 sf.

Asking rents across all classes averaged $35.70 per square foot (psf) on a full-service basis, up 0.3% from year-end 2014. Class A asking rents declined by nearly $0.50 over the quarter to $39.48 psf. After Carr Properties delivery of 4500 East West Highway in the final quarter of 2014, no other projects have been completed and the current pipeline looks scarce as no buildings are under construction.

Outlook With Maryland governor Larry Hogan indicating he will take serious measures to address Marylands budget shortfall, many in Montgomery County fear that the Metro Purple Line may be on the chopping block. Look for intense debate on strategies to keep this economic development project moving forward in Bethesda.

Federal agencies located in Suburban Maryland, including the NIH, FDA and the CDC, all received increased budget authorities for fiscal year 2015. While there is still a movement towards consolidation, the budget increase should translate into increased contractor demand in the next two years.

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$35.70 FS

Net Absorption19,700 SF

Vacancy11.5%

Deliveries0 SF

Under Construction0 SF

0%

4%

8%

12%

16%

-200

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300

400

05 06 07 08 09 10 11 12 13 14 Q12015

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1.0 1.2 1.0 1.11.3

0.5 0.2 0.40.5

0.5

0.00.20.40.60.81.01.21.41.61.82.0

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15

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 Q1 2015

Full

Ser

vice

PS

F

Class A Class B

DTZ | 8

North Bethesda

0%

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12%

16%

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24%

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

0100200300400500

05 06 07 08 09 10 11 12 13 14 Q12015

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After a rough year in 2014 during which the GSA downsized federal agency space, North Bethesda started 2015 on a positive note. The submarket was the top performing one in Suburban Maryland, registering 80,000 sf of absorption over the quarter. After posting the highest vacancy rate on record, North Bethesda responded with a full 1.0% decline in vacancy in the first quarter to 21.9%. Consistent with the rest of Suburban Maryland submarkets, gross leasing activity in North Bethesda continued to underperform, totaling 100,000 sf or 60% of the submarkets historical quarterly average of 165,000 sf.

Despite lease prospectuses issued near the end of 2014 which outlined a 22% reduction of square feet requirements, the GSA/National Institutes of Health (NIH) actually expanded in some of their existing space. The expansion of nearly 25,000 sf at 10401 Fernwood, recently rebranded as The Atrium at Rock Spring Park, proved significant given the ongoing speculation that NIH would continue to severely shrink their footprint across Montgomery County. After major consolidation efforts in 2014 which saw both The National Institute of Allergy and Infectious Disease and the U.S. Public Health Services Commission vacate large blocks of space, this was a positive sign for the submarket. The proposed consolidation of all NIH activities into their Bethesda campus was rejected by the Congress and HHS. Behind a recent vote from the National Capital Planning Commission, a consolidation of NIH operations on their Bethesda campus has been disapproved as part of the final master plan. That is good news for North Bethesda as much of any consolidation would have come at the submarkets expense.

North Bethesda will soon face some large-scale move-outs. NIH has continued some prospectus leasing out in the market and are looking to move out of 6700 Rockledge Drive. While likely to remain in their current space, it is likely that the agency will shrink their footprint there. On the private-sector side, Washington REIT has moved its headquarters from 6110 Executive Boulevard to a District of Columbia office asset it recently purchased, vacating nearly 15,000 sf in North Bethesda. Some owners find themselves challenged by older buildings with deep, inefficient floor plates. Look for owners to consider conversions, renovations and/or adding an amenity base to attract tenants in the near future. Asking rents are up $0.08 from $29.64 to $29.72 per square foot from year-end levels.

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



1.4 1.41.7

2.3 2.2

0.61.0

0.80.1 0.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15

MS

F


$25

$27

$29

$31

$33

$35

$37

2009 2010 2011 2012 2013 2014 Q1 2015

Full

Ser

vice

PS

F

Class A Class B



Vacancy21.9%

Deliveries0 SF


Asking Rent


www.dtz.com | 9

Rockville

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After finishing 2014 with the strongest demand of all Montgomery County submarkets, Rockvilles first-quarter 2015 performance was the slowest. Rockville experienced negative 19,000 sf of net absorption during the first quarter, continuing the trend of negative demand from the second half of the year in 2014. On the positive side, leasing activity more than doubled that of the fourth quarters 64,000 sf, totaling 139,000 sf during the first quarter of 2015. While a significant improvement over year-end 2014, first-quarter leasing activity still lagged the submarkets historical quarterly average of 176,000 sf.

A large portion of the leasing volume was the 68,100 sf renewal for iHeartRadio at 1801 Rockville Pike. The largest new lease was that of Motionsoft which moved from 1801 Rockville Pike to 20,100 sf at 1451 Rockville Pike. Demand was minimally affected by its move as it remained in the submarket and only expanded by 9,000 sf. Both of these deals were in Class A buildings and brought net absorption for Class A product in Rockville to a positive 5,400 sf. This is significantly higher than the negative 25,000 sf of demand for Class B space absorption. All other leases in Rockville were for less than 5,000 sf. Asking rents for Class A buildings were the second highest of rents throughout Suburban MD at $33.51 psf; Class B asking rents have been hovering around $27.50 psf for the past year. A clear flight to quality is evident in Rockville as some of the submarkets product becomes dated. Expect this trend to continue over the near future.

The overall vacancy rate rose from 16.8% in the fourth quarter of 2014 to 17.1% in the first quarter of 2015. There were no new deliveries during the first quarter, but 12435 Park Potomac, 12358 Parklawn Drive and 275 N Washington Street continue to be under development. 275 N Washington Street has an anticipated delivery date of second quarter 2015. With 11,000 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.

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

0.10.4 0.3

0.2 0.2

0.00.20.40.60.81.01.21.41.61.8

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15

MS

F


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

2009 2010 2011 2012 2013 2014 Q1 2015

Full

Ser

vice

PS

F

Class A Class B


Net Absorption(19,600) SF

Vacancy17.1%

Deliveries0 SF

Under Construction216,600 SF

Asking Rent


DTZ | 10

North Rockville

Gross leasing activity in North Rockville slowed during the first quarter of 2015, totaling 170,000 sfwell below the submarkets historical quarterly average of 228,000 sf. Continuing the trend towards smaller leases, only two leases greater than 10,000 sf were executed during the first quarter of 2015 compared to four in the fourth quarter of 2014, six in the third quarter and nine in the second. Net demand in the quarter totaled 1,600 sf, an improvement from the previous quarters negative 39,000 sf. Matching the top sized deal from last quarter (a renewal by Motorola), Edgewood Management signed a new lease for 24,100 sf at 9711 Washingtonian Boulevard. A couple of buildings saw a flurry of medium-sized deals: 15,000 sf was leased at 9605 Medical Center Drive, 14,200 sf at 7361 Calhoun, and 5,800 sf at 2400 Research Boulevard. One large-scale move-out left a block of contiguous space on the market at 2273 Research Boulevard: Emergent Biosolutions vacated nearly 42,000 sf of space at the building. Going forward, GSA/Agency for Healthcare Research has an anticipated move out of its space at 540 Gaither Road coming due in Q1 2017. This contributes to an elevated availability rate that is expected to lead to rising vacancy in the near future.

The submarkets overall vacancy rate ticked upward 0.2 percentage points over the quarter to 18.3%. Meanwhile, overall asking rents averaged $27.57 psfa full $1.72 increase from year-end 2014 figures. No new or spec projects have broken ground over the last three quarters as developers are focusing on core product 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 the GSA scheduled to vacate a significant amount of space in 2015, vacancy is expected to continue its ascent.

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




Vacancy18.3%

Deliveries0 SF


0%

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1.6 1.5 1.62.1 2.1

0.4 0.40.8

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2009 2010 2011 2012 2013 2014 Q1 2015

Full

Ser

vice

PS

F

Class A Class B

Asking Rent


www.dtz.com | 11

Gaithersburg/Germantown

The Gaithersburg/Germantown submarket experienced modest growth in the first quarter of 2015. Net demand totaled 15,800 sf for the quarter while leasing activity increased significantlyfrom fourth quarters 21,300 sf to 106,700 sf, a level nearly even with the submarkets historical quarterly average of 113,000 sf. Two of the top three lease transactions for the quarter were at 12410 Milestone Center Drive. Earth Networks, Inc. took 37,600 sf of new space, and Regusthe home of ready-to-go office spacetook 15,300 sf. The only other large lease was Wilmot Sanz Inc.s renewal for 10,000 sf at 18310 Montgomery. All other demand for office space during the first quarter was from tenants signing for smaller spaces. There were no large scale move-outs in the Gaithersburg/Germantown submarket throughout the first quarter. The overall vacancy rate declined for a second straight quarter, from 18.7% at year-end to 18.5% to at the end of the first quarter. Average asking rents fell $0.22 to $23.55 psf on a full-service basis.

The last development to deliver in this submarket was the 162,300-sf 12409 Milestone Center Court in Germantown which delivered in the first quarter of 2013. The project was 83% leased at the close of 2014. The 80,000 sf project at 19851 Observation Drive, being developed by Gittleson Zuppas Commercial Realty, is scheduled to deliver in the third quarter of 2015 and is currently the only building under construction in this submarket. The project is 13% pre-leased to Potomac Valley Orthopedic.

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 an availability rate throughout the submarket, at 31%, Gaithersburg/Germantown may be susceptible to rising vacancy in the near future.

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.




Vacancy18.5%

Deliveries0 SF


0%

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50100150200250300

05 06 07 08 09 10 11 12 13 14 Q12015

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1.0 1.1 1.21.2 1.2

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Q4 11 Q4 12 Q4 13 Q4 14 Q1 15

MS

F


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

2009 2010 2011 2012 2013 2014 Q1 2015

Full

Ser

vice

PS

F

Class A Class B

Asking Rent


DTZ | 12

Silver Spring

After two quarters of negative absorption, positive demand returned to the Silver Spring office market. The submarket registered 22,700 sf of absorption in the first quarter of 2015 and its vacancy rate declined 0.3% over the quarter from 12.4% to 12.1%. Vacancy rates were back to third quarter levels; a positive sign for the submarket.

Contrary to what weve seen in the broader Washington DC Metro market, demand for Class A space was actually slightly negative. Indeed, a flurry of deals in Class B building dominated leasing activity in this submarket during the first quarter. No leases in Silver Spring were for more than 10,000 sf. 8757 Georgia registered a few leases and accounted for 8,000 sf of absorption, 962 Wayne Avenue saw a lease signed for 6,200 sf of direct absorption, and 11161 New Hampshire registered nearly 3,000 sf of absorption on smaller-sized leases. Asking rents were unchanged from year-end 2014 at $25.99 psf. Despite negative demand for Class A product, average rents for Class A space rose 0.5% to $28.38 psf on a full-service basis.

After a number of years without any deliveries, two recent developments are under construction in Silver Spring. Petrie Ross Ventures 8645 Colesville Road (210,600 sf) and Lee & Associates 4009 Sandy Spring Road (16,800 sf) are both scheduled to deliver in the next three quarters. These deliveries will add some inventory to Silver Springs office market. Both buildings have no-preleasing, another sign of the bullish nature of local developers.

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.




Vacancy12.1%

Deliveries0 SF


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05 06 07 08 09 10 11 12 13 14 Q12015

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1.0 0.91.1 1.0 1.0 0.9

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

MS

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$20

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$34

2009 2010 2011 2012 2013 2014 Q1 2015

Full

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Class A Class B

Asking Rent


www.dtz.com | 13

Prince Georges County

Traditionally dominated by public sector leasing for government agencies, Prince Georges County (PGC) saw private-sector leases dominate during the first quarter of 2015. ChasenBoscolo Injury Lawyers renewed for 19,500 sf at 7852 Walker Drive in Northern PGCthe second largest renewal in all of Suburban Maryland. The largest new lease in PGC was that for AI Solutions which contracted from their space at Danac Corporate Center 3 into 16,400 sf at 4500 Forbes Boulevard in Lanham. Telesis took nearly 15,000 sf of new space at 3901 Calverton Boulevard. The remainder of the lease transactions in the county were for less than 10,000 sf.

Class B buildings garnered nearly 28,000 sf of demand while Class A product struggled and registered a negative 29,700 sf of absorption. Thus demand remained flat for the quarter at 4,600 sf of negative absorption including the 1.6 msf of Class C product. Vacancy was unchanged from the fourth quarter of 2014 at 24.2%, still well above the 16.7% average. Average asking rents were also essentially flat over the quarter, rising $0.14 from $21.00 psf to $21.14 psf on a full-service basis.

One building remains under construction: at 7800 Harkins Road. Berman Enterprises is building out 110,000 sf of office space for the Maryland Department of Housing and Community Development. Separately, Prince Georges County Government bought 1301 McCormick Drive towards the end of 2014. The County was had been looking for space to consolidate the majority of its offices into one central location, and the. deal was instrumental in allowing the local government to occupy its own space. Another major trade saw Intelligent Decisions selling 6100 Chevy Chase Road to EBA Engineering.

Outlook Southern Prince Georges County will soon be the

submarket with the most upside growth potential as the casino at National Harbor will help generate interest from potential tenants.

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(4,500) 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 Q12015

Vac

ancy

Rat

e

Squ

are

Fee

t, 00

0s



3.8 3.9 3.8 4.3 4.2

0.2 0.20.9

0.7 0.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q4 11 Q4 12 Q4 13 Q4 14 Q1 15

MS

F


$18

$19

$20

$21

$22

$23

$24

$25

2009 2010 2011 2012 2013 2014 Q1 2015

Full

Ser

vice

PS

F

Class A Class B

Asking Rent


Vacancy24.2%

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: First Quarter 2015p

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

TotalInventory

Total SpaceVacant

VacancyRate

Q1 2015Absorption

YTDAbsorption

Washington, DC 122,850,343 13,837,870 11.3% (25,004) (25,004)

Northern Virginia 162,739,763 30,900,969 19.0% (197,473) (197,473)

Suburban Maryland 72,887,967 13,386,479 18.4% 116,255 116,255

Regional Totals 358,478,073 58,125,318 16.2% (106,222) (106,222)

Non Farm Employment

(Jan-Feb 2014)

Non FarmEmployment

(Jan-Feb2015p)

Jobs Added/ Lost* Percent Change

Washington, DC 749,400 761,900 12,500 1.7%

Northern Virginia 1,373,750 1,389,450 15,700 1.1%

Suburban Maryland 953,700 966,150 12,450 1.3%

Regional Totals 3,095,300 3,140,150 44,850 1.4%

www.dtz.com | 15

AppendixO

ffice

Ava

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Vac

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, and

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Firs

t Qua

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DTZ | 16

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p - p

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y

www.dtz.com | 17

AppendixH

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p - p

relim

inar

y

DTZ | 18

Suburban Maryland 1st 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 3.9% 6.3% 1.1% 11.3% 16.4% 56,160 0 $39.48

B 52 4,476,641 0.0% 10.8% 1.7% 12.6% 15.6% (38,056) 0 $33.44

C 19 497,926 0.0% 4.6% 0.1% 4.7% 5.7% 1,622 0 $27.19

TOTAL 102 11,233,762 2.2% 8.0% 1.3% 11.5% 15.6% 19,726 0 $35.70

North Bethesda

Class

A 33 7,249,555 3.8% 21.1% 0.3% 25.3% 21.9% 84,116 0 $31.29

B 30 2,251,558 0.0% 15.8% 0.7% 16.5% 24.1% (4,765) 0 $26.28

C 12 379,014 0.0% 9.3% 0.0% 9.3% 16.6% 1,155 0 $21.75

TOTAL 75 9,880,127 2.1% 19.5% 0.4% 21.9% 22.0% 80,506 0 $29.72

Rockville

Class

A 30 4,335,076 8.6% 16.5% 0.4% 25.5% 25.9% 5,374 216,613 $33.51

B 45 4,052,592 0.0% 9.5% 2.5% 12.0% 13.8% (24,672) 0 $27.47

C 18 421,848 0.0% 9.7% 0.0% 9.7% 5.1% (274) 0 $23.00

TOTAL 93 8,809,516 2.8% 12.9% 1.4% 17.1% 19.4% (19,572) 216,613 $31.34

North Rockville

Class

A 63 8,150,921 0.7% 12.9% 2.0% 15.6% 19.4% 16,326 0 $27.57

B 43 2,876,160 0.0% 20.7% 1.7% 22.4% 31.3% (14,758) 0 $23.31

C 5 338,926 0.0% 23.7% 0.0% 23.7% 15.0% 0 0 $19.55

TOTAL 111 11,366,007 1.2% 15.2% 1.9% 18.3% 22.2% 1,568 0 $25.91

* 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 1st 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% 19.8% 1.8% 22.5% 22.9% 18,677 0 $25.50

B 59 3,173,699 0.0% 16.8% 0.2% 17.0% 36.7% (10,429) 80,000 $21.86

C 11 508,597 0.0% 4.7% 0.0% 4.7% 40.9% 7,554 0 $17.38

TOTAL 97 6,528,643 0.4% 17.1% 0.9% 18.5% 31.0% 15,802 80,000 $23.55

Silver Spring

Class

A 25 4,589,454 0.0% 8.5% 0.5% 9.0% 12.2% (2,850) 227,408 $28.38

B 48 2,367,455 0.0% 17.1% 1.0% 18.1% 22.9% 30,638 0 $23.81

C 21 697,743 0.0% 12.4% 0.2% 12.6% 15.0% (5,091) 0 $22.18

TOTAL 94 7,654,652 0.0% 11.5% 0.7% 12.1% 15.7% 22,697 227,408 $25.99

Prince Georges County

Class

A 63 8,509,609 0.8% 24.8% 0.9% 26.5% 27.3% (29,674) 110,000 $22.27

B 151 7,285,250 0.0% 23.9% 0.4% 24.3% 33.5% 28,020 0 $20.67

C 55 1,620,401 0.0% 11.5% 0.0% 11.5% 15.6% (2,818) 0 $18.53

TOTAL 269 17,415,260 0.4% 23.2% 0.6% 24.2% 28.8% (4,472) 110,000 $21.14

Suburban Maryland

Class

A 272 41,940,157 2.2% 16.1% 1.0% 19.3% 21.2% 148,129 554,021 $28.46

B 428 26,483,355 0.0% 17.0% 1.2% 18.1% 25.9% (34,022) 80,000 $23.84

C 141 4,464,455 0.0% 10.7% 0.0% 10.7% 16.3% 2,148 0 $20.32

TOTAL 841 72,887,967 1.3% 16.1% 1.0% 18.4% 22.5% 116,255 634,021 $26.07

* 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, facilities 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. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.

Publication date: 1.21.15

Copyright 2015 DTZ. All rights reserved.

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

Real Estate Types Industrial Land Multi-family Office Retail

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

Washington, DCBethany SchneiderSenior Research Analyst2101 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

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

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, facilities 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. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.

MD Market Report

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