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Employment: Hiring firms will expand payrolls 1.5 percent this year as 48,500 positions are
added. In 2014, employers injected 43,200 jobs into their operations, a 1.4 percent growth.
2 million
square feet
will be
completed
Construction: Builders will deliver the most retail space since 2009 this year, finishing 2 million square feet, as large mixed-use projects wrap up construction. In the preceding year, 1.5
million square feet of space was delivered.
30 basis
point
decrease in
vacancy
Vacancy: Intensifying demand for quality space along with improvements in hiring will encourage net absorption of more than 2.8 million square feet of retail space in 2015, helping
vacancy fall 30 basis points to 4.7 percent. Last year, vacancy dropped 20 basis points.
0.2%
increase in
asking
rents
Rents: Large supply increases will moderate asking rent growth this year as rents tick up 0.2
percent to average $24.90 per square foot per month. In 2014, rents expanded 2.8 percent.
Economy
Employment Trends
Metro
United States
6%
Year-over-Year Change
Employment Trends
Metro
1%
4%
0%
3%
2%
11
12
1.50
2%
13
14
15*
Retail Completions
Employment
Trends
2.00
1%
4%
1.75
0%
3%
United States
Metro
11
12
United States
13
14
15*
Retail Completions
2.00
1.25
1%
1.75
1.00
0%
1.50
11
11
1.50
6%
Metro
11
6%
15*
15*
United States
13
14
15*
11
11
12
12
United States
13
13
14
14
15*
15*
11
United States
12
13
14
15*
6%
3%
0%
* Forecast
page 2
12
Metro
3%
12%
0%
9%
14
14
3%
1.25
12%
0%
1.00
9%
13
13
Vacancy
Rate Trends
Retail Completions
2.00
1.25
12%
1.75
1.00
9%
12
12
11
12
13
14
3%
Vacancy Rate
Vacancy Rate
Year-over-Year
Change
Square Feet
Completed
Year-over-Year Change
Square Feet Completed (millions)
Vacancy
Rate (millions)
Square
Feet Completed
(millions)
Year-over-Year Change
4%
2%
Companies and government agencies in the D.C. metro are accelerating hiring; more
than Rent
27,300
jobs were created in the past six months. This activity
Asking
Trends
brought the
year-over-year
total to 48,500, a 1.6 percent expansion.
Metro
United States
The professional and business services and education and health services sec-
3%
tors
each added more than 12,400 positions, highlighting the broad base of
employment growth across the metro. The government and the trade, trans0%
portation and utilities sectors added 10,400 and 8,600 workers, respectively.
Asking Rent Trends
Metro
United States
-3%
Underscoring
the quality
of the job creation taking place, GlaxoSmithKline is
6%
opening a global center for vaccine research in Rockville. As part of this profirm 12announced
its intention
13
14
15*to hire as many as 620 workers.
-6%
cess, the
11
3%
0%
Outlook: After employers added 43,200 jobs in 2014, payrolls will expand 1.5
Single-Tenant
Trends
Asking
Rent
Trends
percent
this year
asSales
48,500
jobs are created. Growth will be fostered by robust
$400
gains
-3%
6%
in the
professional
and business services and government sectors.
Metro
United States
$350
-6%
Construction
11
12
3%
13
14
15*
During the past 12 months, developers have added 1.5 million square feet of
$300
retail
0%
$400
One of the largest projects currently underway in the metro is Weingar-
$250
-3%
$350
$200
350,000-square-foot
mixed-use
-6%
11
12
13
14
11
12
13
14
$300
Multi-Tenant Sales
Trends
Trends
AsSingle-Tenant
more and moreSales
builders
develop master-planned communities, Burnham
$400
Place
$400
$250
at Union Station seeks to raise the stakes. The 14-acre project just 6
blocks from the U.S. Capitol building will contain 1.5 million square feet of
$350
office, 1,300 residential units, more than 500 hotel rooms and 100,000 square
$350
$200
12
13 completion.
14
15**
feet of11retail space
upon
$300
$300
Multi-Tenant
Sales firms
Trends
Outlook:
Construction
will finish 2 million square feet of retail space
$400
$250
this
$250
year, the highest amount since 2009. The majority of completions will be
mixed-use projects targeting submarkets inside the Beltway.
$350
$200
$200
11
11
Vacancy
12
12
13
13
14
14
15**
15**
$300
Vacancy
has declined 20 basis points over the past year to 5 percent as net
Multi-Tenant
Sales
Trends
absorption
outpaces
supply
increases by more than 340,000 square feet.
$400
$250
Assets inside the District have seen the steepest drops in vacancy over the last
$350
12
$200
months, falling 90 basis points to end the quarter at 4.1 percent. While new
11
12
13
14
15**
mixed-use and single-tenant developments added 343,000 square feet, more
than 540,000 square feet was absorbed.
$300
$250
A lack of construction in Suburban Virginia in the multi-tenant space helped
reduce vacancy in the submarket to 5.5 percent by quarter end, a 100-basispoint drop year over year. Retailers absorbed more than 420,000 square feet of
$200
11
12
13
15**
multi-tenant
space
during
the14past year.
15*
Outlook: Demand for retail space will pick up this year, causing net absorp-
tion to reach more than 2.8 million square feet of space. As a result, vacancy
will drop 30 basis points to 4.7 percent as the metro benefits from some of the
nations highest levels of median income.
Marcus & Millichap
Rents
Over the past year, asking rents rose 0.7 percent as relatively high levels of
construction weighed on growth. The first quarter
finished weakly
as average
Employment
Trends
United States
Metro
2%
Employment Trends
Benefiting from vacancy levels of just 4.4 percent atMetro
the end ofUnited
the States
first quarter,
Vacancy
Rate (millions)
Square
Feet Completed
(millions)
Year-over-Year
Change
Square Feet
Completed
Year-over-Year Change
Square Feet Completed (millions)
1%
the Suburban Virginia submarket has average
asking rents that are 20 percent
4%
higher than the Suburban Maryland market.
0%
3%
11
12
13
14
15*
Outlook: Advancing development activity will limit rent increases to 0.2 per-
Retail Completions
Employment
Trends
2.00
1%
4%
Metro
United States
During the past 12 months, transaction volume rose 10 percent as higher pric-
1.75
0%
11 into the
12 market.
13 Velocity
14
es per square foot brought more willing3%
sellers
was15*
consistent throughout the period.
1.50
2%
Retail Completions
Buyers proved resilient over the past year, with properties inside the Beltway
2.00
1.25
came
1%available
11
11
12
12
13
13
14
14
15*
15*
Average cap rates have sunk to 6.7 percent over the past year as investors bid up
1.50
assets throughout the District metro. Well-located
properties with a national
Vacancy
Rate Trends
Retail focus
Completions
tenant will trade in the mid-4 percent range as buyers
on the capital apMetro
United States
1.25estate and building.
2.00
preciation potential of the underlying real
12%
1.00
Outlook: Due to the high median incomes
and
positive
demographics
and
1.75
9%
11
12
13
14
15*
employment picture in the D.C. area, investors will continue to bid aggressively on listed assets, placing the highest1.50
premium on properties located inside
6%
Vacancy
Rate Trends
the Beltway near employment hubs and established
residential
towers.
3%
1.25
12%
Metro
United States
Vacancy Rate
6%
Average cap rates have compressed 50 basis
points to 6.2 percent over the past
11
12
13
14
15*
Outlook: Continued improvement in the retail
environment
will encourage
buyers to focus on stable multi-tenant assets inside the Beltway, with available
listings receiving multiple bids. As a result, cap rates will drift lower as prices
escalate in lockstep.
Year-over-Year Change
Year-over-Year Change
AveragePrice
Priceper
perSquare
SquareFoot
Foot
Average
Price per
Square Foot
Average Price per Square Foot
Year-over-Year
Change
Average Price per SquareAverage
Foot
Average Price per Square Foot
Year-over-Year Change
Asking rents inside the District are more than 30 percent higher than the rest
United States
6%
4%
3%
0%
-3%
6%
-6%
3%
11
United States
12
13
14
15*
0%
Single-Tenant
Sales
Trends
Asking Rent
Trends
$400
-3%
6%
Metro
-6%
$350
3%
11
United States
12
$300
0%Single-Tenant
13
14
15*
Sales Trends
$400
$250
-3%
$350
$200
-6%
11
11
12
12
13
14
15*
15**
$300
Multi-Tenant Sales
Single-Tenant
SalesTrends
Trends
$400
$250
$400
$350
$200
$350
11
12
$300
$300 Multi-Tenant
13
14
15**
Sales Trends
$400
$250
$250
$350
$200
$200
11
11
12
12
13
13
14
14
15**
15**
$300
11
12
13
14
15**
11
12
13
14
15**
$300
$250
$200
* Forecast
** Trailing 12 months through first quarter
Sources: CoStar Group, Inc.; Real Capital Analytics
page 3
Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
The Fed recently indicated that it may raise its short-term lending benchmark as
early as June, though September is the most likely target as the central bank awaits
further tightening in the labor market and stronger wage growth. Against the prospect of an inevitable rise in interest rates, investors remain highly motivated to
purchase retail assets and debt providers continue to compete for market share
while also maintaining underwriting discipline.
Loan-to-value ratios generally range from 60 percent to 75 percent, depending on asset age and quality, location, tenant mix, and tenant credit rating. Multi-tenant assets
with strong anchors and a stable mix of national in-line tenants remain preferred.
Debt-service ratios range from 1.25x to 1.35x and debt yields of 8 to 9 percent. FiWHITE TEXTnancing
VERSIONfor bridge loans for stabilized assets typically carry a 65 to 70 percent LTV
and spreads range 250 basis points to 425 basis points over LIBOR. Repositioned
assets are underwritten at 80 percent of cost with a spread between 300 basis points
to 475 basis points over LIBOR.
Aaron Martens
John Chang
Astrum Solar disclosed plans in March to triple the size of its Annapolis Junc-
tion headquarters over the next three years as the residential rooftop solar firm
continues its rapid pace of growth. The expansion also calls for Astrum to hire
as many as 240 people.
Bryn Merrey
CMBS lenders participated in slightly more than 50 percent of loans in the tertiary
markets, and national banks funded 25 percent. Banks, both national and regional/
local, have increased their market share in all markets.
Local Highlights
Research Associate
Research Services
Lending rates remain low for performing assets in primary markets. All-in rates
for five-year retail loans typically start in the mid- to high-3 percent range, while
seven- and 10-year loans price between 3.7 percent and 4.4 percent. Loans up to
20 years range from 4.8 percent to 5.85 percent.
Highlighting the changes underway in the retail industry, Target is bringing its
first TargetExpress format store to the Beltway area. The smaller, urban store
format will occupy 14,617 square feet at the former site of the Maryland Book
Exchange in College Park.
Price: $150
Marcus & Millichap 2015
www.MarcusMillichap.com
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to
the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted.
Triple-net rents are used. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Economy.com; Real Capital Analytics; TWR/Dodge Pipeline; U.S. Census Bureau.