Metro Forecast Report

Washington, DC 2011
Office Sector

Actual Forecast
2005 2006 2007 2008 2009 2010 2011 2012 2013
Office Sector
Total Employment (000s) c 52.1 42.5 23.0 15.5 -36.5 11.1 33.0 42.0 42.0
Office-Using Employment (000s) c 25.9 17.5 8.9 8.2 -0.3 20.7 11.6 14.7 14.7
Net Absorption (mil) 6.7 6.5 4.2 1.1 -2.3 5.7 3.2 4.7 4.6
Vacancy 9.2% 9.1% 9.7% 11.2% 13.9% 13.0% 12.5% 11.6% 10.9%
New Deliveries (mil) 5.2 8.9 7.9 7.6 9.9 4.0 1.4 1.5 2.62
Asking Rents $32 $33 $35 $35 $35 $34 $35 $37 $39
Investment Sales ($vol, bil) $10.2 $14.1 $12.5 $12.5 $2.3 $4.3 $6.8 $6.2 $7.3
Source: Cassidy Turley National Research
c = change, year over year

DC Region: Private Sector is Key

Economy
The Washington DC region’s economy improved throughout 2010
and into 2011. DC’s real gross regional product (GRP) grew at
a 5.9 percent annualized rate in 2010 – twice the national GDP
growth rate. The region’s employment market remained healthy
by adding 10,100 seasonally adjusted, Non-Farm jobs during
the first quarter of 2011. DC Metro’s unemployment rate was
the lowest in the country among major metropolitan areas at 5.9
percent in February. As the economy continued to improve, the
Retail sector created more jobs (+9,400 jobs) than any other
sector during the first quarter. Key office-using sectors also
added jobs, including the Federal Government (+2,200 jobs),
Professional and Business Services (+1,400 jobs), and Financial
Activities (+300 jobs).
Outlook
The DC region will continue to lead the nation’s economic
recovery in 2011. Employment in the area will grow steadily over
the next three years and revert back to historical norms. Federal
government employment will most likely moderate due to an
increased focus on reducing federal spending. The private sector
will drive future employment growth. Professional & Business
Services will lead job growth as well as demand for office space.
Attracting a highly educated work force and offering some of the
highest incomes in the nation, the DC region will continue to draw
new residents, adding 158,000 people to the metropolitan area
over the next three years.
• Demand for office space in 2010 increased in the DC region
as the Federal Government absorbed record amounts of
space. Expect net absorption to return to more “normalized”
levels in 2011-2013 as public sector demand begins to slow.
• An unknown amount of shadow space1 will need to be
absorbed before companies generate requirements for
additional office space. Anticipate net demand to increase
in 2012/2013 as shadow inventory burns off.
• Vacancy rates will continue their downward trend as the
delivery of new office space drops precipitously from its
historical average of 7.5 million square feet annually.
• Well-located, inside the Beltway submarkets will perform
well. Anticipate speculative construction to return to the
region as some submarkets experience a shortage of new
buildings.
• Rents have started to increase in many DC submarkets in
conjunction with stabilized or decreasing incentives (free
rent, TI allowances). As demand holds steady and vacancy
drops, expect rents to increase across the DC metro area by
2012/2013.
• 2011 investment sales activity will exceed historical norms
as investors look for stability in DC’s core office properties.
Expect increased interest in core plus/value-add properties
as investors seek higher returns.
• Average cap rates compressed 150 basis points during 2010.
Expect cap rates to start increasing this year as interest rates
begin to rise.

1
Space that is leased by businesses but not currently utilized
2
Includes estimated deliveries and rehabilitation of existing space Updated April 2011
 Metro Forecast Report
Washington, DC 2011
Office Sector

The District: Office Market Forecast

Actual Forecast
2007 2008 2009 2010 2011 2012 2013
Vacancy
CBD 7.2% 8.8% 12.2% 12.7% 13.2% 13.4% 12.8%
EE 6.7% 7.5% 9.3% 9.2% 8.7% 7.4% 6.5%
Capitol Hill/NoMa 6.2% 6.3% 10.7% 10.7% 8.0% 5.8% 5.4%
Southwest/Southeast 10.1% 7.5% 19.3% 8.2% 8.1% 5.7% 4.4%
Uptown 4.8% 5.7% 7.1% 10.2% 10.0% 9.7% 9.5%
West End/Georgetown 11.7% 11.7% 12.8% 9.5% 9.3% 9.1% 8.8%

District 7.4% 7.8% 11.7% 10.4% 10.0% 9.0% 8.6%

Net Absorption
CBD 259,000 -205,000 -171,000 125,000 215,000 340,000 323,000
EE 1,094,000 527,000 -466,000 312,000 342,000 539,000 433,000
Capitol Hill/NoMa 187,000 195,000 376,000 1,346,000 428,000 452,000 390,000
Southwest/Southeast 133,000 360,000 542,000 2,136,000 386,000 401,000 369,000
Uptown 54,000 -57,000 -139,000 -240,000 14,000 18,000 17,000
West End/Georgetown -237,000 -66,000 -26,000 195,000 14,000 18,000 17,000

District 1,490,000 754,000 116,000 3,874,000 1,399,000 1,768,000 1,549,000

Asking Rents ($)

CBD $46 $48 $48 $49 $50 $52 $54
EE $49 $50 $50 $52 $54 $55 $58
Capitol Hill/NoMa $47 $46 $46 $49 $51 $53 $55
Southwest/Southeast $46 $49 $48 $50 $52 $53 $54
Uptown $37 $37 $37 $36 $37 $38 $39
West End/Georgetown $42 $44 $42 $42 $42 $43 $45

District $46 $48 $48 $48 $51 $52 $54

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 Metro Forecast Report
Washington, DC 2011
Office Sector

Northern Virginia: Office Market Forecast

Actual Forecast
2007 2008 2009 2010 2011 2012 2013
Vacancy
Alexandria 5.9% 7.3% 12.4% 12.3% 11.5% 10.5% 10.7%
Arlington 10.2% 9.2% 8.6% 7.9% 7.9% 8.3% 8.3%
Tysons Corner 10.8% 12.3% 16.3% 16.6% 15.9% 14.8% 13.7%
Reston/Herndon 12.9% 16.1% 16.9% 16.0% 14.7% 13.4% 11.8%
50/66 9.5% 14.3% 17.1% 15.5% 13.9% 12.9% 12.0%
Route 28 S 17.7% 18.3% 19.5% 17.4% 16.5% 14.7% 12.6%
Loudoun 13.7% 16.7% 19.1% 17.0% 17.5% 15.7% 13.7%

Northern Virginia 10.9% 12.9% 14.8% 14.0% 13.3% 12.4% 11.4%

Net Absorption
Alexandria 61,000 242,000 -276,000 140,000 140,000 195,000 205,000
Arlington 484,000 1,178,000 416,000 522,000 134,000 546,000 684,000
Tysons Corner -178,000 -120,000 -843,000 -89,000 181,000 289,000 285,000
Reston/Herndon 817,000 267,000 -94,000 255,000 379,000 396,000 467,000
50/66 -382,000 -801,000 -611,000 310,000 328,000 184,000 180,000
Route 28 S 819,000 383,000 -378,000 260,000 124,000 236,000 279,000
Loudoun 349,000 90,000 73,000 362,000 46,000 208,000 240,000

Northern Virginia 1,970,000 1,239,000 -1,713,000 1,760,000 1,332,000 2,054,000 2,340,000

Asking Rents ($)

Alexandria $32 $33 $33 $33 $33 $34 $35
Arlington $35 $34 $37 $39 $40 $42 $43
Tysons Corner $31 $31 $29 $29 $30 $31 $32
Reston/Herndon $31 $31 $29 $27 $27 $27 $28
50/66 $29 $29 $28 $29 $29 $29 $29
Route 28 S $29 $28 $26 $26 $26 $26 $28
Loudoun $26 $25 $25 $25 $25 $25 $26

Northern Virginia $31 $31 $30 $30 $30 $31 $31

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 Metro Forecast Report
Washington, DC 2011
Office Sector

Suburban Maryland: Office Market Forecast

Actual Forecast
2007 2008 2009 2010 20111 2012 2013
Vacancy
Bethesda/Chevy Chase 6.4% 6.7% 10.5% 9.9% 8.8% 7.9% 6.7%
North Bethesda 12.5% 12.5% 14.8% 13.7% 13.6% 12.6% 16.3%
Rockville 7.6% 11.3% 16.0% 14.5% 14.1% 13.3% 12.1%
North Rockville 12.5% 13.5% 16.0% 17.1% 16.6% 15.2% 14.3%
Gaithersburg/German 15.0% 17.9% 17.7% 14.2% 14.7% 14.2% 12.8%
Silver Spring 6.8% 9.3% 11.5% 12.7% 12.9% 12.2% 11.2%
PG County 14.3% 17.8% 18.8% 19.6% 20.5% 20.2% 19.7%

Suburban Maryland 10.8% 12.9% 15.4% 15.2% 15.1% 14.3% 14.0%

Net Absorption
Bethesda/Chevy Chase -214,000 -17,000 -162,000 32,000 143,000 98,000 124,000
North Bethesda 83,000 -131,000 -238,000 87,000 24,000 411,000 -360,000
Rockville -26,000 52,000 -30,000 127,000 16,000 67,000 105,000
North Rockville 216,000 22,000 110,000 -191,000 257,000 151,000 590,000
Gaithersburg/German 97,000 -164,000 29,000 209,000 49,000 35,000 103,000
Silver Spring -109,000 -165,000 -36,000 -25,000 11,000 60,000 79,000
PG County 263,000 -494,000 -359,000 -133,000 -12,000 50,000 84,000

Suburban Maryland 310,000 -897,000 -686,000 106,000 488,000 872,000 725,000

Asking Rents ($)

Bethesda/Chevy Chase $34 $37 $36 $34 $36 $37 $40
North Bethesda $30 $32 $32 $30 $30 $30 $30
Rockville $32 $33 $29 $30 $30 $31 $32
North Rockville $28 $28 $27 $28 $28 $29 $29
Gaithersburg/German $24 $24 $24 $24 $24 $25 $25
Silver Spring $28 $28 $28 $27 $26 $27 $27
PG County $23 $23 $22 $20 $20 $20 $20

Suburban Maryland $27 $28 $27 $28 $28 $28 $29

1
Note: Some buildings were reclassified in 2011, affecting inventory & vacancy rates

4
 Metro Forecast Report
Washington, DC 2011
Office Sector

Disclaimer Vacancy Rate: The amount of unoccupied space

The information contained in this report was
Contact Information obtained from sources deemed reliable, but
no warranty or representation is made to the
accuracy thereof. The figures provided for
Researchers’ Information: the current quarter are preliminary, and all
information contained in the report is subject
to correction of errors and revisions based on
Cassidy Turley
additional data received.
Jeffrey Kottmeier Methodology
Director of Research Market statistics are calculated from a base
2101 L Street, NW building inventory made up of office properties
Suite 700 deemed to be competitive in the typical
Washington, DC 20037 Washington, DC office market. Generally, owner-
occupied and federally-owned buildings are not
Tel: 202-463-2100
included. Single-tenant buildings and privately-
(new, relet, and sublet) expressed as a percentage
of total inventory. (Total Unoccupied Space
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 present 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.

Washington, DC owned buildings in which the federal government

Total Absorption: The net change in total
leases space are included. Older buildings unfit
Urmi Joshi occupied (new, relet, and sublet) space between
for occupancy or ones that require substantial
Senior Research Analyst two quarters.
renovation before tenancy are generally not
2101 L Street, NW included in the competitive inventory. Vacant
Suite 700 space is defined as space that is available
Washington, DC 20037 immediately or three months (90 days) after the
Tel: 202-463-2100 end of the quarter. Sublet space still occupied by
the tenant is not counted as available space.
Northern Virginia
Carey Heymann Explanation of Terms
Total Inventory: The total amount of office space
Market Analyst
(in buildings greater than 10,000 square feet) that
2101 L Street, NW
can be rented by a third party.
Suite 700
Washington, DC 20037 New Space Available: First generation, never-
Tel: 202-463-2100 occupied office space in newly constructed or
substantially renovated buildings, being actively
Suburban Maryland marketed by a landlord.
Sazshy Valentine
Relet Space Available: Second-generation,
Market Analyst
unoccupied office space being actively marketed
2101 L Street, NW by a landlord. (Space that is marketed but largely
Suite 700 occupied is not counted as available space.)
Washington, DC 20037
Tel: 202-463-2100 Sublet Space Available: Second-generation,
unoccupied space being actively marketed by a
*All metro forecasts generated by Cassidy Turley tenant. (Sublet space that is marketed but still
National Research
occupied is not counted as available space.)

Total Space Available: The sums of new, relet,

and sublet space that is unoccupied and being
actively marketed.