NORTHERN VIRGINIA OFFICE MARKET

Transcription

1 REAL ESTATE OUTLOOK NORTHERN VIRGINIA OFFICE MARKET Office market fundamentals strengthen in Q3 Quarter characterized by strong absorption and rent growth Northern Virginia office market fundamentals strengthened during the third quarter of Net absorption was 503,000 SF, and the direct vacancy rate remained relatively unchanged, ticking up slightly to 16% at September These factors were accompanied by a 50 basis point increase in rents, to $31.29 PSF. Year to date, rents have grown by 200 basis points, led by Class A properties. The Northern Virginia development pipeline includes 3.9 million SF of office space under construction at September 2017, of which 69% is preleased. OFFICE TRENDS 10-YEAR TREND DIRECT 16.0% Vacancy rate ticks up slightly ECONOMY Northern Virginia jobs growth at rate 1.4x 10-year average Payroll employment in Northern Virginia grew by 18,600 jobs during the 12 months ending August This represents growth of more than 1.4 times the 10-year average of 13,000. The professional/business services sector added 10,400 positions, representing 56% of the substate s growth. Adding 5,200 jobs during the same period, the education/health services sector took second place. The information industry shed the greatest number of jobs during the 12 months ending August 2017, contracting by 3,600 positions. Northern Virginia continues to have the lowest unemployment rate among the Washington metro area s substates, at 3.2% in July This rate is equivalent to the level of unemployment in July 2016 but is an improvement over the national rate of 4.3% at July We anticipate business and employment counts will continue to grow during the balance of 2017 and into Through 2021, we project average annual job growth of 17,300, representing 55% of new positions created throughout the metro area. Most of this growth will occur through 2018 and then taper off slightly. We expect the health, technology, construction, and food services industries to fuel job growth in the period ahead. RENTAL RATES UNDER CONSTRUCTION JOB GROWTH 994,000 SF Robust demand YTD $31.29 PSF Up 200 basis points YTD 3.9 Million SF Pipeline is 69% preleased 18,600 Jobs During 12 months ending August 2017

2 NORTHERN VIRGINIA OFFICE MARKET UNEMPLOYMENT RATE UNITED STATES WASHINGTON METRO AREA NORTHERN VIRGINIA 12% 10% 8% 6% OFFICE AND DEMAND Quarterly absorption more than triple 10-year average Northern Virginia s direct vacancy rate was 16% at September 2017, a 10 basis point increase from the second quarter of 2017 but a 10 basis point improvement over the third quarter of The current vacancy rate does, however, remain above the 10-year annual average of 13.5%. 4% 2% 0% * *At July 2017 SOURCE: Bureau of Labor Statistics, Transwestern Among Class A properties in Northern Virginia, the direct vacancy rate measured 13.1% at September 2017, an improvement of 50 basis points over the prior quarter and 120 basis points over the same quarter last year. Class B/C direct vacancy registered 17.6%, a 50 basis point increase over the second quarter of 2017 and the third quarter of PAYROLL JOB GROWTH 3% 2% 1% 0% -1% -2% -3% -4% -5% UNITED STATES WASHINGTON METRO AREA NORTHERN VIRGINIA * NORTHERN VIRGINIA OFFICE NET AND 3.0 *12 months ending August 2017 SOURCE: Bureau of Labor Statistics, Transwestern NET IN MILLIONS DIRECT RATE 18% There was approximately 503,000 SF of positive net absorption during the quarter, and this figure included a handful of sizeable leases, as well as a large pre-leased delivery. In particular, the new headquarters building for the National Science Foundation (NSF) delivered at 2415 Eisenhower Avenue in the Eisenhower Avenue Corridor. It was approximately 99% pre-leased. Notable leases signed during the quarter include General Dynamics Information Technology backfilling 215,500 SF of former Noblis space at 3150 Fairview Park Drive in Merrifield, and the U.S. Department of Agriculture Food and Nutrition Service signing for 136,000 SF at 1320 Braddock Place in the Old Town Alexandria submarket. Continuing a trend seen in the second quarter of 2017, third-quarter absorption took place in Class A buildings, at 973,000 SF versus negative absorption of 473,000 SF at Class B/C properties. This quarter s overall net absorption is more than three times the 10-year quarterly average of 146,000 SF * 16% 14% 12% 10% 8% 6% 4% *September2017 The Eisenhower Avenue Corridor, with the large NSF headquarters pre-leased delivery, was the leader in net absorption during the third quarter of 2017, with approximately 741,000 SF of positive net absorption. This, however, negatively impacted absorption in the RCB Corridor, as NSF employees began vacating nearly 771,600 SF in Ballston. The NSF plans to move employees to its new headquarters in phases over a six-week period this fall. Other sizeable moveouts during the quarter include Willis Towers Watson vacating 126,100 SF at 901 N. Glebe Road, also in the RCB Corridor. They downsized into 54,700 SF across the street at 800 N. Glebe Road. Additionally, a large federal government tenant left 97,200 SF at 901 Follin Lane in the McLean/Vienna submarket. At September 2017, approximately 37% of new and relet leasing activity is attributable to the professional/business services industry year to date. Tech, with 23% of leasing activity, accounts for the second-largest portion by industry. The RCB Corridor has seen the greatest volume of submarket leasing activity during the first nine months of 2017, estimated at 25%. It is followed closely by Herndon at 20%. 2 REAL ESTATE OUTLOOK NORTHERN VIRGINIA OFFICE MARKET Q3 2017

3 OFFICE RENTAL RATES Quarterly and annual asking rent increases continue Average office asking rents expanded during the third quarter of 2017, growing 50 basis points to $31.29 PSF at September Year to date, asking rents have increased 200 basis points. Growth has been strongest among Class A properties, expanding 80 basis point during the most recent quarter to $34.61 PSF. Class B/C rents were stable during the quarter and averaged $28.16 PSF at September Concession packages are elevated. For a typical 10-year or greater term for a new lease signed since the start of 2017, tenant improvement allowances average around $79 PSF with 14 months of free rent. NORTHERN VIRGINIA CONTIGUOUS BLOCK ANALYSIS NUMBER OF BUILDINGS - Q NUMBER OF BUILDINGS - Q ,000 SF 20,000 SF 50,000 SF 100,000 SF OFFICE SUPPLY AND DEVELOPMENT Tysons Corner site of largest development pipeline Four Northern Virginia office properties delivered during the third quarter of Notably, the 700,000 SF new headquarters for the National Science Foundation (NSF) delivered at 2415 Eisenhower Avenue. Several smaller office buildings also came online during the quarter. A 72,000 SF building delivered, 60% pre-leased, at Bashan Drive in Loudoun County as part of the One Loudoun mixed-use development. Van Metre Companies delivered a 20,000 SF building at Van Metre Drive, 100% leased to the company and its affiliates. Finally, in Prince William County, a 48,000 SF office building delivered at 4565 Daisy Reid Avenue. There is approximately 3.9 million SF of Northern Virginia office space under construction at September Approximately 69% of this development is pre-leased. For 2018 deliveries alone, approximately 2 million SF of space has been pre-leased. With nearly 1.6 million SF of office space under construction at September 2017, Tysons Corner is home to the largest development pipeline in Northern Virginia. Approximately 72% of its pipeline is pre-leased. The RCB Corridor ranks second with 727,800 SF under construction, followed closely by Route 28 South/Chantilly with 720,000 SF underway. Throughout the substate, an additional 993,400 SF is expected to deliver during the balance of NORTHERN VIRGINIA OFFICE ASKING RENTAL RATES $40 $35 $30 $25 $20 $15 CLASS A CLASS B/C * *At September 2017 NORTHERN VIRGINIA OFFICE DEVELOPMENT PIPELINE MILLION SF COMPLETED UNDER CONSTRUCTION PRE-LEASED UNDER CONSTRUCTION AVAILABLE * *Delivered YTD REAL ESTATE OUTLOOK NORTHERN VIRGINIA OFFICE MARKET Q

4 NORTHERN VIRGINIA OFFICE MARKET OFFICE INVESTMENT MARKET Investor interest evenly split across classes Year-to-date Northern Virginia investment sales activity totaled $2 billion, or $268 PSF at September Thirty-three notable transactions have taken place during the first three quarters of the year. Class B/C properties accounted for a slightly greater proportion of year-to-date sales than Class A, at 53%. Recent transactions include private equity firm Rockpoint Group acquiring 1919 and 1921 Gallows Road from Tishman Speyer for $136 million, or $283 PSF in July In August 2017, The Pinkard Group purchased Worldgate Drive from TA Realty for $40 million, or $205 PSF. This transaction represents the company s second office acquisition in the Dulles tech corridor during Accounting for 34% of transactions year to date, Tysons Corner has been home to the greatest investor interest in OFFICE MARKET OUTLOOK Measured office market recovery likely With greater certainty in federal budget priorities in the coming months, we anticipate tenants moving forward with leasing plans. These gains, however, may be offset by funding cuts in specific sectors and tenant efficiency measures, including densification and consolidation. Combined, we expect these factors will result in measured, if any, improvements to the Northern Virginia office market. As new office product delivers throughout Northern Virginia, it will redefine the upper bounds of area asking rents; however, overall substate rates will reflect the downward pressure exerted by relatively high vacancy rates found in less competitive submarkets. To attract and retain tenants under these conditions, landlords will continue to offer relatively large concessions packages. As a result, the recovery process will likely be slower than in past economic cycles. We project the overall Northern Virginia vacancy rate (inclusive of sublease space) to remain relatively flat through year-end 2018, hovering around the high-16% to low-17% range. We expect asking rents will edge up 1.5% to 2.5% during Competing with new inventory, landlords continue to renovate office product to take part in the flight to quality. A notable example is Moore & Associates third quarter purchase of the four-building Worldgate Metro Plaza office complex in Herndon. The company intends to spend $10 million on renovations, including new lobbies and outdoor spaces, as well as conference and fitness centers. As an alternative to renovating, a handful of Northern Virginia landlords are converting obsolete office buildings into residential properties. Recently, JBG Smith announced plans to rebrand a portion of Crystal City, adding retail and converting the existing office building at 1750 Crystal Drive into ground-floor retail and 350 residential units. Converting obsolete product removes it from the area s inventory, thereby addressing concerns related to vacancy levels and the development pipeline. While agreement on a dedicated source of funding for the region s Metrorail system remains unresolved, demand for office properties in proximity to Metro continues to be strong. Properties along the extension of the system s Silver Line are poised to benefit with construction on the 11.4-mile stretch approximately 61% complete as of July More broadly, transit-oriented properties with strong amenities bases will likely lead the area s gradual office market recovery. Another potential source of growth in the area s office market would be Amazon s decision to select the substate as the location for its second headquarters. In September, the company issued a request for proposals for a second $5 billion North American location to house 50,000 jobs, and the Washington metro area appears on numerous top contenders lists. Citing strong demographics, access to public transportation, and a growing tech scene, analysts have suggested the top Northern Virginia candidates include Crystal City, the Dulles Corridor, and Rosslyn. 4 REAL ESTATE OUTLOOK NORTHERN VIRGINIA OFFICE MARKET Q3 2017

5 Northern Virginia Office Market Indicators PROPERTY CLASS INVENTORY UNDER CONSTRUCTION Q3 NET YTD NET DIRECT SUBLEASE SPACE OVERALL AVERAGE RATE PSF Class A 68,745,586 3,910, ,000 1,391, % 0.8% 14.0% $34.61 Class B/C 124,576,137 0 (473,000) (394,000) 17.6% 0.7% 18.3% $28.16 Total 193,321,723 3,910, , , % 0.8% 16.8% $31.29 Northern Virginia Office Market Notable Lease Transactions TENANT DEAL TYPE ADDRESS SUBMARKET SQUARE FEET USDA - Food and Nutrition Services New Lease 1320 Braddock Place Old Town 136,000 U.S. Department of State New Lease 1200 Wilson Boulevard RCB Corridor 55,800 Strategic Analysis New Lease 4075 Wilson Boulevard RCB Corridor 25,900 Favor TechConsulting New Lease 8075 Leesburg Pike Tysons Corner 24,700 IT Cadre New Lease Central Station Drive Loudoun County 22,400 Preferred System Solutions New Lease 7925 Jones Branch Drive Tysons Corner 22,000 TechSpace New Lease 4075 Wilson Boulevard RCB Corridor 20,700 SOURCE: CoStar, County Newsletters, Washington Business Journal, Washington Post, Transwestern Northern Virginia Office Market Construction Activity SUBMARKET SQUARE FEET UNDER CONSTRUCTION/RENOVATION PERCENT PRE-LEASED RCB Corridor 727,781 55% Crystal/Pentagon City 100, % Reston 368,413 4% Tysons Corner 1,556,775 72% McLean/Vienna 235, % Fairfax Center 150,000 79% Rt. 28 South/Chantilly 720, % Prince William County 53,000 0% Total 3,910,969 69% REAL ESTATE OUTLOOK NORTHERN VIRGINIA OFFICE MARKET Q

6 NORTHERN VIRGINIA OFFICE MARKET Northern Virginia Office Market Indicators SUBMARKET INVENTORY UNDER CONSTRUCTION Q3 NET YTD NET DIRECT SUBLEASE SPACE TOTAL AVERAGE RATE PSF RCB Corridor 24,151, ,781 (797,000) (106,000) 20.0% 0.8% 20.8% $42.61 Crystal City/Pentagon City 14,098, ,000 (42,000) (28,000) 17.2% 0.2% 17.4% $35.80 Old Town 8,389, , , % 1.1% 10.6% $32.88 Eisenhower Ave Corridor 9,673, , , % 0.2% 21.2% $33.34 Springfield/Huntington/I-95 8,030, ,000 (24,000) 19.3% 0.3% 19.6% $28.45 Bailey's/Falls Church/Annandale 7,382, ,000 (89,000) 28.0% 0.8% 28.8% $28.83 Merrifield 9,247, ,000 (111,000) 12.5% 1.1% 13.6% $31.13 Reston 18,797, ,413 75,000 38, % 0.7% 10.0% $29.10 Herndon 12,253,982 0 (61,000) 319, % 1.8% 16.8% $28.45 Tysons Corner 29,335,138 1,556, , , % 0.8% 15.7% $34.09 McLean/Vienna 2,201, ,000 (68,000) (70,000) 10.0% 1.4% 11.4% $33.62 Oakton/Fairfax City 5,840, ,000 23, % 0.2% 14.3% $24.46 Fairfax Center 7,248, ,000 7,000 (80,000) 23.7% 1.6% 25.3% $25.51 Rt. 28 South/Chantilly 13,887, ,000 42,000 69, % 0.3% 14.5% $25.17 Loudoun County 16,200, , , % 1.0% 16.4% $23.97 Prince William County 6,584,179 53,000 (4,000) (31,000) 13.5% 0.5% 14.0% $23.08 Total 193,321,723 3,910, , , % 0.8% 16.8% $31.29 CONTACT Elizabeth Norton Managing Research Director Mid-Atlantic elizabeth.norton@transwestern.com Claire Whitesell Research Associate Mid-Atlantic claire.whitesell@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office properties located in the Northern Virginia area. This report includes single-tenant, multi-tenant and owner-user office properties 15,000 SF and larger, excluding properties owned by a government agency Tysons One Place, Suite 600 McLean, Virginia T Copyright 2017 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to First parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and Thirdary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

7 REAL ESTATE OUTLOOK NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET Flex/industrial market slows during Q3 Vacancy ticks upward as move-outs outpace leases Northern Virginia flex/industrial market fundamentals slowed during the third quarter of The substate negatively absorbed 236,000 SF, and the direct vacancy rate increased by 50 basis points to 7.4% at September The most recent vacancy rate, however, represents a 20 basis point improvement over the third quarter of Additionally, asking rents remained unchanged versus the previous quarter, at $9.28 PSF. ECONOMY Northern Virginia jobs growth at rate 1.4x 10-year average Payroll employment in Northern Virginia grew by 18,600 jobs during the 12 months ending August This represents growth of more than 1.4 times the 10-year average of 13,000. The professional/business services sector added 10,400 positions, representing 56% of the substate s growth. Adding 5,200 jobs during the same period, the education/health services sector took second place. The information industry shed the greatest number of jobs during the 12 months ending August 2017, contracting by 3,600 positions. Northern Virginia continues to have the lowest unemployment rate among the Washington metro area s substates, at 3.2% in July This rate is equivalent to the level of unemployment in July 2016 but is an improvement over the national rate of 4.3% at July We anticipate business and employment counts will continue to grow during the balance of 2017 and into Through 2021, we project average annual job growth of 17,300, representing 55% of new positions created throughout the metro area. Most of this growth will occur through 2018 and then taper off slightly. We expect the health, technology, construction, and food services industries to fuel job growth in the period ahead. FLEX/INDUSTRIAL AND DEMAND Move-outs outweigh strong mid-sized leasing Net absorption for the Northern Virginia flex/industrial market registered negative 236,000 SF during the third quarter, as the predominantly mid-sized leases signed in the market failed to offset larger move-outs. These conditions resulted in a 50 basis point expansion in the direct vacancy rate to 7.4% at September 2017, still well-below the 10-year average of 9.4%. Continuing FLEX/INDUSTRIAL TRENDS 10-YEAR TREND DIRECT RENTAL RATES 7.4% UNDER CONSTRUCTION JOB GROWTH Vacancy rate expands during Q3 (54,000) SF Positive YTD absorption reversed in Q3 $9.28 PSF YTD growth of 0.2% 878,300 SF Pipeline contracted during Q3 18,600 Jobs During 12 months ending August 2017

8 NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET NORTHERN VIRGINIA FLEX/INDUSTRIAL NET AND NET IN MILLIONS NORTHERN VIRGINIA FLEX/INDUSTRIAL ASKING RENTAL RATES $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 NORTHERN VIRGINIA FLEX/INDUSTRIAL DEVELOPMENT PIPELINE MILLION SF DIRECT RATE * BULK WAREHOUSE FLEX/WAREHOUSE FLEX/R&D * 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% *At September 2017 *At September 2017 COMPLETED UNDER CONSTRUCTION PRE-LEASED UNDER CONSTRUCTION AVAILABLE * 18 *Delivered YTD trends from the previous quarter, the bulk warehouse direct vacancy rate, at 7%, remains the lowest among flex/ industrial property types, despite negative net absorption of 126,000 SF during the quarter. Flex/warehouse space had an equivalent level of negative net absorption for the quarter with a direct vacancy rate of 7.4%, while flex/r&d properties accounted for the greatest quarterly absorption, at 16,000 SF, and registered a 9.2% direct vacancy rate at September Across Northern Virginia flex/industrial submarkets, absorption was greatest in the Dulles Corridor, with positive net absorption of 107,000 SF. A 67,400 SF lease signed by LaserShip at 3900 Stonecroft Boulevard, as well as a 27,000 SF lease inked by Legacy Scenic & Productions at Glenn Drive, contributed to this quarter s figures. These were partially offset by move-outs, including CWPS vacating 19,000 SF at Sullyfield Circle and Distinctive Services leaving 13,600 SF at Sullyfield Circle nearby. FLEX/INDUSTRIAL RENTAL RATES Asking rents steady quarter-over-quarter, with yearto-date increases Average asking rents for Northern Virginia flex/industrial properties held steady during the third quarter of 2017, at $9.28 PSF. This rate represents a 20 basis point increase year to date. Year-to-date rent growth was strongest for flex/r&d properties, which grew by 210 basis points to $13.53 PSF. Bulk warehouse rents have increased by 40 basis points during 2017 to $7.85 PSF, while flex/ warehouse rents have declined by 10 basis points over the same period to $9.45 PSF at September FLEX/INDUSTRIAL SUPPLY AND DEVELOPMENT Development activity remains concentrated in Prince William County and the Dulles Corridor There were two flex/industrial deliveries in Northern Virginia during the second quarter of Merritt Properties delivered a 137,400 SF bulk warehouse at 7425 Merritt Park Drive in Prince William County. The property was 0% pre-leased at delivery. Additionally, a 40,000 SF flex/warehouse property came online at Dulles Trade Court in the Dulles Corridor. There is approximately 878,300 SF of Northern Virginia flex/industrial product under construction at September 2017, of which 11% is pre-leased. More than 486,300 SF is expected to deliver 2 REAL ESTATE OUTLOOK NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET Q3 2017

9 during the balance of 2017, of which approximately 20% has been pre-leased. Looking ahead, flex/industrial development remains concentrated in the Prince William County and Dulles Corridor submarkets. FLEX/INDUSTRIAL INVESTMENT MARKET 2017 investment sales dominated by flex/warehouse properties Two Northern Virginia flex/industrial sales took place during the third quarter of Notably, Buchanan Partners purchased Albemarle Point/Dulles Business Park from Ares Commercial Real Estate for $41.9 million, or $82 PSF, in August Year to date, Northern Virginia investment sales total $257.6 million, or $97 PSF. As with development, sales remain primarily focused in the Dulles Corridor and Prince William County submarkets, accounting for 40% and 33% of year-todate sales volume, respectively, at September They are followed by the I-95 Corridor which, at 28%, accounts for the remainder of the sales transacted during the first three quarters. By property type, flex/warehouse has generated the greatest volume of year-to-date investment sales at September Approximately $140.2 million in flex/warehouse sales have been transacted during the first three quarters, representing 54% of total sales. Bulk warehouse, with 29% of sales, is a distant second, followed by flex/r&d at 16%. FLEX/INDUSTRIAL MARKET OUTLOOK Demand expected to be greatest for efficient properties Northern Virginia s accessible and strategic location along the East Coast, proximity to Washington, D.C., and strong demographics will continue to encourage healthy demand for flex/industrial product, particularly as it relates to e-commerce growth. We forecast improvement in market fundamentals in the form of declines in the overall vacancy rate from 7.5% today to the high-6% to low-7% range by December Declines in area vacancy rates should be accompanied by increases in asking rent, which we project to grow 0.5% to 1.5% for The Northern Virginia flex/industrial development pipeline has contracted with several deliveries this quarter. However, relatively low pre-leasing rates suggest there may be new inventory to work through within select submarkets. Given these conditions, we anticipate vacancy rates will remain lower than historical levels in the near- to intermediate-term. We expect demand will be greatest for efficient properties with superior trailer loading, clear heights, column spacing, and parking. REAL ESTATE OUTLOOK NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET Q

10 NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET Northern Virginia Flex/Industrial Market Indicators PROPERTY CLASS INVENTORY UNDER CONSTRUCTION Q3 NET YTD NET DIRECT SUBLEASE SPACE OVERALL AVERAGE RATE PSF Bulk Warehouse 21,361, ,175 (126,000) (126,000) 7.0% 0.0% 7.0% $7.85 Flex/Warehouse 59,852,380 44,100 (126,000) (3,000) 7.4% 0.2% 7.6% $9.45 Flex/R&D 4,684, ,000 76, % 0.0% 9.2% $13.53 Total 85,897, ,275 (236,000) (54,000) 7.4% 0.1% 7.5% $9.28 Northern Virginia Flex/Industrial Market Notable Lease Transactions TENANT DEAL TYPE ADDRESS SUBMARKET SQUARE FEET LaserShip New Lease 3900 Stonecroft Boulevard Dulles Corridor 67,400 Legacy Scenic & Productions New Lease Glenn Drive Dulles Corridor 27,000 RPG New Lease 7401 Gateway Court Prince William County 26,800 International Cellars New Lease Dulles Summit Court Dulles Corridor 21,000 Good Shepherd Evangelical Church New Lease 5401 Port Royal Road I-95 Corridor 10,000 Draper Aden Associates New Lease Coppermine Drive Prince William County 9,400 Auto Sound New Lease 8533 Terminal Road I-95 Corridor 9,300 SOURCE: CoStar, County Newsletters, Washington Business Journal, Washington Post, Transwestern Northern Virginia Flex/Industrial Market Construction Activity SUBMARKET SQUARE FEET UNDER CONSTRUCTION/RENOVATION PERCENT PRE-LEASED Dulles Corridor 254,156 0% Prince William County 624,119 15% Total 878,275 11% 4 REAL ESTATE OUTLOOK NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET Q3 2017

11 NORTHERN VIRGINIA FLEX/INDUSTRIAL MARKET Northern Virginia Flex/Industrial Market Indicators SUBMARKET INVENTORY UNDER CONSTRUCTION Q3 NET YTD NET DIRECT SUBLEASE SPACE TOTAL AVERAGE RATE PSF Bulk Warehouse 304, % 0.0% 0.0% N/A Flex/Warehouse 3,180,356 0 (39,000) (58,000) 4.9% 0.5% 5.4% $12.04 Flex/R&D 366,459 0 (7,000) (27,000) 14.9% 0.0% 14.9% $13.07 Beltway (I-495) 3,851,727 0 (46,000) (85,000) 5.5% 0.4% 5.9% $12.14 Bulk Warehouse 4,938,291 0 (128,000) (143,000) 7.6% 0.0% 7.6% $8.33 Flex/Warehouse 19,184,932 0 (18,000) 94, % 0.0% 6.5% $8.79 Flex/R&D 1,210, ,000 46, % 0.0% 7.8% $13.93 I-95 Corridor 25,333,635 0 (127,000) (4,000) 6.8% 0.0% 6.8% $8.95 Bulk Warehouse 70, % 0.0% 0.0% N/A Flex/Warehouse 1,575,134 0 (1,000) (14,000) 10.3% 0.3% 10.6% $14.60 Flex/R&D 592, ,000 17, % 0.0% 18.0% $13.84 Reston/Herndon 2,238, ,000 2, % 0.2% 12.2% $14.39 Bulk Warehouse 10,969, ,056 88,000 22, % 0.0% 6.7% $7.82 Flex/Warehouse 22,209,813 44,100 28,000 7, % 0.5% 9.9% $10.41 Flex/R&D 2,181,789 0 (9,000) 37, % 0.0% 7.9% $13.61 Dulles Corridor 35,361, , ,000 66, % 0.3% 8.8% $9.80 Bulk Warehouse 5,076, ,119 (86,000) (5,000) 7.7% 0.0% 7.7% $7.46 Flex/Warehouse 13,702,145 0 (96,000) (32,000) 5.5% 0.0% 5.5% $7.61 Flex/R&D 333, ,000 3, % 0.0% 1.3% $11.50 Prince William County 19,112, ,119 (174,000) (33,000) 6.0% 0.0% 6.0% $7.64 Bulk Warehouse 21,361, ,175 (126,000) (126,000) 7.0% 0.0% 7.0% $7.85 Flex/Warehouse 59,852,380 44,100 (126,000) (3,000) 7.4% 0.2% 7.6% $9.45 Flex/R&D 4,684, ,000 76, % 0.0% 9.2% $13.53 Northern Virginia Total 85,897, ,275 (236,000) (54,000) 7.4% 0.1% 7.5% $9.28 CONTACT Elizabeth Norton Managing Research Director Mid-Atlantic elizabeth.norton@transwestern.com Claire Whitesell Research Associate Mid-Atlantic claire.whitesell@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on industrial/flex properties located in the Northern Virginia area. This report includes single-tenant, multi-tenant and owner-user properties 15,000 SF and larger, excluding properties owned by a government agency Tysons One Place, Suite 600 McLean, Virginia T Copyright 2017 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to First parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and Thirdary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.