3Q Office Market Report

1. Office Market Snapshot
Suburban Maryland • Third Quarter • 2012
Market Tracker Vacancy Net Absorption Deliveries Asking Rent
*Arrows = Current Qtr Trend 15.5% (39,000) SF 269,000 SF $26.28 FS
Stagnant Summer Results in Continued Negative Growth
Following two straight quarters of negative growth, the suburban Maryland office market continued to
see sluggish activity during the summer months. Net demand for office space registered a negative
39,000 square feet during the third quarter of 2012, bringing the year-to-date net absorption total to a
negative 118,000 square feet. That is a drastic difference from the positive 315,000 square feet of
absorption posted during the first three quarters of 2011. The negative demand did not change the
vacancy rate from the previous quarter allowing it to remain at 15.5%. Asking rents in suburban
Maryland averaged $26.28, down 10 cents from the previous quarter and falling 38 cents from the
SUBURBAN MARYLAND OFFICE third quarter 2011 rate.
Economic Indicators Despite the negative absorption experienced in the third quarter, there were some bright spots,
particularly in Montgomery County. In the largest renewal of the quarter, the GSA leased more than
Q3 12 Q3 11 365,000 square feet for the National Institutes of Health (NIH) at 6701 and 6707 Democracy Plaza.
The GSA also accounted for two other large renewal leases during the quarter – the FDA’s 100,500
DC Metro Employment 2.5M 2.4M
square feet at 1401 Rockville Pike and the National Institute of Allergy and Infectious Diseases’ (NIAID)
57,600 square feet at 10401 Fernwood Road. The most notable new lease signed during the third
DC Metro Unemployment 5.5% 6.0%
quarter was that for Child Trends, which leased 28,100 square feet at 7315 Wisconsin Avenue. Indeed,
this lease transaction was not only the largest new lease signed during the quarter, but itself alone was
U.S. Unemployment 8.2% 9.7%
a major contributor to the continued positive absorption experienced in Bethesda. Financial service
firms such as Osprey Global, United Capital and Broad Oak Capital Partners signed leases this quarter
U.S. CCI 65.64 50.26
in Bethesda as well. Outside of Bethesda, notable direct leases included FTI Consulting signing for
12,900 square feet at 1375 Piccard Drive and Core Source Technologies leasing 11,400 square feet at
20410 Century Boulevard.
Net Absorption
In addition to the two buildings scheduled to deliver in 2012 and 2013 (the Nuclear Regulatory
Commission building and the National Cancer Institute building, respectively), there are several other
1,000
800 projects to monitor. The National Oceanic and Atmospheric Administration NOAA building in College
600 Park delivered in the third quarter. Furthermore, the new Digital Receiver Technology, Inc. facility in
Square Feet ('000s)
400
200 Germantown is scheduled to deliver in the first quarter of 2013. Also, 7550 Wisconsin Avenue is
0
-200
under renovation, and the new Rockville Metro Plaza II at 121 Rockville Pike – where Choice Hotels
-400 pre-leased 138,000 square feet – is currently under construction and expected to deliver in the
-600
-800 second quarter of 2013. Lastly, Carr Properties recently secured financing for a 220,000 square-foot
-1,000 office building on East West Highway in Bethesda.
2007 2008 2009 2010 2011 YTD
2012
Forecast
• Landlords have eased tenant improvement requirements in the first three quarters of 2012
Vacancy Rate compared to the same time periods in 2010 and 2011. Look for tenants to continue to benefit from
above average concession packages as long as leasing activity remains stagnant.
• Bethesda/Chevy Chase will see continued leasing activity during otherwise slow quarters than in
17%
Historical Average other parts of suburban Maryland due to its prime location and quality inventory. Look for growth
15%
in the submarket once tenants start looking for more space as 7550 Wisconsin Avenue and 7700
13%
Old Georgetown Road have large blocks of new space available.
11%
• Tenants have been signing short-term renewals due to both political and economic uncertainty.
9%
Look for tenants to sign longer-term renewals and new deals after the election and once economic
7%
hurdles are cleared.
5%
2007 2008 2009 2010 2011 2012 • The large lease renewals executed by the GSA during the third quarter proves the Federal
Government intends to keep occupying large blocks of space for an extended period of time. This
bodes well for suburban Maryland markets that have had trouble attracting large-volume tenants.
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2. Cassidy Turley Office Market Snapshot
Suburban Maryland • Third Quarter • 2012
SUBLET TOTAL VACANCY CURRENT NET YTD NET UNDER CON- AVERAGE
TOTAL BLDG INVENTORY
VACANT VACANT RATE ABSORPTION ABSORPTION STRUCTION ASKING RENT
Submarket
Bethesda/Chevy Chase 102 10,901,129 141,500 1,086,329 10.0% 47,044 102,548 119,239 $36.25
North Bethesda 77 9,559,687 98,400 1,413,485 14.8% (15,559) (66,303) 362,000 $30.61
Rockville 99 8,446,363 45,258 1,199,289 14.2% (6,697) (26,815) 198,000 $30.51
North Rockville 108 10,638,540 167,311 1,499,640 14.1% (1,718) 28,463 575,000 $26.10
Gaithersburg/Germantown 98 6,389,608 36,566 1,008,843 15.8% (1,712) (35,922) 162,000 $23.36
Silver Spring 102 7,835,746 72,357 960,629 12.3% (6,075) (11,402) - $26.53
Montgomery County 586 53,771,073 561,392 7,168,215 13.3% 15,283 (9,431) 1,416,239 $28.68
Northern 133 9,908,822 39,726 2,163,414 21.8% 20,856 (11,249) - $20.35
Central 89 5,192,785 23,866 1,145,896 22.1% (44,900) (57,365) - $21.14
Southern 54 2,624,259 950 611,220 23.3% (30,328) (40,090) - $22.42
Prince George's County 276 17,725,866 64,542 3,920,530 22.1% (54,372) (108,704) 0 $20.91
TOTAL 862 71,496,939 625,934 11,088,745 15.5% (39,089) (118,135) 1,416,239 $26.28
p - preliminary
Key Lease Transactions 3Q 12
PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET
6701 & 6707 Democracy Drive 356,000 GSA - National Institutes of Health (NIH) Renewal North Bethesda
1401 Rockville Pike 100,500 GSA - Food and Drug Administration (FDA) Renewal Rockville
10401 Fernwood Road 57,600 GSA - National Institute of Allergy and Infectious Diseases (NIAID) Renewal North Bethesda
7315 Wisconsin Avenue 28,200 Child Trends Relet Bethesda/Chevy Chase
2 Wisconsin Circle 26,200 Wedding Wire Sublet Bethesda/Chevy Chase
10401 Fernwood Road 15,600 SAIC Renewal North Bethesda
1375 Piccard Drive 12,900 FTI Relet North Rockville
1100 Wayne Avenue 12,500 Webs.com Relet Silver Spring
20410 Century Boulevard 11,400 Core Source Technologies LLC Expansion Germantown
1375 Piccard Drive 9,600 Hanger, Inc. Relet North Rockville
Key Sales Transactions 3Q 12
PROPERTY SF SELLER/BUYER PRICE SUBMARKET
1100 Wayne Avenue, 1010 Wayne 496,967 Urdang Associates & Moore & Associates/Brandywine Realty Trust & Allstate $120,600,000 Silver Spring
9901 Belward Campus Drive 106,469 The Foulger-Pratt Companies/BioMed Realty Trust $26,170,000 North Rockville
1700 Research Boulevard 102,065 Washington Real Estate Investment Trust/Westat $14,250,000 North Rockville
About Cassidy Turley
Philip Brannigan
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