MARKETBEAT

OFFICE SNAPSHOT
NORTHERN VIRGINIA
A Cushman & Wakefield Research Publication

Q3 2013

Northern Virginias unemployment rate of 4.3% continues to lead the Washington, D.C. metropolitan region and is well below the national average of 7.4%. According to the GMU Center for Regional Analysis, Northern Virginia added approximately 25,800 jobs over the past year. This was led by the leisure and hospitality sector, adding roughly 12,000 new jobs followed by state and local government which added nearly 8,000 positions this year.

ECONOMIC OVERVIEW

Significant uncertainty remains in the marketplace regarding the Federal Government. In a market that relies heavily on government contractors, concerns over sequestration, the shutdown, and upcoming debt ceiling debate continue to plague the region. The Northern Virginia market will experience continuing stabilization, but it will take time for vacancy rates to improve given the amount of space currently available combined with lack of demand and space coming through the active construction pipeline. STATS ON THE GO
Q3 2012 Overall Vacancy Direct Asking Rents (psf/yr) YTD Leasing Activity (sf) 18.1% $32.15 3,821,493 Q3 2013 19.6% $33.43 4,402,493 Y-O-Y 12 MONTH CHANGE FORECAST 1.5pp 3.9% 15.2%

OUTLOOK

DELIVERIES HURT VACANCY

Overall net absorption is negative at 260,570 square feet (sf) for the first three quarters of 2013, compared to negative 1.7 million square feet (msf) during the same period last year. The largest move-out this quarter was CSC vacating over 100,000 sf at 3110 Fairview Park Drive in Merrifield. During the third quarter, three new deliveries in the Springfield/Annandale/Baileys submarket brought over 350,000 sf to the market vacant and caused Northern Virginias direct vacancy rate to rise 0.4 pp from the second quarter. The average direct asking rental rate rose by 3.9% from this time last year, due to additional vacancies in class A buildings as well as an influx of new deliveries priced above-market. In addition to the previously mentioned buildings; 1400 Crystal Drive re-delivered, bringing 308,000 sf of class A space to the market. As a result, average direct asking rental rates for class A buildings are up 5.3% from last year to $36.35 per square foot (psf). After a lackluster start to 2013, leasing activity experienced a significant boost during the past quarter. 2.1 msf of new leases were recorded during the third quarter alone, attributed to SAICs saleleaseback of its 640,000-sf Tysons Corner campus. SAIC will remain in one building for seven years and vacate two within a year. Year-todate leasing totals 4.4 msf, a 15.2% improvement over the same period last year. Additionally, the U.S. Fish & Wildlife Service inked a new deal totaling almost 183,000 sf which will move its headquarters from Ballston to Baileys Crossroads in 2014. The largest renewal this quarter was the State Department renewing 343,000 sf at 1801 North Lynn Street. Investment sales activity picked up during the third quarter. Most notably, Meridian Group purchased SAICs Tysons Corner campus. The three-building, 640,000-sf portfolio located at 1707,1709 and 1710 Solutions Drive, traded for $85 million or approximately $133 sf.
Cushman & Wakefield of Virginia, Inc. 1600 Tysons Boulevard, Suite 400 McLean, VA 22102 www.cushmanwakefield.com/knowledge

DIRECT RENTAL VS. VACANCY RATES

$34.00 $33.00 psf/yr $32.00 $31.00 $30.00 $29.00 $28.00 2009 2010 2011 2012 Q3 13
DIRECT GROSS RENTAL RATE

20.0% 15.0% 10.0% 5.0% 0.0%

DIRECT VACANCY RATE

LEASING ACTIVITY SPIKES

OVERALL OCCUPIER ACTIVITY

10.0 8.0 msf 6.0 4.0 7.8 6.8 7.0 5.1 4.4 2013 YTD 2.0 0.0 2009 2010 2011 2012

LEASING ACTIVITY

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 paula.munger@cushwake.com

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2013 Cushman & Wakefield, Inc. All rights reserved.

NORTHERN VIRGINIA
SUBMARKET INVENTORY OVERALL DIRECT VACANCY VACANCY RATE RATE 20.2% 19.2% 15.5% 13.6% 16.3% 13.9% 17.7% 16.0% 23.7% 22.6% 17.5% 11.9% 19.8% 18.2% 10.6% 9.4% 45.8% 45.6% 20.0% 16.4% 20.2% 18.8% 32.1% 29.4% 21.7% 18.0% 17.2% 15.2% 18.1% 16.2% 16.9% 15.0% 18.2% 17.3% 19.2% 17.2% 22.4% 22.0% 19.6% 17.8% YTD LEASING ACTIVITY 63,601 125,159 159,678 348,438 124,495 0 472,933 209,015 0 660,848 869,863 204,589 125,546 134,338 1,216,724 987,953 285,052 2,954,202 105,495 4,402,493 UNDER CONSTRUCTION/ RENOVATION 524,605 210,196 0 734,801 329,000 0 1,063,801 0 0 0 0 0 0 0 810,300 0 0 810,300 0 1,874,101 YTD YTD DIRECT CONSTRUCTION/ NET ABSORPTION RENOVATION COMPLETIONS 0 (350,693) 0 0 0 308,000 0 308,000 0 0 0 0 352,472 0 0 35,000 0 104,000 491,472 0 799,472 36,887 (51,420) (365,226) (19,862) (127,041) (512,129) (21,694) (102,423) (16,399) (140,516) 174,580 (337,913) (32,193) 133,611 515,513 121,302 574,900 10,971 (66,774) YTD OVERALL OVERALL WTD. AVG NET ABSORPTION ALL CLASSES GROSS RENTAL RATE * (337,008) 94,007 (109,178) (352,179) (48,790) (121,438) (522,337) (23,031) (76,571) (3,457) (103,059) 209,522 (416,477) (48,757) 54,848 457,512 99,347 355,995 8,831 (260,570) $45.18 $39.27 $40.82 $42.64 $40.68 $28.62 $41.50 $32.21 $33.22 $24.11 $31.73 $32.58 $28.37 $27.03 $31.15 $27.01 $26.64 $29.07 $24.22 $32.75 DIRECT WTD. AVG. CLASS A GROSS RENTAL RATE* $52.70 $37.09 $46.70 $48.43 $42.28 $35.00 $44.27 $34.41 $36.85 $35.56 $36.11 $40.02 $32.47 $30.89 $39.62 $29.69 $28.54 $32.24 $26.76 $36.35

Rosslyn Arlington Metro Ballston RB CORRIDOR Crystal City/ Pentagon City Arlington Non-Metro ARLINGTON COUNTY Old Town I-395 Corridor Huntington/ Eisenhower CITY OF ALEXANDRIA Springfield/ Annandale/ Baileys Merrifield/ Route 50 Fairfax/ Oakton/ Vienna Tysons Corner/ McLean Reston/ Herndon Route 28 South/ Chantilly FAIRFAX COUNTY LOUDOUN COUNTY TOTALS

8,310,744 5,229,416 6,666,632 20,206,792 11,811,593 1,203,921 33,222,306 8,191,666 3,087,147 2,537,859 13,816,672 7,361,435 6,832,835 9,076,902 23,382,985 24,690,837 9,022,182 80,367,176 5,072,696 132,478,850

* RENTAL RATES REFLECT ASKING $PSF/YEAR

MARKET HIGHLIGHTS
SIGNIFICANT Q3 2013 LEASE TRANSACTIONS 1707, 1709 and 1710 Solutions Drive* 1801 North Lynn Street** 5275 Leesburg Pike (Seven Skyline Place) 15036 Conference Center Drive 2245 Monroe Street SIGNIFICANT Q3 2013 SALE TRANSACTIONS 1707, 1709 & 1710 Solutions Drive 10700 Parkridge Boulevard SIGNIFICANT Q3 2013 CONSTRUCTION COMPLETIONS 1400 Crystal Drive 7951 Loisdale Road 7961 Loisdale Road SIGNIFICANT PROJECTS UNDER CONSTRUCTION 1812 N. Moore Street 7900 Tysons One Place SUBMARKET Tysons Corner/McLean Rosslyn Springfield/Annandale/Baileys Route 28 South/Chantilly Reston/Herndon SUBMARKET Tysons Corner/McLean Reston/Herndon SUBMARKET Crystal City/Pentagon City Springfield/Annandale/Baileys Springfield/Annandale/Baileys SUBMARKET Rosslyn Tysons Corner/McLean TENANT SAIC GSA State Department U.S. Fish & Wildlife SRA International, Inc. Lockheed Martin Corporation BUYER Meridian Group Clover Properties, LLC MAJOR TENANT Decisive Analytics N/A N/A MAJOR TENANT N/A Intelsat S.A. BUILDING CLASS B A B A A PURCHASE PRICE / $PSF $85,000,000 / $133 $23,700,000 / $191 COMPLETION DATE Q3 2013 Q3 2013 Q3 2013 COMPLETION DATE Q4 2013 Q2 2014 SQUARE FEET 640,000 343,111 182,721 165,000 162,267 SQUARE FEET 640,000 124,032 BUILDING SQUARE FEET 308,000 121,236 121,236 BUILDING SQUARE FEET 524,605 510,300

*SALE/LEASEBACK ** RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS

Cushman & Wakefield, Inc. 1600 Tysons Corner Boulevard, Suite 400 Tysons Corner, VA 22102 www.cushmanwakefield.com/knowledge

For more information, contact: Paula Munger, Regional Research Director (703) 847 -2785 Paula.Munger@cushwake.com

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2013 Cushman & Wakefield, Inc. All rights reserved.