MARKETBEAT

OFFICE SNAPSHOT
HAMPTON ROADS, VA
A Cushman & Wakefield Research Publication

Q3 2013

ECONOMIC OVERVIEW
The unemployment rate in Hampton Roads continues to trend in a downward direction. As of July, the unemployment rate sat at 6.2%, 70 basis points lower than last years rate of 6.9% and 1.5 percentage points lower than the national rate of 7.7%. In addition, approximately 16,000 more Americans have joined the labor force since last year, meaning the labor force is growing even while the unemployment rate is dropping. This is a good sign of individuals continuously entering the labor pool rather than dropping out of it altogether.

STATS ON THE GO
Q3 2012 Overall Vacancy Direct Asking Rents (psf/yr) YTD Leasing Activity (sf) 12.1% $16.78 1,720,723 Q3 2013 12.1% $16.68 1,152,819 Y-O-Y CHANGE 0.0pp -0.6% -33.0% 12 MONTH FORECAST

VACANCY
The third quarters overall and direct vacancy rates remain virtually unchanged over the rates recorded in Q3 2012. Direct asking rents have dropped from $16.78 to $16.68 per square foot (psf), a 0.6% decrease from the same time last year. However, the Hampton Roads market has experienced a current year-to-date direct net absorption of more than 220,000 square feet, significantly higher than it was a year ago at 44,000 sf.

DIRECT RENTAL VS. VACANCY RATES

$18.00 $17.50 psf/yr $17.00 $16.50 $16.00 $15.50 2009 2010 2011 2012 Q3 13 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0%

TRENDS
The office market continues to move steadily, as tenants carry on to conserve as much capital as possible. Small to mid-size tenants continue to lead the market in new leasing activity as they negotiate better deals to move up in class for similar rents. Minimal movement is observed within larger tenants, as they prefer to renew their existing space or even downsize to smaller space, to better fit their needs. This quarter indicates that the market is still a tenants market where free rent and other concessions are still being observed to maintain positive leasing activity.

DIRECT GROSS RENTAL RATE

DIRECT VACANCY RATE

LEASING ACTIVITY VS OVERALL NET ABSORPTION

2.5 2.0 1.5 1.0 0.5 0.0 -0.5

msf

1.9

0.1

1.6

0.2

1.9

2.1

0.6

1.1

On a national level, cap rates are declining due to an increase in investors looking to buy office product. This is a likely indication of a positive outlook and expected improvement for the office sector by institutional and private investors. However, it will be interesting to see how the market responds to the recent government shutdown.

2009

2010

2011

-0.3

OUTLOOK

2012
ABSORPTION

2013 YTD

LEASING ACTIVITY

Thalhimer The Town Center of VA Beach 222 Central Park Drive, Suite 1820 Virginia Beach, VA 23462 www.thalhimer.com

For more information, contact: Oscar Gomez Financial Analyst 804 697 3498 oscar.gomez@thalhimer.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.

0.2 1

HAMPTON ROADS, VA
SUBMARKET INVENTORY OVERALL VACANCY RATE 15.3% 15.3% 20.0% 16.1% 6.7% 68.1% 16.2% 7.8% 10.8% 11.8% 6.6% 11.5% 16.5% 14.1% 23.6% 6.4% 9.0% 6.4% 11.7% 3.9% 11.0% 15.1% 7.9% 13.8% 22.7% 7.5% 4.1% 16.1% 10.4% 16.2% 3.6% 12.1% 11.5% 7.2% 10.1% 5.4% 8.1% 6.1% 6.5% 11.2% 11.7% 12.1% DIRECT VACANCY RATE 15.3% 15.3% 20.0% 16.1% 6.7% 68.1% 16.2% 6.9% 10.5% 11.8% 6.6% 11.4% 16.5% 13.9% 23.3% 6.4% 8.9% 6.4% 11.7% 3.9% 11.0% 15.1% 7.9% 12.9% 20.0% 7.5% 4.1% 15.5% 10.3% 16.2% 3.6% 12.1% 11.5% 7.2% 10.1% 5.4% 8.1% 6.1% 6.5% 11.0%11.5% 11.9% YTD LEASING ACTIVITY 43,398 43,398 39,351 1,230 6,575 13,246 3,944 26,259 120,309 0 14,629 65,122 15,090 305,755 5,800 125,420 36,901 3,297 5,777 400 77,570 58,817 8,361 26,353 381 18,029 25,239 92,557 38,111 9,228 71,522 0 8,436 22,029 10,273 4,796 36,372 106,130 11,867 803,666 1,109,421 1,152,819 UNDER YTD CONSTRUCTION CONSTRUCTION COMPLETIONS 0 0 0 42,777 158,210 0 0 0 0 0 0 23,000 0 223,987 0 0 0 0 0 0 0 32,850 0 0 0 0 0 0 0 0 0 0 0 75,000 0 0 0 221,600 0 433,203 553,437 553,437 0 0 0 0 0 0 0 0 0 0 0 15,000 0 15,000 0 0 0 0 0 0 134,271 0 0 0 0 0 0 0 0 0 61,980 0 0 0 0 0 2,884 0 0 199,135 214,135 214,135 YTD DIRECT NET ABSORPTION 36,008 36,008 (11,579) (19,089) (7,565) 1,380 5,962 23,477 38,563 (750) (24,887) 45,712 (26,094) 25,130 (8,291) 77,795 (35,531) (6,064) (15,485) (6,196) 23,691 (1,087) 7,988 20,656 (13,243) 9,803 41,413 (86,267) (8,711) 9,136 89,329 (6,334) 3,903 4,726 6,249 2,383 5,546 36,598 6,969 158,976 184,106 220,114 YTD OVERALL NET ABSORPTION 40,862 40,862 (11,579) (19,089) (7,565) 1,380 5,962 23,477 45,090 (750) (24,887) 47,498 (26,094) 33,443 (8,291) 77,795 (35,531) (6,064) (15,485) (6,196) 29,256 1,291 7,988 20,656 (17,443) 9,803 41,413 (98,808) (7,938) 9,136 89,329 (6,334) 3,903 4,726 6,249 2,383 5,546 36,598 6,969 150,951 184,394 225,256 OVERALL WTD. AVG ALL CLASSES GROSS RENTAL RATE* $19.24 $19.24 $13.40 $14.49 $13.96 $15.21 $14.13 $17.02 $15.63 $15.11 $13.78 $15.15 $13.58 $14.93 $12.82 $15.60 $15.48 $13.82 $15.17 $8.40 $15.66 $20.02 $14.62 $20.23 $14.66 $18.08 $14.49 $15.74 $18.03 $19.57 $22.18 $9.81 $15.85 $18.65 $11.12 $13.61 $15.43 $23.59 $14.46 $17.45 $16.34 $16.68 DIRECT WTD. AVG. CLASS A GROSS RENTAL RATE* $24.50 $24.50 $17.01 $16.00 $0.00 $0.00 $0.00 $20.04 $19.84 $0.00 $22.00 $21.14 $19.00 $18.70 $0.00 $19.72 $20.46 $0.00 $16.92 $0.00 $17.32 $22.97 $0.00 $0.00 $0.00 $23.00 $0.00 $18.28 $20.45 $26.51 $26.98 $0.00 $16.18 $22.46 $0.00 $0.00 $0.00 $27.65 $0.00 $21.67 $20.56 $21.45

Downtown Norfolk CBD Coliseum Central Downtown Hampton Downtown Newport News Fox Hill Gloucester Hampton Roads Center Oyster Point Poquoson Suburban Newport News Williamsburg/ James City County York PENINSULA SUBURBAN Airport/Northampton Battlefield Central Norfolk Churchland Downtown Portsmouth Franklin City Greenbrier Harbourview/ Northern Suffolk Haygood/Bayside Hilltop/Great Neck Isle of Wight Kempsville Little Neck Lynnhaven Newtown/Witchduck Norfolk -ODU/Ghent Oceanfront Portsmouth Princess Anne S. Independence/Holland Rd. South Norfolk South Suffolk Southern Chesapeake Virginia Beach CBD/Pembroke Western Branch SOUTHSIDE SUBURBAN ALL SUBURBAN TOTALS

5,261,020 5,261,020 1,358,890 632,004 1 ,686,484 695,058 259,655 1,019,925 5,117,742 68,771 1,019,018 2,177,647 864,158 14,899,352 566,894 1,427,116 2,863,840 341,168 1,122,981 224,721 2,610,220 1,453,464 605,542 1,114,004 343,151 451,739 1,120,165 1,889,878 2,901,418 1,137,172 666,452 497,776 956,223 1,047,472 453,591 901,539 592,515 1,965,342 266,917 27,521,300 42,420,652 47,681,672

* RENTAL RATES REFLECT ASKING $PSF/YEAR

Thalhimer The Town Center of VA Beach 222 Central Park Drive, Suite 1820 Virginia Beach, VA 23462 www.thalhimer.com

For more information, contact: Oscar Gomez Financial Analyst 804 697 3498 oscar.gomez@thalhimer.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.

MARKET HIGHLIGHTS
SIGNIFICANT Q3 2013 LEASE TRANSACTIONS 1305 Executive Boulevard 135 Hanbury Lane 5700 Cleveland Street SIGNIFICANT Q3 2013 SALE TRANSACTIONS 211 Water Country Parkway SIGNIFICANT Q3 2013 CONSTRUCTION COMPLETIONS 701 Quince Place 509 Resource Road SIGNIFICANT PROJECTS UNDER CONSTRUCTION 555 South Independence Boulevard 215 Meadow View Boulevard 217 Meadow View Boulevard 219 Meadow View Boulevard 2304 West Mercury Boulevard 3101 Washington Avenue 101 East Queen Street 3715 Strawberry Plains Road, Suite 100 3715 Strawberry Plains Road, Suite 200 434 McLaws Circle 4525 Main Street SUBMARKET Greenbrier Southern Chesapeake Newtown/Witchduck SUBMARKET Williamsburg SUBMARKET Greenbrier Greenbrier SUBMARKET S. Independence/Holland Rd Harbourview/ N. Suffolk Harbourview/ N. Suffolk Harbourview/ N. Suffolk Downtown Newport News Downtown Newport News Downtown Hampton Williamsburg/ J City Cnty Williamsburg/ J City Cnty Williamsburg/ J City Cnty Virginia Beach CBD/Pembroke TENANT Burns & McDonnell HDM Associates, Inc. Wendys International BUYER Enterprise Holdings MAJOR TENANT Speculative FBI MAJOR TENANT Speculative Medical Medical Medical Medical Speculative National Bank Headquarters Speculative Speculative Speculative Speculative BUILDING CLASS A A A PURCHASE PRICE / $PSF $1,000,000 / $98 COMPLETION DATE Q3 2013 Q3 2013 COMPLETION DATE Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q4 2013 Q1 2015 SQUARE FEET 7,097 5,010 4,200 SQUARE FEET 10,206 BUILDING SQUARE FEET 3,271 131,000 BUILDING SQUARE FEET 75,000 6,330 13,260 13,260 6,903 151,307 42,777 4,000 4,000 15,000 221,600

* RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS

Thalhimer The Town Center of VA Beach 222 Central Park Drive, Suite 1820 Virginia Beach, VA 23462 www.thalhimer.com

For more information, contact: Oscar Gomez Financial Analyst 804 697 3498 oscar.gomez@thalhimer.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.