WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

SECOND QUARTER 2016 WASHINGTON, DC METRO RETAIL OUTLOOK

DELTA ASSOCIATES 1 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

WASHINGTON AREA ECONOMY SNAPSHOT INSIDE THIS ISSUE

JOB GROWTH UNEMPLOYMENT RATE new jobs during 12 months at May 2016, down from Economy & Outlook...... 3 60,400 ending May 2016 3.6% 4.5% at May 2015 Retail Market Conditions...... 5

AVERAGE HOUSEHOLD INCOME PROJECTED JOB GROWTH Grocery Competition Heats Up...... 7 AN AVERAGE OF 43,600 Second Quarter Spotlight on Lease Characteristics....8 per year in 2016-2020 in 2016, 57.7% higher Investment Sales...... 10 $121,439 than the US average The Bottom Line...... 11

About Delta Associates...... 12 WASHINGTON AREA RETAIL MARKET SNAPSHOT

10,600 retail jobs were added during the 12 months ending May 2016 on a net basis.

Neighborhood and community shopping center effective rents rose by 2.8% in Northern Virginia since 2nd quarter 2015, to $26.16/SF. In Suburban Maryland, effective rents in the same types of centers rose by 1.2%, to $23.32/SF.

Vacancy rates for neighborhood and community shopping centers in Northern Virginia and Suburban Maryland are 5.1% and 8.0%, respectively, down 60 basis points since 2nd quarter 2015 in Northern Virginia and down 30 basis points in Suburban Maryland.

DELTA ASSOCIATES 2 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016 ECONOMY & OUTLOOK PAYROLL JOB GROWTH The Washington area economy maintained its strong positive momentum in the 2nd quarter of Selected Large Metro Areas | 12 Months Ending May 2016 2016. During the 12 months ending May 2016, the region added 60,400 new jobs. The rate of job growth of the metro area has finally surpassed that of the entire nation, after trailing for years. 200 180 The Professional/Business Services sector continued to be the largest source of new jobs in the 160 Washington metro area in the 2nd quarter, followed by the Leisure/Hospitality, Retail Trade, 140

Government, and Construction/Mining sectors. Only Information – one of the region’s smaller 120

employment sectors – had net job losses over the 12-month period. 100

80 60.4 The unemployment rate in the Washington metro area has continued to decrease so far in JOBS PAYROLL 60 2016 and stood at 3.6% as of May 2016. This is a 90 basis point decline from the metro area’s OF NEW THOUSANDS 40 20 unemployment rate at May 2015. The region’s unemployment rate is the now third lowest 0 among its peer metropolitan areas, trailing only Denver and Dallas-Fort Worth, and is well LA NY DFW SF Bay Atl South Chi Was Phx Phil Den Bos Basin FL below the national average of 4.7%. Source: Bureau of Labor Statistics, Delta Associates; July 2016.

The Washington metro area remains well positioned for economic growth in the period ahead. This growth will continue to be driven by the private sector, as Federal employment and RETAIL PAYROLL JOBS procurement have both been stagnant over the past several years. By 2020, we expect that the WASHINGTON METRO AREA Federal government’s contribution to Washington’s Gross Regional Product will decrease to YEAR RETAIL EMPLOYMENT CHANGE approximately 27%, down from the current level of 37%. 2006 269,500 1,800 Retail sector employment growth in the Washington metro area was very strong during the 12 months ending May 2016, with a net gain of 10,600 jobs during the period. This was a 3.8% 2007 271,200 1,700 increase since May 2015, while retail employment grew 2.0% nationally over the same period. 2008 267,500 (3,700)

2009 251,200 (16,300)

2010 255,500 4,300 TOP SECTORS 2011 259,800 4,300 2012 263,000 3,200

for job growth 2013 264,700 1,700

2014 270,200 5,500 Services Mining & Business Business Leisure & Leisure

Hospitality 2015 276,500 6,300 Retail Trade Retail Government Construction

Professional & Professional 2016 287,100 10,600

*Employment total at March of each year; change reflects the 12 month period ending each March. Source: Bureau of Labor Statistics, Delta Associates; July 2016.

DELTA ASSOCIATES 3 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

AVERAGE Average household income in the Washington metro PAYROLL JOB GROWTH area grew by 51% from 2000 to 2016, compared to just Washington Metro Area HOUSEHOLD 36% nationally, and it currently exceeds the national INCOME average by 58%. By 2021, the Washington metro area’s 140 average household income is projected to rise another 8%, 120 5-Year Projected Average = 43,600/Year compared to an increase of 9% nationally. The elevated 100 20-Year Annual Average = 41,700/Year household incomes in the Washington area yield greater 80 60 discretionary spending and support demand for retail 40 2000 goods and space. Washington Metro Area (Actual) 20 0 $80,600 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

The Washington metro economy remains well-positioned AVERAGE) (ANNUAL -20 for growth in the period ahead. For years the region’s -40 -60 U.S. economic recovery was held back by sequestration, JOBS THOUSANDS OF NEW PAYROLL $56,600 shutdowns, and other harmful effects of federal budget Source: Bureau of Labor Statistics, George Mason University Center for Regional Analysis, Delta Associates; instability. During this period, the region lost significant July 2016. ground to its peer metro areas. Now that the Federal government has put budget-related turbulence to rest – at 2016 least for the time being – economic growth in the region CONSUMER SENTIMENT Washington Metro Area (Actual) United States - Quarterly $121,439 has gained real traction. Job growth, in particular has been strong, especially in high-paying sectors. We predict 120 that 59,800 new jobs will be created in the region in 2016, 110 U.S. with the pace of annual job growth slowly declining in 20-Year Average = 87.1 $77,008 subsequent years. Overall, we expect annual job growth in 100 the metro area to be 43,600 over the next five years. 90

INDEX 80 The Bloomberg/University of Michigan index of consumer 70 sentiment in the U.S. registered at 93.5 in June 2016. While 2021 this reading is down from 96.1 in June 2015, it is the second 60 Washington Metro Area (Projected) highest level (after May 2016) in the previous 12 months 50 $131,168 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 and is well above the long-term average. International

instability as well as the upcoming presidential election Source: University of Michigan, Delta Associates; July 2016. U.S. creating uncertainty and pessimistic rhetoric across the $84,021 ideological spectrum have likely dampened consumer confidence despite continued domestic job growth and cheap fuel prices.

Source: ESRI, Delta Associates; July 2016.

DELTA ASSOCIATES 4 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016 RETAIL MARKET CONDITIONS

The inventory of existing neighborhood and community shopping centers totals 73.9 million SF in the Washington metro area’s suburbs as of 2nd quarter 2016. Northern Virginia has 40.3 million SF of space in these centers, and Suburban Maryland has 33.6 million SF. Northern Virginia leads the way at 13.9 SF per capita in its neighborhood and community centers, while NEIGHBORHOOD/COMMUNITY CENTER SPACE PER CAPITA RETAIL PIPELINE Suburban Maryland has 13.7 SF per capita. For the Washington Washington Metro Area Suburbs | 2nd Quarter 2016 Washington Metro Area Suburbs | All Shopping Center Types | 2nd Quarter 2016 metro area as a whole, the average is 13.8 SF per capita of 14.5 8 neighborhood/community shopping center space. Northern Virginia Suburban Maryland Metro Average: 13.8 7

6 There is more than 780,000 SF of shopping center space under 14.0 13.9 construction across all shopping center types in Suburban 13.7 5 Maryland and more than 460,000 SF under construction in 13.5 4 Northern Virginia. Maryland also has 2.1 million SF of planned 3 2 shopping center space – defined as space in centers where SF/CAPITA CENTER 13.0 1 plans are drafted, permits and financing have been applied FEET SQUARE OF MILLIONS NEIGHBORHOOD/COMMUNITY NEIGHBORHOOD/COMMUNITY 0 12.5 for, and ground breaking is all that remains to take place. This Under Construction Planned Proposed Northern Virginia Suburban Maryland trails Northern Virginia, which has 2.8 million SF of planned

space. Suburban Maryland and Northern Virginia have 6.7 and Source: REIS, Delta Associates; July 2016. Source: REIS, Delta Associates; July 2016. 5.0 million SF, respectively, of proposed space for which no permits or financing have been applied.

VACANCY RATES NEIGHBORHOOD/COMMUNITY CENTER VACANCY Select Metro Areas | 2nd Quarter 2016 Vacancy rates for Northern Virginia and Suburban Maryland Washington Metro Area Suburbs | Neighborhood/Community Centers at 2nd quarter 2016 are 5.1% and 8.0%, respectively, down

10% 60 basis points in Northern Virginia and down 30 basis points Northern Virginia Suburban Maryland 16% in Suburban Maryland since the 2nd quarter of 2015. While 9% 14% National Rate = 10.0% 8% vacancy rates in neighborhood and community centers remain 11.8% 11.8% 12% 11.4% 10.7% 11.0% elevated relative to their pre-recession averages across the 7% 10.2% 10% 6% metro area, they have been declining slowly since 2012. 8.0% 8% 5% 6.4% 6.5% 4% 6% 5.1%

Despite the slow pace of vacancy improvement, the Washington Rate Vacancy Overall 3% metro area is one of the strongest performers nationally, as 4% 3.2% 2% both Northern Virginia and Suburban Maryland are well below 2% SHOPPING CENTER VACANCY RATE SHOPPING VACANCY CENTER 1% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 0% the national average of 10.0% vacancy, with Northern Virginia, SF N. VA LA Bos Sub MD Phx Den Hou DFW Chi Atl in particular, rating as one of the strongest retail markets. Neighborhood/community center vacancy rates were 34% Source: REIS, Delta Associates; July 2016. *As of 2nd Quarter Source: REIS, Delta Associates; July 2016. *Data are unchanged from 1st quarter publication higher in Suburban Maryland than in Northern Virginia at their respective cyclical lows in 2007, and the difference between the Note: The rent and vacancy data referenced above are unchanged from the 1st quarter Retail Outlook due to timing and data source limitations. two substate areas has become more pronounced as Northern Virginia continues to recover more quickly. As of 2nd quarter 2016, vacancy rates are 57% higher in Suburban Maryland than those in Northern Virginia.

DELTA ASSOCIATES 5 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

Effective rents in neighborhood and VACANCY RATES & ASKING RENTS NEIGHBORHOOD/COMMUNITY SHOPPING CENTERS | WASHINGTON METRO AREA community shopping centers have been climbing slowly since 2010, with effective rents rising 2.8% in Northern Virginia and VACANCY RATES South Prince George County 1.2% in Suburban Maryland during the 12.8% 12 months ending June 2016. Average 7.8% Frederick County effective rents at 2nd quarter 2016 are WASHINGTON METRO TOTAL 7.0% Gaithersburg/Rockville/Germantown 6.5% highest in Northern Virginia, at $26.16 VACANCY RATE 6.3% North Prince George County per SF. In Suburban Maryland, average 5.8% Prince William County effective rents are $23.32 per SF. 5.8% Arlington/Alexandria

EFFECTIVE RENTS 5.6% Loudoun County Washington Metro Area Suburbs | Neighborhood/Community Centers 4.6% Bethesda/Silver Spring

$30 Northern Virginia Suburban Maryland 4.6% Suburban Fairfax County $28 4.1% Southeast Fairfax County $26

$24 ASKING RENTS $22 $30.74 Arlington/Alexandria $20 $26.86 Gaithersburg/Rockville/Germantown EFFECTIVE RENTEFFECTIVE PER SF $18 WASHINGTON METRO TOTAL $26.75 Bethesda/Silver Spring $16 $22.39 ASKING RENT 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* $25.91 Suburban Fairfax County

Source: REIS, Delta Associates; July 2016. *As of 2nd Quarter $24.88 Southeast Fairfax County

$21.78 Loudoun County

$17.49 North Prince George County

$16.75 South Prince George County

$16.62 Prince William County

$15.82 Frederick County

Note: The rent and vacancy data referenced above are unchanged from the 1st quarter Retail Outlook due to timing and data source limitations. DELTA ASSOCIATES 6 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

GROCERY COMPETITION HEATS UP NEW DEVELOPMENT There are four notable grocery- Publix is poised to enter the Washington area market and is working with several local brokers to find suitable spaces anchored shopping centers, totaling for their first stores in the region, beginning with Northern Virginia. In addition, the popular Florida-based grocer has 518,000 SF, under construction in the purchased 12 existing stores in the Richmond area. CEO Todd Jones’ “aggressive growth plan for the Commonwealth metro area at July 2016, and many of Virginia“ seems to be fully underway after the grocer’s first expansion into a new state in four years. more are in the planning stages.

Target has signed a lease for a 35,000 SF small format store at the Shops of Wisconsin in Bethesda. The store, which will include a grocery and pharmacy section, is planned to open in March 2017 once renovations to the shopping center are completed. On July 27, Harris Teeter celebrated the grand opening of its new 60,000 SF Weis Markets is expanding its presence in the metro area by purchasing 17 Food Lion stores across the region as part store in the mixed-use development of a larger purchase of 38 Food Lion locations throughout Maryland, Virginia, and Delaware. Acquired stores include at 301 West Broad in Falls Church, which includes another 3,470 SF of locations in Gaithersburg, Mitchellville, Upper Marlboro, Accokeek, La Plata, Stafford, and Fredericksburg. complementary retail space and 282 residential units. The store will be open Lidl has purchased four Northern Virginia sites in recent months, setting its sights on Leesburg, Dumfries, Woodbridge, 24 hours a day. and Bristow as it prepares for its entrance into the U.S. market. While the value-focused German grocer has been highly secretive about its expansion plans, the Washington metro area figures to play an important part in the strategy given that Lidl decided to locate its US corporate headquarters in Arlington. Lidl has already applied to open stores in both College Park and Bowie as well. On July 21, Aldi held a ribbon cutting ceremony for the opening of its new location at 425 East Monroe Avenue in Alexandria. This is the German There are additional grocery- grocer’s second store in NOTABLE GROCERY-ANCHORED SHOPPING CENTERS Alexandria, with a third slated anchored shopping centers to open at 4850 Duke Street UNDER CONSTRUCTION before the end of the year. in the planning stages that WASHINGTON METRO AREA | JULY 2016 are not included in the SHOPPING CENTER JURISDICTION RBA (SF) ANCHOR adjacent table, some of which Commonwealth Centre Regency Fairfax 173,000 Wegmans may deliver by 2017-18.

Aquia Town Center Stafford 160,000 Harris Teeter However, given the long-term demand for retail goods in Bowie Marketplace Bowie 110,000 Harris Teeter the Washington metro area, Apollo H Street District 75,000 Whole Foods projects will deliver before Total 518,000 and after that window. Source: WBJ, Washington Post, Delta Associates; July 2016.

DELTA ASSOCIATES 7 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016 SECOND LEASE CHARACTERISTICS

This section explores facts and trends related to the average length of lease terms, tenant improvement QUARTER allowances, and free rent periods in shopping centers across the Washington metro area. All of the following data apply to neighborhood and community centers. SPOTLIGHT

AVERAGE LEASE TERM The average lease term for neighborhood and community Washington Metro Area | Neighborhood/Community Centers centers – inclusive of both anchor and nonanchor space and weighted by total submarket rentable building area 14.0 Anchor Nonanchor

– is slightly longer in Northern Virginia than in Suburban 12.0 Maryland. Lease terms in Northern Virginia average 8.1 10.0 years, whereas in Suburban Maryland they average 7.6 years. Average lease terms have shortened slightly in 8.0

both Northern Virginia and Suburban Maryland since YEARS 6.0 2nd quarter 2015, when they averaged 8.7 years and 8.1 4.0 years, respectively. 2.0

The average lease term for anchor space is longest in 0.0 Gthsbg./ SE Fairfax Sub. Fairfax Arl./Alex. PW N. PG Frederick Beth./ S. PG Loudoun Rkvle./ Silver Spring Northern Virginia, where tenants agree to an average Germ. 11.2 year lease, down from 11.9 years at 2nd quarter Source: REIS, Delta Associates; July 2016. *As of 2nd Quarter 2016 2015. In Suburban Maryland, anchor tenants agree to an average 10.9 year lease, down from 11.4 years at 2nd quarter 2015. Leases for nonanchor space are longest in Northern Virginia, at an average of 5.0 years. Conditions for nonanchor space favor tenants a bit more in Suburban Maryland, where the average length of nonanchor leases is just 4.3 years. Nonanchor leases averaged 5.5 and 4.9 years in Northern Virginia and Suburban Maryland, respectively, at 2nd quarter 2015.

Anchor leases most favor owners in the Gaithersburg- Rockville-Germantown submarket, where tenants are agreeing to an average of a 12.0-year lease. Loudoun County currently has the shortest average lease term for anchor space, at 9.8 years.

DELTA ASSOCIATES 8 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

SECOND AVERAGE TENANT IMPROVEMENT ALLOWANCE Average tenant improvement allowances at 2nd quarter 2016 Washington Metro Area | Neighborhood/Community Centers are lowest in Northern Virginia, at an average of $15.40/SF (up QUARTER 7.0% since 2nd quarter 2015). In Suburban Maryland, average $40.00 Anchor Nonanchor TIs are $18.05/SF (up 8.7% since 2nd quarter 2015). Among $35.00 SPOTLIGHT submarkets across the region, Bethesda/Silver Spring has by $30.00 far the highest average tenant improvement allowances, at $25.00 $33.75/SF and $32.24/SF for anchor and nonanchor space, $20.00 respectively. Average TIs are lowest in the Prince William $/SF $15.00 County submarket, at $12.57/SF and $12.19/SF for anchor and $10.00 nonanchor space, respectively. $5.00

$0.00 Free rent periods at 2nd quarter 2016 average 5.0 months Beth./ Arl./Alex. Frederick S. PG Gthsbg./ Sub. Fairfax Loudoun N. PG PW SE Fairfax Silver Spring Rkvle./ in Northern Virginia (down 3.8% from 2nd quarter 2015) Germ.

and 3.9 months in Suburban Maryland (down 4.9% since Source: REIS, Delta Associates; July 2016. *As of 2nd Quarter 2016 2nd quarter 2015). Conditions favor tenants most in the Arlington/Alexandria submarket, where tenants receive an average of 6.4 and 6.2 months of free rent for anchor and nonanchor space, respectively. Conditions most favor landlords in the Gaithersburg/Rockville/Germantown AVERAGE FREE RENT PERIOD Washington Metro Area | Neighborhood/Community Centers submarket, where free rent averages 4.2 months for anchor

space, and 1.9 months for nonanchor space. 8 Anchor Nonanchor

7 For the third consecutive year, the Southeast Fairfax County 6 submarket is performing best out of the 10 submarkets in the 5 adjacent charts in terms of landlord favorability. Southeast Fairfax County ranks 2nd among all submarkets in terms of 4 MONTHS landlord favorability for average free rent, lease terms, and 3 tenant improvements. This submarket has benefitted from 2

the influx of consumers to the Fort Belvoir area following the 1

Department of Defense’s recent Base Realignment and Closure 0 Sub. Fairfax Arl./Alex. N. PG PW S. PG Gthsbg./ Beth./ Frederick SE Fairfax Loudoun Rkvle./ Silver Spring (BRAC) initiative. The Arlington/Alexandria submarket has the Germ. most favorable conditions for tenants. Its rankings among the Source: REIS, Delta Associates; July 2016. *As of 2nd Quarter 2016 10 submarkets in terms of landlord favorability for average lease length, tenant improvement allowances, and free rent are 8th, 9th, and 10th, respectively.

DELTA ASSOCIATES 9 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

TOTAL RETAIL INVESTOR RETURN Washington Metro vs. U.S. | 2012 – 2016 INVESTMENT SALES 18 There was one notable investment sale of a grocery-anchored shopping center during the 2nd quarter of 2016. U.S. Washington Metro 16 In April, Crow Holdings purchased the New Grand Mart-anchored New Grand Shopping Center in Alexandria for $25.5 million ($390/SF) from Grand Shopping Center LLC. Several other full and partial interests in grocery- 14 (INCOME + + (INCOME anchored shopping centers were sold as parts of larger portfolio transactions during the 2nd quarter. The year- 12 to-date dollar volume of investment sales of grocery-anchored shopping centers through the 2nd quarter of RETURN

2016 totaled $445.9 million ($281/SF). APPRECIATION) 10

TOTAL 8 All signs point to retail centers continuing to be a favored investment in 2016. While investor returns (income and appreciation) on retail properties fell in the 12 months ending March 2016, the Washington metro continues to 6 1Q '12 2Q '12 3Q '12 4Q '12 1Q '13 2Q '13 3Q '13 4Q '13 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 outpace the nationwide average. In addition, retail properties had the highest investment returns of any property type in the Washington metro area over the past 12 months. Source: NCREIF, Delta Associates, July 2016.

GROCERY-ANCHORED SHOPPING CENTER TOTAL INVESTOR RETURN, SELECTED PROPETY TYPES INVESTMENT SALES Washington Metro vs. U.S. | 12 Months Ending March 2016 Washington Metro Area Suburbs

While investor $600 16% Northern Virginia Suburban Maryland Apartment Industrial Office Retail returns 14% $500 (income and 12% $400 10%

appreciation) on + (INCOME $300 8%

retail properties 6%

$200 RETURN fell in the 12 APPRECIATION) 4% SALES IN MILLIONS $100 months ending TOTAL 2% $0 0% March 2016, 2005* 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016** U.S. Washington Metro Total: $796 M $401 M $429 M $85 M $79 M $178 M $454 M $476 M $644 M $323 M $710 M $446 M

the Washington Note: Excludes properties under contract. *Includes large portfolio sale by CalPERS. Source: Real Capital Analytics, graphic by Delta Associates; July 2016. **As of 2nd Quarter 2016. Source: NCREIF, Delta Associates, July 2016. metro continues to outpace the nationwide average.

DELTA ASSOCIATES 10 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016

THE BOTTOM LINE

The Washington metro area has added more than 50,000 jobs on a year-over-year basis for fourteen consecutive months and more than 60,000 jobs for the last eight months. Unemployment remains low for a major metropolitan area and 110 basis points below the national rate of 4.7% as of May 2016. Additionally, the Washington metro area has been steadily adding a healthy number of jobs in the Professional/Business Services sector, where wages tend to be highest, a trend that is likely to increase demand for retail goods. 10,600 retail jobs were created on a net basis during the 12 months ending in May, and retail employment is projected to continue to grow in the region.

We expect job growth in the metro area to remain steady – in the range of 30,000 to 60,000 jobs per year – for the period 2016-2020.

The regional economy is performing better at the moment than it has since 2008, and the retail real estate market in the Washington metro area is showing consistent, if modest, improvement. Among neighborhood/community shopping centers, the decline in vacancy rates continues, while rents have been rising steadily since 2010. Tenants seeking space are interested in newer, Class A space, and the rise of the District as a destination for living, working, and shopping represents a unique opportunity for retailers in the region. We predict that the trend toward mixed- use projects in core submarkets with a more urban feel will continue for the foreseeable future, although recent plans for new centers – and renovations of old ones – in the outer suburbs indicate that developers expect lifestyle centers with a sense of place to thrive throughout the region.

Prior to 2015, the Washington metro area’s economy had yet to experience the sustained surge of above-average job growth that typically follows a recession. Now, in 2016, the region has clearly turned a corner and is in midst of a solid expansion. Washington’s private sector is strong and accounts for a growing share of the economy, making the region less vulnerable to future federal spending cuts. Retail real estate in the region avoided disaster during the recession and lackluster recovery, which is remarkable considering the dual pressures of slow job growth and booming online merchandising. Now that the demand side of the retail sales equation has improved, we expect improvements in retail real estate to continue apace.

Although the economic outlook for the region remains positive, there is still some uncertainty related to the current election season. Depending on the outcome of the national elections in November, there could be major changes in store for the role and the size of the federal government – or not. Still, any major alterations to the government would not take place immediately, so the status quo is likely to persist at least through 2016 and 2017. During this period, the private sector will continue to show its strength, and the public sector will at least maintain its position. Overall economic growth in the Washington area over the next two years is therefore expected to be robust. The Washington metro area has a wealth of assets – a highly skilled workforce, access to international markets, high quality education, and vast cultural resources – that will continue to give it a competitive advantage over other large metro areas in the long run.

DELTA ASSOCIATES 11 WASHINGTON, DC METRO RETAIL OUTLOOK | Q2 2016 ABOUT DELTA ASSOCIATES

Delta Associates is a firm of experienced professionals serving the commercial real estate industry for over 35 years. The firm’s main practice areas are: 1. Consulting, research, and advisory services for all property types throughout the United States (including market feasibility studies, highest and best use analysis, market entry strategies, asset performance enhancement studies, market due diligence, white papers on special topics, valuation analysis, and CONTACT US litigation support); and 1717 K Street, NW, Suite 1010 2. Subscription publications for selected metro areas for the apartment, condominium, office, retail, and Washington, DC 20006 housing markets. 202-778-3100 [email protected] For more information on Delta Associates, please visit DeltaAssociates.com.

Delta’s Washington, DC Metro Retail Outlook team includes: • David Parham, Editor and Senior Vice President • Dylan Jones, Associate | [email protected] www.deltaassociates.com • Sallie Drumheller, Graphic Designer

For information about Delta’s consulting services, please contact David Weisel, CEO: [email protected] or 202-778-3119.

For information about Delta’s subscription publications, please contact Jennifer Glaser, Director of Operations: [email protected] or 202-778-3106.

© 2016. All rights reserved. You may neither copy nor disseminate this report. If quoted, proper attribution is required.

Sources: Bureau of Labor Statistics, Census Bureau, Center for Real Estate and Urban Analysis at the George Washington University School of Business, Center for Regional Analysis, Delta Associates, ESRI, Real Capital Analytics, REIS, University of Michigan, Washington Business Journal, Washington Post, NCREIF.

Although the information contained herein is based on sources which Delta Associates (DA) believes to be reliable, DA makes no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA of any kind. Any such information may be based on assumptions which may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.

DELTA ASSOCIATES 12