Washington, D.C. Quarterly Market Report

2nd Quarter 2017

lpcwashingtondc.com Washington, D.C. Leasing & Table of Contents Market Research

Metropolitan D.C. Market Overview ...... 3 John Marvin Jones Senior Vice President Washington, D.C. Quarterly Overview ...... 5 Managing Director [email protected] | 202.513.6709 Washington D.C. Top Sales ...... 8 Washington D.C. Top Ten Leases ...... 9 Elaine Clancy Senior Vice President [email protected] | 202.513.6721 Market Spotlight, 2Q 2017: Geoff Kieff er CBD ...... 10 Senior Vice President gkieff [email protected] | 202.513.6718 East End ...... 11 Adam Biberaj CBD / East End | Class A ...... 12 Senior Vice President CBD / East End | Class B ...... 13 [email protected] | 202.513.6736

Southwest ...... 14 Robert Hines Senior Vice President West End / Georgetown ...... 15 [email protected] | 202.513.6706 / NoMa ...... 16 Merrill Turnbell Capitol Riverfront ...... 17 Senior Vice President [email protected] | 202.513.6713

John Olson Senior Vice President Tysons Corner ...... 13 [email protected] | 202.513.6730

Terry Amling Senior Vice President [email protected] | 202.513.6708

Joe Mehok Director of Research [email protected] | 202.513.6735

2 Metropolitan D.C. Market Overview 2nd Quarter 2017

Overall Market Summary

The Washington, DC Metropolitan commercial real estate market is comprised of approximately 412.8 million square feet of rentable offi ce space located in the District of Columbia, Northern Virginia, and Suburban Maryland. feet (63% pre-leased). No buildings were delivered The total vacancy rate increased to 15.4% in the in the second quarter. second quarter, up from 15.0% at the end of the fi rst quarter. The market recorded -518,562 square feet There were twenty-fi ve sale transactions in the fi rst of net absorption in the second quarter, a notable quarter, totaling $1.72 billion. The largest sale was drop from the 1,395,421 square feet absorbed in the 1919 N. Lynn Street - Waterview Tower in Arlington, fi rst quarter. VA trading for $460,000,000 ($711 psf).

Leasing activity totaled approximately 6.8 million Average asking rental rates increased $0.32 to square feet in transactions signed. The largest lease $36.63 per square foot, Full Service. executed was by Amazon Web Services for 400,677 square feet at 13200 Woodland Park Road - One From May 2016 - May 2017 the DC Metropolitan Dulles Tower in Herndon, VA. area had a net increase of 48,300 jobs (42,000 private sector, 6,300 government) representing 1.5% Three buildings, totaling 476,500 square feet, broke growth, while the unemployment rate decreased ground (2 DC, 1 VA, 0 MD); increasing the metro to 3.6%. The DC Metro is ranked 11th nationally in area’s development pipeline to 10,089,021 square unemployment.

Metro DC VA MD Area (YTD)

Direct Vacancy 10.5% 15.5% 15.1% 14.6% (2Q 2017)

Total Vacancy 11.4% 16.3% 15.7% 15.4% (2Q 2017)

Total Net Absorption 876,859 277,731 SF 353,145 SF 245,983 SF (YTD 2017) SF

Leasing Activity 4.5 M SF 6.4 M SF 1.6 M SF 12.5 M SF (YTD 2017)

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Outlook

The Washington D.C. Metropolitan market Looking ahead, the private sector will continue softened slightly as vacancy increased and the to be the primary driver for employment in region recorded negative net absorption in the Washington, DC Metropolitan area; with the second quarter (YTD absorption remained the Professional & Business Services industry positive, however). The market experienced leading the way. Uncertainty among the some positive trends in the second quarter Federal agencies concerning budgets and as well with an uptick in leasing activity, staffi ng, coupled with agency consolidations/ asking rents, and sales. Regional employment downsizing, should continue to aff ect GSA experienced 1.5% of growth YOY ending May leasing throughout 2017. While vacancy 2017, primarily driven by the private sector, decreased in Northern Virginia and pre-leasing specifi cally the Professional and Business is strong market-wide, the DC metro area Services industry. The unemployment rate should remain a tenant’s market through 2017. decreased to 3.6%; ranking the DC Metro area Aggressive landlords will continue to off er 11th in unemployment nationally (among cities of generous concessions and initiate capital 1 million+ people). improvements to remain competitive.

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Market Summary 2Q 2017 1Q 2017 2Q 2016 The Washington, DC offi ce market consists of 784 buildings over 25,000 square feet, totaling approximately 144.1 million square feet of rentable Direct 10.5% 10.2% 10.3% space. Vacancy

As of May 2017, the unemployment rate for the District of Columbia increased to 6.0%, while the Total 11.4% 10.9% 11.0% Washington, DC Metropolitan area decreased Vacancy to 3.6% (ranking 11th nationally). The national unemployment rate decreased to 4.4%. Net The DC Metropolitan area gained 48,300 net new 107,687 170,044 268,454 jobs from May 2016-May 2017, representing 1.5% Absorption (SF) growth. Professional & Business Services lead the private sector with 15,600 new jobs; while the Leasing Government added 6,300. 2.2 M 2.3 M 2.1 M Activity (SF) The largest public sector lease executed this quarter was a renewal by the GSA for the Department of Education for 314,243 square feet at Under 5.0 M 4.6 M 3.3 M 550 12th Street, SW - Potomac Center South. Construction (SF)

Washington Gas signed the largest private sector lease with a 70,056-square-foot transaction at U/C Percent 53% 49% 39% 1000 Maine Avenue, SW - The Wharf. Pre-Leased

There were eight sale transactions in DC, totaling $566,261,000. The largest sale was Unizo Holdings purchasing 1325 G Street, NW and 1341 G Street, Deliveries (SF) 0 0 200,000 NW - The Colorado Building for $259,000,000 ($588 psf). Asking Rental Rates $52.30 $51.74 $51.23 Vacancy Rate (PSF, Full Service)

The total vacancy rate in the District increased to $566 M $840 M $371 M 11.4% at the end of the second quarter, totaling Sales Volume approximately 16.4 million square feet of vacant space. Unemployment 3.6% 3.9% 3.6% The Class A total vacancy rate increased to 13.2%, DC Metro Area while Class B total vacancy decreased to 8.6%.

Sublet vacancy remained fl at at 0.8% at the end of the second quarter, totaling approximately 1.2 million square feet.

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Net Absorption & Deliveries | Net Absorption | Vacancy Rate

Leasing 6 14

5 12 The Washington, DC market recorded 107,687 4 10 square feet of net absorption in the second (%) Rate Vacancy

quarter; totaling 277,731 square feet absorbed YTD 3 8 2017. The 10-year average for net absorption in the

District is 1.0 million square feet absorbed per year. SF (Millions) 2 6

1 4 Contributing to the positive absorption this quarter included the Federal Bureau of Prisons moving 0 2 into 115,341 square feet at 901 D Street, SW. -1 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

The Central Business District (CBD) market posted Deliveries Net Absorption Total Vacancy Rate -73,533 square feet of net absorption in the second quarter; totaling -138,756 square feet absorbed YTD 2017. Deliveries | Under Construction

The East End market posted -40,438 square feet 8 of net absorption in the second quarter; totaling 72,769 square feet absorbed YTD 2017. 6 A total of 2,215,681 square feet of leases were executed in the second quarter, bringing the YTD 2017 total to 4,471,486 square feet leased. The 10- 4 year average for leasing activity in DC is 9.7 million square feet annually. SF (Millions) 2

The largest lease executed this quarter was a

renewal by the GSA - Department of Education 0 for 314,243 square feet in the Southwest market; '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

all other leases in the Top Ten ranged between Deliveries Under Construction 96,000 to 38,000 square feet.

Leasing Activity Construction 15 Fourteen buildings were under construction in

Washington, DC at the end of the second quarter, 12 totaling 4,992,917 square feet (53% pre-leased).

Pre-leasing remained strong at 70% in the core 9 markets of the CBD and East End, while the rest of the DC market improved to 39% pre-leased. 6 SF (Millions) Two buildings broke ground; 1301 Pennsylvania 3 Avenue, NW - One (283,500 sf, 68% pre-leased to Kirkland & Ellis) and 1 M Street, 0 SE (130,000 sf, 81% pre-leased to the National '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Association of Broadcasters).

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Construction (cont’d) Sales Volume

Buildings expected to deliver in 2017 include; 800 6 Maine Avenue, SW (220,000 sf, 56% pre-leased) and 700 , SE (232,450 sf, 31% 5 pre-leased). 4 Buildings expected to deliver in 2018 include; 99 M St, SE (231,000 sf, 11% pre-leased), 1000 3 Maine Ave, SW (250,000 sf, 52% pre-leased), 2112 2

Pennsylvania Ave, NW (240,000, 48% pre-leased, ($ Billions) Volume Sales 1150 15th St, NW (875,000 sf, 80% pre-leased), 1 901 4th St, NW (100,000 sf, 70% pre-leased), and 655 New York Ave, NW (756,000 sf, 66% pre- 0 leased), and 150 M St, NE - Constitution Square '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 IV (493,000 sf, 100% pre-leased), and 1 M St, SE. 200 Massachusetts Avenue, NW (406,996 sf, 0% pre-leased) and 250 Massachusetts Avenue, NW Vacant Space Available & Vacancy by Class (559,921 sf, 0% pre-leased) at Capitol Crossing are expected to deliver in 2018 as well. 14 13.2% 14

500 L’Enfant Plaza, SW (215,000 sf, 53% pre- 12 12 leased) and 1301 Pennsylvania Avenue, NW are Class VacantBuilding of (%) 10 10 expected to deliver in 2019. 8.6%

8 8 No buildings delivered in the second quarter 2017.

The 10-year average for new inventory added to SF (Millions) 6 6 the District is 1.7 million square feet per year. 4.2% 4 4

Outlook 2 2 0 A B C 0 Washington, DC should continue to be a “tenant’s market” through abundant supply and fl at demand.

The Class B market is expected to tighten further as more owners transition Class B product to Class A through extensive capital improvements.

The GSA is expected to execute more short-term lease extensions (1-4 year terms).

The consolidation and downsizing of the federal real estate footprint remains a priority of the GSA.

Aggressive landlords continue to off er generous concessions (free rent and TI’s) to be competitive.

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Washington, D.C. Top Sales

1325 G St, NW & 1341 G St, NW 600 New Hampshire Ave, NW 1155 Connecticut Ave, NW 888 16th St, NW The Watergate The Demonet Submarket East End Submarket CBD Submarket West End Submarket CBD Date Sold April 2017 Date Sold June 2017 Date Sold April 2017 Date Sold June 2017 $259,000,000 $32,250,000 Price $135,000,000 $64,250,000 Price ($588 PSF) Price Price ($263 PSF) Unizo Holdings ($437 PSF) ($663 PSF) Trammell Crow / Buyer Washington Real Alduwaliya US Buyer Company Buyer Meadow Partners Westbrook Buyer Estate Investment Real Estate, Inc. Motion Picture Seller Partners / TIER Trust (WRIT) Seller Textron Seller Association of REIT Seller Bradley Holdings RBA 96,927 SF America (MPAA) RBA 440,419 SF RBA 153,400 SF RBA 309,000 SF Class A Class A Class B Class A Leased 97.3% Leased 91.4% Leased 0% Leased 92.4% Cap Rate 4.90% Cap Rate 5.20% Cap Rate 6.80% Cap Rate N/A 2-building 80% Partial Notes portfolio sale Notes Interest Transfer / Redevelopment

300 12th St, SW 5025 Wisconsin Ave, NW 905-909 E St, NW 4049 S. Capitol St, SW Cotton Annex Weschler Galleries Submarket Uptown Submarket Southeast Submarket Southwest Submarket East End Date Sold June 2017 Date Sold June 2017 Date Sold April 2017 Date Sold May 2017 $19,600,000 $10,800,000 $30,261,000 Price $15,100,000 Price Price ($360 PSF) Price ($376 PSF) ($381 PSF) ($467 PSF) Buyer David Schaeff er Harbor Group Douglas Douglas Buyer Buyer Amalgamated Buyer International Development Seller Development Transit Union Seller CityInterests GSA - United Adam Weschler Seller Seller States of America RBA 54,500 SF & Son RBA 28,700 RBA 79,385 SF Class B RBA 32,350 SF Class B Class C Leased 0% Class C Leased 100% Leased 0% Cap Rate N/A Leased 0% Cap Rate 8.00% Cap Rate N/A Notes Mixed-use Cap Rate N/A Auction Sale / Notes Redevelopment

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Top Ten Leases

In the second quarter 2017 there were six renewals for three years, while the DHS renewed for fi ve and four new leases in the Top Ten, with only one years. lease over 100,000 square feet. Hollingsworth was the only law fi rm in the Top Ten The largest lease executed this quarter was in the this quarter, executing an early renewal for 48,543 public sector with a 314,243-square-foot renewal square feet at 1350 Eye Street, NW. by the GSA for the Department of Education (DoE) at 550 12th Street, SW. The largest private sector A total of 2,215,681 square feet was leased in the lease was signed by Washington Gas for 70,056 second quarter 2017, representing a 1.8% decrease square feet at 1000 Maine Avenue, SW - The from the 2,255,805 square feet leased in the fi rst Wharf (relocating from 101 Constitution Ave, NW). quarter.

All three of the GSA transactions; DoE, Consumer The market has totaled 4,471,486 square feet Finance Protection Bureau (CFPB), and Depart- of leasing activity through the fi rst half of 2017; ment of Homeland Security (DHS), were short- equaling 46% of the yearly 9.7 million square foot term renewals. The DoE and CFPB both renewed 10-year average.

550 12th St, SW 1350 Eye St, NW Potomac Center South Tenant Hollingsworth GSA - Department of Tenant Education (DoE) Size 48,543 SF Size 314,243 SF Type Renewal Type Renewal

1990 K St, NW 90 K St, NE GSA - Consumer GSA - Department of Tenant Finance Protection Tenant Homeland Security Bureau (CFPB) (DHS) Size 96,000 SF Size 46,803 SF

Type Renewal Type Renewal

1000 Maine Ave, SW 1747 Pennsylvania Ave, NW The Wharf Tenant Morgan Stanley Tenant Washington Gas Size 40,329 SF Size 70,056 SF Type Renewal / Expansion Type New

1800 K St, NW 1615 L St, NW Tenant Bank of America Independent Tenant Community Bankers Size 61,722 SF of America (ICBA)

Type New Size 39,310 SF Type Renewal

555 12th St, NW 1201 Pennsylvania Ave, NW District Center Tenant FiscalNote MacFadden & Tenant Associates Size 38,000 SF Size 57,309 SF Type New Type New / Expansion

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CBD 2nd Quarter 2017

1.25 12 1.00 0.75 10 0.50 8 0.25 0.00 6 -0.25 Vacancy Rate (%) Vacancy SF (Millions) -0.50 4 -0.75 -1.00 2 -1.25 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Net Absorption 50,237 SF / Year Total vacancy in the CBD market increased to 9.5% at the end of the second quarter, up from 8.9% at Deliveries 180,197 SF / Year the end of the fi rst quarter.

The CBD recorded -73,533 square feet of net Leasing Activity 3.1 M SF / Year absorption in the second quarter, a further decrease from the -65,223 square feet absorbed Market Stats in the fi rst quarter. Tenants contributing to the negative net absorption include the National Inventory 44.2 M SF Association of County and City Health Offi cials (NACCHO) vacating 33,898 square feet at 1100 17th Direct Vacancy 8.7% Street, NW (relocated to 1201 Eye St, NW).

Leasing activity increased to 766,209 square Total Vacancy 9.5% feet in the second quarter, up from the 670,844 square feet leased in the previous quarter. Tenants YTD 2017 Absorption -138,756 SF executing leases this quarter include the GSA - Consumer Finance Protection Bureau (CFPB) YTD 2017 Leasing Activity 1.4 M SF renewing 96,000 square feet at 1990 K Street, NW, Bank of America signing for 61,722 square feet at Under Construction 240,000 SF 1800 K Street, NW, and MacFadden & Associates expanding 57,309 square feet at 555 12th Street, Percent Pre-Leased 48% NW. YTD 2017 Deliveries 0 SF 1155 , NW - The Demonet sold to Alduwaliya from Textron for $64,250,000 ($663 Asking Rental Rates 2007: 2016: YTD 2017: psf). The building was 97.3% leased at time of sale (PSF, Full Service) $47.44 $53.79 $53.69 and traded at a 4.90% Cap Rate.

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East End 2nd Quarter 2017

2.5 14

2.0 12

1.5 10

8 1.0

Vacancy Rate (%) Vacancy 6 SF (Millions) 0.5 4 0.0 2 -0.5 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Total vacancy in the East End market increased to Net Absorption 266,355 SF / Year 13.2% at the end of the second quarter, up from 12.5% at the end of the fi rst quarter. Deliveries 498,840 SF / Year

The East End recorded -40,438 square feet of Leasing Activity 3.5 M SF / Year net absorption in the second quarter, down from the 113,207 square feet absorbed in the fi rst Market Stats quarter. Tenants contributing to the negative net absorption include FTI Consulting vacating 57,990 Inventory 48.6 M SF square feet at 1101 K Street, NW

Direct Vacancy 12.1% Leasing activity decreased to 568,758 square feet in the second quarter, down from the 708,154 square feet leased in the previous quarter. Tenants Total Vacancy 13.2% executing leases this quarter include MacFadden & Associates signing for 57,309 square feet of YTD 2017 Absorption 72,769 SF expansion space at 555 12th Street, NW - District Center and Hollingsworth renewing 48,543 square YTD 2017 Leasing Activity 1.3 M SF feet at 1350 Eye Street, NW. Under Construction 2.0 M SF 1301 Pennsylvania Avenue, NW - One Freedom Plaza broke ground in the second quarter. This Percent Pre-Leased 72% 283,550-square-foot building is 68% pre-leased to Kirkland & Ellis and expected to deliver in the YTD 2017 Deliveries 0 SF fi rst quarter 2019.

Asking Rental Rates 2007: 2016: YTD 2017: 1325 and 1341 G Street, NW - The Colorado (PSF, Full Service) $49.73 $54.63 $54.38 Building sold to Unizo Holdings from Westbrook Partners / TIER REIT for $259,000,000 ($588 psf).

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CBD / East End Class A 2nd Quarter 2017

3.0 14

2.5 12

2.0 10

1.5 8

1.0 6 Vacancy Rate (%) Vacancy SF (Millions) 0.5 4 0.0 2 -0.5 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Net Absorption 341,635 SF / Year Total vacancy in the CBD / East End Class A market increased to 14.0% at the end of the second Deliveries 681,190 SF / Year quarter, up from at 12.9% at the end of the fi rst quarter. Leasing Activity 4.1 M SF / Year The Class A market recorded -93,719 square feet of net absorption in the second quarter, a signifi cant Market Stats drop from the 193,856 square feet absorbed in the fi rst quarter. Tenants contributing to the negative Inventory 57.1 M SF absorption include FTI Consulting vacating 57,990 square feet at 1101 K Street, NW and the National Direct Vacancy 12.9% Association of County and City Health Offi cials (NACCHO) vacating 33,898 square feet at 1100 17th Street, NW. Total Vacancy 14.0%

Leasing activity totaled 715,832 square feet in the YTD 2017 Absorption 100,137 SF second quarter, a decrease from the 1,050,234 square feet leased in the previous quarter; YTD 2017 Leasing Activity 1.8 M SF totaling 1,766,066 square feet leased YTD 2017. Tenants executing leases this quarter include Under Construction 2.3 M SF FiscalNote signing for 38,000 square feet at 1201 Pennsylvania Avenue, NW, Edgeworth Economics Percent Pre-Leased 70% expanding 20,630 square feet at 1111 19th Street, NW, and Defense Analysis signing for 18,510 square YTD 2017 Deliveries 0 SF feet at 1701 Pennsylvania Avenue, NW.

Asking Rental Rates 2007: 2016: YTD 2017: A total of fi ve Class A buildings (4 East End, 1 CBD) (PSF, Full Service) $51.95 $58.64 $58.03 were under construction at the end of the second quarter, totaling 2,252,550 square feet.

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CBD / East End Class B 2nd Quarter 2017

0.50 10

0.25 8

0.00 6

-0.25 Rate (%) Vacancy 4 SF (Millions)

-0.50 2

-0.75 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Net Absorption -28,498 SF / Year Class B asking rents increased to $45.48 psf, FS at the end of the second quarter, an increase of Deliveries 0 SF / Year $0.83, or 1.9%, since the end of the fi rst quarter.

The Class B market continues to out-pace the Leasing Activity 2.5 M SF / Year Class A market in total vacancy; 7.5% (Class B) vs. 14.0% (Class A). Market Stats Class B buildings recorded a total of 8,391 square Inventory 33.5 M SF feet of net absorption in the second quarter. Tenants contributing to the positive net absorption include Terra Eclipse moving into 26,454 square Direct Vacancy 6.9% feet at 918 F Street, NW. Total Vacancy 7.5% Leasing activity totaled 589,572 square feet in the second quarter, an increase from the 415,995 YTD 2017 Absorption -137,717 SF square feet leased in the previous quarter; totaling 1,005,747 square feet leased YTD 2017. Tenants YTD 2017 Leasing Activity 1.0 M SF executing leases this quarter include Advanced Discovery signing for 20,484 square feet at 1120 Under Construction 0 SF Vermont Avenue, NW and Vox Media renewing 12,544 square feet at 1201 Connecticut Avenue, Percent Pre-Leased 0% NW. YTD 2017 Deliveries 0 SF One Class B building sold in the CBD; an 80% partial interest transfer of 888 16th Street, NW Asking Rental Rates 2007: 2016: YTD 2017: traded to Trammell Crow / Meadow Partners from (PSF, Full Service) $43.17 $45.72 $45.48 Motion Pictures Association of America (MPAA) for $32,250,000 ($263 psf).

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Southwest 2nd Quarter 2017

1.50 28 1.25 1.00 24 0.75 0.50 20 0.25 16 0.00 -0.25 12 SF (Millions) -0.50 Vacancy Rate (%) Vacancy -0.75 8 -1.00 -1.25 4 -1.50 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Deliveries Under Total Net Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Net Absorption 159,342 SF / Year Total vacancy in the Southwest market decreased to 12.3% at the end of the second quarter, down Deliveries 190,990 SF / Year from 13.8% at the end of the fi rst quarter.

The Southwest recorded 234,366 square feet Leasing Activity 817,152 SF / Year of net absorption in the second quarter, a substantial increase from the -30,787 square feet Market Stats absorbed in the fi rst quarter. Tenants contributing to the positive absorption include the Federal Inventory 11.9 M SF Bureau of Prisons moving into 115,341 square feet at 901 D Street, SW and the Social Security Direct Vacancy 12.1% Administration moving into 52,720 square feet at 250 E Street, SW. Total Vacancy 12.3% Leasing activity increased to 479,477 square feet in the second quarter, up from the 112,909 YTD 2017 Absorption 203,579 SF square feet leased in the previous quarter. Leases executed this quarter include the YTD 2017 Leasing Activity 592,386 SF GSA - U.S. Department of Education renewing 314,243 square feet at 550 12th Street, SW and Under Construction 685,000 SF Washington Gas signing for 70,056 square feet at 1000 Maine Avenue, SW - The Wharf. Percent Pre-Leased 54%

Three buildings are currently under construction YTD 2017 Deliveries 0 SF in the Southwest; 500 L’Enfant Plaza, SW (215,000 sf, 53% pre-leased), 800 Maine Avenue, Asking Rental Rates 2007: 2016: YTD 2017: SW (220,000 sf, 56% pre-leased, and 1000 Maine (PSF, Full Service) $48.66 $51.07 $52.34 Avenue, SW (250,000 sf, 52% pre-leased).

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West End / Georgetown 2nd Quarter 2017

0.50 14

12 0.25 10

8 0.00

6 SF (Millions) Vacancy Rate (%) Vacancy

-0.25 4

2 -0.50 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Total Absorption 32,169 SF / Year Total vacancy in the West End / Georgetown market increased to 8.3% at the end of the Deliveries 43,290 SF / Year second quarter, up from 7.9% at the end of the fi rst quarter. Leasing Activity 499,739 SF / Year The West End / Georgetown recorded -19,102 square feet of net absorption in the second Market Stats quarter, down from the 38,865 square feet absorbed in the fi rst quarter. Inventory 7.7 M SF Leasing activity decreased to 28,972 square Direct Vacancy 7.6% feet in the second quarter, down from 34,036 square feet leased in the previous quarter. Leases executed this quarter include Garvey Total Vacancy 8.3% Schubert Barer renewing 12,137 square feet at 1000 Potomac Street, NW and Paulson & Nace YTD 2017 Absorption 19,763 SF signing for 3,796 square feet at 1025 Thomas Jeff erson Street, NW. YTD 2017 Leasing Activity 63,008 SF

600 , NW sold to Under Construction 0 SF Washington Real Estate Investment Trust from Bradley Holdings for $135,000,000 ($437 psf). Percent Pre-Leased 0%

YTD 2017 Deliveries 0 SF

Asking Rental Rates 2007: 2016: YTD 2017: (PSF, Full Service) $45.06 $51.51 $50.99

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Capitol Hill / NoMa 2nd Quarter 2017

3.00 18 2.75 2.50 16 2.25 14 2.00 1.75 12 1.50 10 1.25 1.00 8

SF (Millions) 0.75

0.50 Rate (%) Vacancy 6 0.25 4 0.00 -0.25 2 -0.50 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Net Absorption 340,239 SF / Year Total vacancy in the Capitol Hill / NoMa market increased to 10.6% at the end of the second Deliveries 462,055 SF / Year quarter, up from 10.3% at the end of the fi rst quarter. Leasing Activity 977,322 SF / Year Capitol Hill / NoMa recorded -38,488 square feet of net absorption in the second quarter, Market Stats down from the 48,385 square feet absorbed in the fi rst quarter. Contributing to the negative net Inventory 16.0 M SF absorption includes the National Committee to Preserve Social Security vacating 31,438 square Direct Vacancy 9.9% feet at 10 G Street, NE.

Leasing activity decreased to 250,289 square feet Total Vacancy 10.6% in the second quarter, down from the 605,749 square feet leased in the previous quarter. Leases YTD 2017 Absorption 9,897 SF executed this quarter include GSA - Department of Homeland Security (DHS) renewing 46,803 YTD 2017 Leasing Activity 856,038 SF square feet at 90 K Street, NE, Court Services and Off ender Supervision Agency (CSOSA) signing Under Construction 1.7 M SF for 36,635 square feet at 800 N. Capitol Street, NW, and the American Gas Association renewing Percent Pre-Leased 33% 29,912 square feet at 400-444 N. Capitol Street, NW. YTD 2017 Deliveries 0 SF

At the end of the quarter four buildings, totaling Asking Rental Rates 2007: 2016: YTD 2017: 1,692,367 square feet, were under construction in (PSF, Full Service) $48.07 $51.69 $52.49 the Capitol Hill / NoMa market.

101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 16 1530 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 Market Spotlight

Capitol Riverfront 2nd Quarter 2017

2.00 20

1.75 18 16 1.50 14 1.25 12 1.00 10 0.75 SF (Millions) 8

0.50 Rate (%) Vacancy 6

0.25 4

0.00 2 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Deliveries Under Total Net Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2007 - 2016) Net Absorption 144,141 SF / Year Total vacancy in the Capitol Riverfront market decreased to 8.9% at the end of the second Deliveries 155,158 SF / Year quarter, down from 15.2% at the end of the fi rst quarter. Leasing Activity 282,546 SF / Year The Capitol Riverfront recorded 98,709 square feet of net absorption in the second quarter, an Market Stats increase from the 24,352 square feet absorbed in the fi rst quarter. Tenants contributing to the Inventory 3.8 M SF positive net absorption include WeWork moving into 68,000 square feet at 80 M Street, SE. Direct Vacancy 8.4% Leasing activity decreased to 59,307 square feet in the second quarter, down from the 71,510 Total Vacancy 8.9% square feet leased in the previous quarter. Tenants executing leases this quarter include YTD 2017 Absorption 123,061 SF PYXERA Global signing for 17,056 square feet at 99 M Street, SE and General Dynamics signing for YTD 2017 Leasing Activity 130,817 SF 13,045 square feet at 80 M Street, SE. Under Construction 361,000 SF Two buildings are currently under construction in the Capitol Riverfront; 99 M Street, SE (231,000 Percent Pre-Leased 64% sf, 11% pre-leased) and 1 M Street, SE (130,000 sf, 81% pre-leased). YTD 2017 Deliveries 0 SF

1900 Half Street, SW (478,000 sf) was removed Asking Rental Rates 2007: 2016: YTD 2017: from the offi ce inventory this quarter due to its (PSF, Full Service) $44.81 $42.35 $47.03 future conversion into residential. This was the primary cause of vacancy dropping 6.3%.

101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 17 1530 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600