Quarterly Market Report

Washington, D.C. Quarterly Market Report

2nd Quarter 2019

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 Adam Biberaj Senior Vice President [email protected] | 202.513.6736 Market Spotlight, 2Q 2019: Merrill Turnbull CBD...... 10 Senior Vice President [email protected] | 202.513.6713 East End...... 11 Jae Lee CBD / East End | Class A...... 12 Senior Vice President CBD / East End | Class B ...... 13 [email protected] | 202.513.6718

Southwest ...... 14 John Olson Senior Vice President West End / Georgetown...... 15 [email protected] | 202.513.6730 Capitol Hill / NoMa ...... 16 Terry Amling Capitol Riverfront ...... 17 Senior Vice President [email protected] | 202.513.6708

Beth Wilzbach Assistant Vice President Tysons Corner ...... 13 [email protected] | 202.513.6733

William Ruppe Assistant Vice President [email protected] | 202.513.6722

Joe Mehok Vice President of Research [email protected] | 202.513.6735

2 Metropolitan D.C. Market Overview 2nd Quarter 2019

Overall Market Summary

The Washington, DC Metropolitan commercial real estate market is comprised of approximately 424.6 million square feet of rentable office space located in the District of Columbia, Northern Virginia, and Suburban Maryland. square feet, broke ground; while three buildings, totaling 1,324,552 square feet, delivered. The largest The total vacancy rate remained flat at 14.0% at addition was 655 New York Avenue, NW delivering the end of the second quarter, while the market 756,000 square feet (73% leased) in DC’s East End. recorded 1,814,303 square feet of net absorption. Washington, DC posted the largest amount of net There were twenty-two sale transactions in the absorption with approximately 1.0 million square second quarter, totaling $949.77 million. The largest feet absorbed in the second quarter. sale was in the District with 1701 Rhode Island Avenue, NW trading for $105,652,551 ($1,037 psf). Leasing activity for the quarter totaled 7,720,934 square feet. The largest lease executed was a Average asking rental rates increased $0.06 to $38.21 renewal by the Securities and Exchange Commission per square foot, Full Service. (SEC) for approximately 1.3 million square feet at Station Place I, II & III in the District. From May 2018 - May 2019 the Washington, DC Metropolitan area had a net increase of 25,000 At the end of the quarter, there was 9,272,085 jobs (23,600 private sector, 1,400 government) square feet under construction, with 65% of the representing 0.8% growth YOY, while the space pre-leased. Nine buildings, totaling 1,761,304 unemployment rate decreased to 3.1%.

Metro DC VA MD Area (YTD)

Direct Vacancy 10.6% 13.5% 13.2% 13.3% (2Q 2019)

Total Vacancy 11.5% 14.1% 13.8% 14.0% (2Q 2019)

Total Net Absorption 706,940 1,150,776 -113,475 1.7 M SF (YTD 2019)

Leasing Activity 6,249,134 6,019,136 2,354,641 14.6 M SF (YTD 2019)

Outlook

The Metropolitan Washington, DC office market National Landing BID (Business Improvement posted a strong second quarter with market District) is being discussed. Coworking operators, fundamentals trending in a positive direction. All (WeWork especially), continue to lease large three jurisdictions posted positive net absorption blocks of space, not only in DC, but pre-leasing for the quarter and strong leasing velocity. DC space at new developments in Northern Virginia had an impressive quarter with approximately and Suburban Maryland as well. In DC, large 1.0 million square feet absorbed and edged out projects such as The Wharf Phase II (Southwest) Northern Virginia in leasing with approximately and The Yards (Capitol Riverfront) broke ground 3.7 million square feet leased. Regional in second quarter, and have already experienced employment gains were solid as the DC Metro strong pre-leasing. As it concerns Government area experienced 0.8% of job growth YOY, while leasing, the GSA will continue reducing the federal the unemployment rate ticked down to 3.1% (the real estate footprint and begin to execute longer national average is 3.6%). The DC Metro ranked lease terms (15-20 year terms) while minimizing/ 20th nationally for unemployment in metro areas eliminating short-term extensions to reduce costs. with populations over 1 million. Proximity to Amazon and the new Metro stations for Phase II of the Silver Line in Virginia and the Amazon continues to have a positive influence on Purple Line in Maryland should continue to be a Northern Virginia as the creation of a new catalyst for demand (leasing and sales).

Market Summary 2Q 2019 1Q 2019 2Q 2018 The Washington, DC office market currently consists of 790 buildings, over 25,000 square feet, totaling approximately 147.2 million square feet of Direct 10.6% 11.0% 10.1% rentable space. Vacancy

As of May 2019, the unemployment rate for the District of Columbia increased to 5.7%, while the Total 11.5% 11.7% 10.9% Washington, DC Metropolitan area decreased to Vacancy 3.1%. The national unemployment rate decreased to 3.6%. Net The DC Metropolitan area gained 25,000 net new 1.0 M -296,704 658,427 jobs from May 2018-May 2019, representing 0.8% Absorption (SF) growth YOY. Leisure & Hospitality lead the private sector with 12,200 new jobs; while the Government Leasing gained 1,400. 3.7 M 2.6 M 2.2 M Activity (SF) The largest public sector lease executed this quarter was a renewal by the Securities and Exchange Commission (SEC) for 1,275,363 Under 3.9 M 3.8 M 4.0 M square feet at Station Place I, II, & III in the NoMa Construction (SF) submarket.

King & Spalding signed the largest private sector U/C Percent 49% 56% 60% lease with a 146,994-square-foot renewal at Pre-Leased 1700 & 1730 Pennsylvania Avenue, NW in the CBD submarket.

There were six sale transactions in DC, totaling Deliveries (SF) 1.3 M 369,000 2.0 M $370,502,551 in sales volume. The largest sale was 1701 Rhode Island Avenue, NW trading to Exan Capital for $105,652,551 ($1,037 psf). Asking Rental Rates $53.90 $53.51 $52.32 Vacancy Rate (PSF, Full Service)

The total vacancy rate in the District decreased $370.5 M $820.9 M $434.3 M to 11.5% at the end of the second quarter, totaling Sales Volume approximately 16.9 million square feet of vacant space. Unemployment 3.1% 3.5% 3.2% Class A total vacancy for DC decreased to 12.4% DC Metro Area (approx. 11.0 million sf), while Class B total vacancy increased to 10.7% (approx. 5.7 million sf).

Sublet vacancy increased to 0.8% at the end of the second quarter, totaling approximately 1.2 million square feet of vacant space.

Net Absorption & Deliveries | Net Absorption | Vacancy Rate

Leasing 6 14

5 12 The Washington, DC market recorded 1,003,644 4 10 square feet of net absorption in the second (%) Rate Vacancy

quarter; 706,940 square feet has been absorbed 3 8 YTD 2019. The 10-year average for net absorption

in the District is 1.2 million square feet absorbed SF (Millions) 2 6 per year. 1 4

Contributing to the positive net absorption 0 2 included the Department of Justice (DOJ) moving -1 0 into 522,550 square feet at 150 M Street, NE - Four '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Constitution Square. Deliveries Net Absorption Total Vacancy Rate

The Central Business District (CBD) market posted -44,825 square feet of net absorption in the second quarter; totaling 63,861 square feet Deliveries | Under Construction absorbed YTD 2019. 6

The East End market posted 762,112 square feet 5 of net absorption in the second quarter; totaling 480,270 square feet absorbed YTD 2019. 4

A total of 3,658,814 square feet of leases were 3 executed in the second quarter; bringing the YTD

SF (Millions) 2 2019 total to 6,293,316 square feet leased. The 10- year average for leasing activity in DC is 10.1 million 1 square feet annually.

0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Construction Deliveries Under Construction

Fifteen buildings were under construction in Washington, DC at the end of the second quarter, Leasing Activity totaling 3,873,553 square feet (49% pre-leased). 14 At the end of the quarter, 37% of the 1,130,500 12 square feet under construction in the core markets of the CBD and East End was pre-leased, while 10 the remaining 2,743,053 square feet in the DC construction pipeline was 54% pre-leased. 8

6 655 New York Avenue, NW (756,000 sf, 73% SF (Millions) leased) and 150 M Street, NE (522,550 sf, 100% 4 leased) delivered, while 1275 New Jersey Avenue, SE - The Yards (330,000 sf, 88% pre-leased), 2 350 Morse Street, NE - Signal House (226,576 sf, 0 0% pre-leased), and Phase II of The Wharf (four '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 buildings, totaling 728,703 sf) broke ground.

Construction (cont’d) Sales Volume

Buildings expected to deliver in the second half 6 of 2019 include; 1 M St, SE (130,000 sf, 81% pre-

leased), 1900 N St, NW (265,000 sf, 65% pre- 5 leased), 2050 M St, NW (364,000 sf, 47% pre-

leased), 45 L St, NE (539,903 sf, 88% pre-leased), 4 and 250 Massachusetts Ave, NW (559,921 sf, 0%

pre-leased). 3

Buildings expected to deliver in 2020 include; 2 2100 L St, NW (190,000 sf, 43% pre-leased), 699 ($ Billions) Volume Sales 14th St, NW (156,500 sf, 0% pre-leased), 1050 17th 1 St, NW (155,000 sf, 0% pre-leased), and 250 M St, SE (227,950 sf, 77% pre-leased). 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

1275 New Jersey Ave, SE and 350 Morse St, NE are expected to deliver in 2021. Vacant Space Available & Vacancy by Class Four buildings, totaling 1,647,550 square feet, have delivered YTD 2019. The 10-year average for new 14 14 12.4% inventory added to the District is 1.6 million square 12 12 10.7% feet per year. Class VacantBuilding of (%)

10 10 The Wharf Phase II includes two larger buildings; 670 Maine Avenue, SW (255,750 sf) and 690 Maine 8 8 Avenue, SW (293,953 sf). These buildings are a SF Vacant (Millions)Vacant SF 6 6 combined 58% pre-leased to Williams & Connolly. 4.1% 580 Water St, SW and 6th St, SW are the two 4 4 smaller buildings, 89,500 square feet each. All four buildings are expected to be completed by the 2 2

third quarter 2022. 0 0 A B C Outlook

Vacancy is expected to increase as approximately 1.9 million square feet of new inventory is expected to deliver by the end of 2019, 45% (or 855,000 sf) remains available for lease.

Priorities for the GSA include; reducing the federal real estate footprint and to execute longer lease terms (15-20 year terms) while minimizing/ eliminating short-term extensions to reduce costs.

The co-working sector should continue to help drive leasing activity and absorption as new co-working operators enter the DC Market and existing ones expand their real estate footprints.

Washington, D.C. Top Sales

1701 Rhode Island Avenue, NW 2013 H Street, NW 1666 Connecticut Avenue, NW 1319 F Street, NW International Office Building Submarket CBD Submarket CBD Submarket Uptown Submarket East End Date Sold June 2019 Date Sold May 2019 Date Sold May 2019 Date Sold May 2019 $105,652,551 $23,600,000 $30,500,000 Price Price Price $20,000,000 ($1,037 PSF) ($860 PSF) ($425 PSF) Price ($397 PSF) Buyer Exan Capital The George ASB Capital Buyer Northeast Equity Akridge / Alcion Buyer Washington Management Buyer Seller University The Jones Management Ventures Seller The HSC Foundation Seller EDG Corporation RBA 101,850 SF Seller Foundation RBA 71,764 SF RBA 50,320 SF A Class RBA 27,456 SF Class B Class B 100% Leased Class B Leased 77.3% Leased 100% Cap Rate % Leased 100% Cap Rate % 2-bldg portfolio Notes sale (1319 F & 1612 K St)

1612 K Street, NW 601 D Street, NW 1100 17th Street, NW 4530 Wisconsin Avenue, NW The City Building Patrick Henry Building Tenley Point Submarket CBD Submarket CBD Submarket East End Submarket Uptown Date Sold February 2019 Date Sold May 2019 Date Sold June 2019 $61,750,000 Date Sold March 2019 Price $28,000,000 $162,750,000 $15,800,000 Price Price ($420 PSF) ($389 SF) ($305 PSF) Price Buyer Akridge / Stars REI ($374 PSF) Northeast Equity Buyer Buyer Tishman Speyer Liberty Property Buyer David Schaeffer Management Algin Seller Seller Trust Seller Donohoe Seller EDG Corporation Management RBA 146,976 SF RBA 42,275 SF RBA 72,000 SF RBA 533,374 SF Class B Class B Class B Class B Leased 65.7% Leased 100% Leased 93.7% Leased 100% Cap Rate 6.00% Cap Rate 6.96% 2-bldg portfolio Cap Rate n/a Notes sale (1319 F & 1612 DOJ will vacate K St) Notes entire bldg in August 2019

Top Ten Leases

In the second quarter 2019 there were five new Representing the co-working sector in the Top leases and five renewals in the Top Ten, including Ten this quarter included WeWork leasing 111,273 five leases over 100,000 square feet. square feet at 200 Massachusetts Avenue, NW - Capitol Crossing and CommonGrounds leasing The largest lease executed this quarter was in the 44,182 square feet at 99 M Street, SE. public sector by the SEC with a 1,275,363-square- foot renewal at Station Place I, II & III. The largest King & Spalding was the sole law firm in the private sector lease in the Top Ten was a renewal Top Ten with a 146,994-square-foot renewal at by King & Spalding for 146,994 square feet at 1700 1700/1730 Pennsylvania Avenue, NW. The tenant & 1730 Pennsylvania Avenue, NW. also downsized 42,849 square feet.

The public sector lead the market with the two The Washington, DC market totaled 3,658,814 largest lease signings of the quarter (both renew- square feet of leasing activity in the second quar- als); the SEC for 1,275,363 square feet (4.5-year ter; bringing the YTD 2019 total to 6,293,316 square term) and GSA - Department of State for 463,151 feet leased. This represents approximately 62% of square feet. the 10.1 million square feet of leases signed annually (10-year average).

100 F, 600 2nd & 700 2nd Street, NE 1300 Eye Street, NW Station Place I, II & III Franklin Square Securities Verizon Corporate Tenant Tenant and Exchange Services Commission (SEC) Size 79,719 SF Size 1,275,363 SF Type New / Expansion Type Renewal

600 19th Street, NW 820 1st Street, NE Union Center Plaza II GSA - Department of Tenant Accenture Federal State Tenant Services Size 463,151 SF Size 58,871 SF Type Renewal Type Renewal

1700 & 1730 Pennsylvania Avenue, NW 2001 K Street, NW Alexander Court Tenant King & Spalding Tenant SmithBucklin Size 146,994 SF Size 49,974 SF Type Renewal / Downsize Type New

750 9th Street,NW 99 M Street, SE The Victor Building Tenant CommonGrounds Tenant Smithsonian Institute Size 44,182 SF Size 133,984 SF Type New Type Renewal

200 Massachusetts Avenue, NW 1140 3rd Street, NE Capitol Crossing Uline Arena

Tenant WeWork Tenant Pact Size 39,289 SF Size 111,273 SF Type New Type New

CBD 2nd Quarter 2019

1.25 12 1.00 0.75 10 0.50 8 0.25 0.00 6

-0.25 Rate (%) Vacancy SF (Millions) -0.50 4 -0.75 -1.00 2 -1.25 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Net Absorption 173,676 SF / Year Total vacancy in the CBD market increased to 9.8% at the end of the second quarter, up from 9.7% at Deliveries 226,944 SF / Year the end of the first quarter.

The CBD recorded -44,825 square feet of net Leasing Activity 3,129,419 SF / Year absorption in the second quarter, down from the 108,686 square feet absorbed in the first Market Stats quarter. Tenants contributing to the negative net absorption included the Urban Institute vacating Inventory 44.2 M SF 152,000 square feet at 2100 M Street, NW.

Direct Vacancy 8.8% Leasing activity increased to 1,013,699 square feet in the second quarter, up from the 566,655 9.8% square feet leased in the previous quarter. Tenants Total Vacancy executing leases this quarter included the GSA - Department of State renewing 463,151 square feet YTD 2019 Absorption 63,861 SF at 600 19th Street, NW, King & Spalding renewing 146,994 square feet (downsized 42,849 sf) at YTD 2019 Leasing Activity 1,580,354 SF 1700 and 1730 Pennsylvania Avenue, NW, and SmithBucklin signing for 49,974 square feet at 2001 Under Construction 974,000 SF K Street, NW - Alexander Court. Percent Pre-Leased 43% Three buildings traded in the CBD this quarter; 1701 Rhode Island Avenue, NW traded to Exan Capital YTD 2019 Deliveries 154,000 SF for $105,652,551 ($1,037 psf), 2013 H Street, NW sold to The George Washington University from Asking Rental Rates 2009: 2018: YTD 2019: The HSC Foundation for $23,600,000 ($860 (PSF, Full Service) $48.84 $53.50 $54.98 psf), and 1612 K Street, NW sold to Northeast Equity Management from EDG Corporation for $28,000,000 ($389 psf).

East End 2nd Quarter 2019

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 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Total vacancy in the East End market decreased to Net Absorption 121,073 SF / Year 13.3% at the end of the second quarter, down from 13.7% at the end of the first quarter. Deliveries 419,527 SF / Year

The East End recorded 762,112 square feet of Leasing Activity 3,589,489 SF / Year net absorption in the second quarter, a notable increase from the -281,842 square feet absorbed Market Stats in the first quarter. Tenants contributing to the positive net absorption included United Inventory 51.0 M SF Healthcare (Advisory Board Company) moving into 272,149 square feet at 655 New York Avenue, NW Direct Vacancy 12.2% (relocated from 2445 M St, NW).

13.3% Leasing activity decreased to 816,742 square feet Total Vacancy in the second quarter, down from the 934,425 square feet leased in the previous quarter. YTD 2019 Absorption 480,270 SF Tenants executing leases this quarter included the Smithsonian Institute renewing 133,984 square feet YTD 2019 Leasing Activity 1,751,167 SF at 750 9th Street, NW, Verizon Corporate Services signing for 79,719 square feet of expansion space Under Construction 156,500 SF at 1300 Eye Street, NW, and Bipartisan Policy Center renewing 39,000 square feet at 1225 Eye Percent Pre-Leased 0% Street, NW. YTD 2019 Deliveries 756,000 SF One building delivered this quarter, 655 New York Avenue, NW (756,000 sf, 73% leased); while Asking Rental Rates 2009: 2018: YTD 2019: 699 14th Street, NW (156,500 sf, 0% pre-leased) (PSF, Full Service) $51.23 $55.24 $56.42 remained the sole building under construction.

CBD / East End Class A 2nd Quarter 2019

3.0 16

2.5 14

2.0 12

10 1.5 8 1.0 Vacancy Rate (%) Vacancy SF (Millions) 6 0.5 4 0.0 2 -0.5 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Net Absorption 438,266 SF / Year Total vacancy in the CBD / East End Class A market decreased to 13.1% at the end of the second Deliveries 646,903 SF / Year quarter, down from 13.5% at the end of the first quarter. Leasing Activity 3,820,011 SF / Year The Class A market recorded 760,428 square feet of net absorption in the second quarter. Tenants Market Stats contributing to the positive net absorption included United Healthcare (Advisory Board Inventory 54.4 M SF Company) moving into 272,149 square feet at 655 New York Avenue, NW (relocated from 2445 M St, Direct Vacancy 11.8% NW).

13.1% Leasing activity totaled 1,057,874 square feet in the Total Vacancy second quarter. Tenants executing leases included Bass Berry & Sims renewing 34,436 square feet YTD 2019 Absorption 955,293 SF at 1201 Pennsylvania Avenue, NW, Avalere Health signing for 33,012 square feet at 1201 New York YTD 2019 Leasing Activity 2,036,739 SF Avenue, NW, and Mixer signing for 30,247 square feet at 600 Massachusetts Avenue, NW. Under Construction 1,130,500 SF

Only one Class A building sold in the CBD / East Percent Pre-Leased 37% End; 1701 Rhode Island Avenue, NW traded to Exan Capital for $105,652,551 ($1,037 psf). The YTD 2019 Deliveries 910,000 SF 101,850-square-foot, former YMCA, was renovated and delivered fully leased to WeWork last quarter. Asking Rental Rates 2009: 2018: YTD 2019: (PSF, Full Service) $53.13 $58.00 $59.77 655 New York Avenue, NW (756,000 sf) delivered 73% leased, while an additional 1.1 million square feet (5 buildings) remained under construction.

CBD / East End Class B 2nd Quarter 2019

1.00 12

0.75 10 0.50

0.25 8

0.00 6

-0.25 Rate (%) Vacancy SF (Millions) 4 -0.50

-0.75 2

-1.00 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Net Absorption -147,488 SF / Year The vacancy rate in the CBD / East End Class B market remained flat at 10.2% and the end of the Deliveries 0 SF / Year second quarter.

The Class B market continues to out-pace the Leasing Activity 2,876,880 SF / Year Class A market in total vacancy; 10.2% (Class B) vs. 13.1% (Class A). Market Stats Class B buildings recorded a total of -43,127 square Inventory 38.6 M SF feet of net absorption in the second quarter. Tenants contributing to the negative net absorption included the Urban Institute vacating Direct Vacancy 9.5% 152,000 square feet at 2100 M Street, NW and Ankura Consulting vacating 24,590 square feet at Total Vacancy 10.2% 1220 19th Street, NW. YTD 2019 Absorption -402,201 SF Leasing activity totaled 769,475 square feet in the second quarter. Tenants executing leases included YTD 2019 Leasing Activity 1,067,484 SF Bipartisan Policy Center renewing 39,000 square feet at 1225 Eye Street, NW, Washington Media Under Construction 0 SF signing for 12,887 square feet at 1775 K Street, NW, and The Gathering Spot signing for 11,604 square Percent Pre-Leased 0% feet at 1720 Eye Street, NW. YTD 2019 Deliveries 0 SF Four Class B assets traded; 2013 H Street, NW sold to The George Washington University for Asking Rental Rates 2009: 2018: YTD 2019: $23,600,000 ($860 psf), 601 D Street, NW sold to (PSF, Full Service) $45.56 $48.04 $50.12 Tishman Speyer for $162,750,000 ($305 psf), and 1319 F and 1612 K Street, NW sold as a portfolio to Northeast Equity Management for $48,000,000.

Southwest 2nd Quarter 2019

1.50 24 1.25 21 1.00 18 0.75 0.50 15 0.25 12 0.00 SF (Millions) -0.25 Rate (%) Vacancy 9 -0.50 6 -0.75 3 -1.00 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Deliveries Under Total Net Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Net Absorption 270,552 SF / Year Total vacancy in the Southwest market decreased to 11.5% at the end of the second quarter, down Deliveries 242,026 SF / Year from 15.5% at the end of the first quarter.

The Southwest recorded 382,196 square feet of Leasing Activity 1,073,136 SF / Year net absorption in the second quarter, a notable increase from the -20,880 square feet absorbed Market Stats in the first quarter. Tenants contributing to the positive net absorption included the Urban Inventory 12.4 M SF Institute moving into 140,104 square feet at 500 L’Enfant Plaza, SW (relocated from 2100 M St, NW Direct Vacancy 11.3% in the CBD).

11.5% Leasing activity decreased to 59,962 square feet Total Vacancy in the second quarter, down from the 120,210 square feet leased in the previous quarter. Leases YTD 2019 Absorption 361,366 SF executed this quarter included Accenture Federal Services signing for 14,878 of expansion space YTD 2019 Leasing Activity 180,172 SF at 370 L’Enfant Plaza, SW, Opportunity Finance Network signing for 10,699 square feet, also at Under Construction 728,703 SF 370 L’Enfant, and WMATA signing for 10,599 square feet at 500 L’Enfant Plaza, SW. Percent Pre-Leased 44%

The last four office buildings of Phase II ofThe YTD 2019 Deliveries 215,000 SF Wharf broke ground. The two larger buildings; 670 Maine Avenue, SW (255,750 sf) and 690 Asking Rental Rates 2009: 2018: YTD 2019: Maine Avenue, SW (293,953 sf) are a combined (PSF, Full Service) $49.71 $47.47 $47.28 58% pre-leased to Williams & Connolly. Phase II is expected to deliver in the third quarter 2022.

West End / Georgetown 2nd Quarter 2019

0.50 14

12 0.25 10

8 0.00

6 SF (Millions) Vacancy Rate (%) Vacancy

-0.25 4

2 -0.50 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Total Absorption 64,736 SF / Year Total vacancy in the West End / Georgetown market increased to 13.6% at the end of the Deliveries 45,883 SF / Year second quarter, up from 7.9% at the end of the first quarter. Leasing Activity 493,328 SF / Year The West End / Georgetown recorded -444,495 square feet of net absorption in Market Stats the second quarter, a further decrease from the -55,834 square feet absorbed in the Inventory 7.8 M SF first quarter. Contributing to the negative net absorption, and spike in vacancy, was Direct Vacancy 12.4% the Advisory Board Company (ABC) vacating 296,887 square feet at 2445 M Street, NW. ABC 13.6% relocated to recently delivered 655 New York Total Vacancy Avenue, NW (in the East End). YTD 2019 Absorption -500,329 SF Leasing activity totaled 29,350 square feet in the second quarter, down from the 192,712 YTD 2019 Leasing Activity 222,062 SF square feet leased in the previous quarter. Leases executed this quarter included Garvey Under Construction 0 SF Schubert renewing 12,137 square feet at 1000 Potomac Avenue, NW and Starwood Capital Percent Pre-Leased 0% Group signing for 4,926 square feet at 1255 23rd Street, NW. YTD 2019 Deliveries 0 SF

Asking Rental Rates 2009: 2018: YTD 2019: (PSF, Full Service) $42.19 $50.55 $46.50

Capitol Hill / NoMa 2nd Quarter 2019

2.00 18

1.75 16 1.50 14 1.25 12 1.00 10 0.75 0.50 8 SF (Millions)

0.25 Rate (%) Vacancy 6

0.00 4 -0.25 2 -0.50 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Under Total Net Deliveries Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Net Absorption 434,505 SF / Year Total vacancy in the Capitol Hill / NoMa market decreased to 9.5% at the end of the second Deliveries 490,959 SF / Year quarter, down from 9.8% at the end of the first quarter. Leasing Activity 1,002,751 SF / Year Capitol Hill / NoMa recorded 514,913 square feet of net absorption in the second quarter, Market Stats up from the -28,6763 square feet absorbed in the first quarter. Contributing to the positive net Inventory 17.2 M SF absorption included the Department of Justice (DOJ) moving into 522,550 square feet at 150 M Direct Vacancy 9.4% Street, NE - Four Constitution Square.

9.5% Leasing activity increased to 1,616,242 square Total Vacancy feet in the second quarter, up from the 240,854 square feet leased in the previous quarter. Leases YTD 2019 Absorption 486,150 SF executed this quarter included the Securities and Exchange Commission (SEC) renewing YTD 2019 Leasing Activity 1,857,096 SF 1,275,363 square feet at 100 F, 600 2nd, and 700 2nd Street, NE - Station Place I, II, & III and Under Construction 1,326,400 SF WeWork signing for 111,273 square feet at 200 Massachusetts Avenue, NW - Capitol Crossing. Percent Pre-Leased 44%

150 M Street, NE (522,550 sf) delivered 100% YTD 2019 Deliveries 522,550 SF leased to the DOJ.

Asking Rental Rates 2009: 2018: YTD 2019: 350 Morse Street, NE - Signal House (226,576 sf, (PSF, Full Service) $48.72 $52.78 $55.92 0% pre-leased) broke ground on a speculative basis.

Capitol Riverfront 2nd Quarter 2019

0.75 20 18 16 0.50 14 12 0.25 10

SF (Millions) 8 Vacancy Rate (%) Vacancy 0.00 6 4

-0.25 2 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Deliveries Under Total Net Construction Absorption Direct Vacancy Rate Total Vacancy Rate

Highlights 10 Year Averages (2009 - 2018) Net Absorption 95,246 SF / Year Total vacancy in the Capitol Riverfront market increased to 8.4% at the end of the second Deliveries 89,087 SF / Year quarter, up from 7.7% at the end of the first quarter. Leasing Activity 272,238 SF / Year The Capitol Riverfront recorded -64,921 square feet of net absorption in the second quarter, Market Stats down from the 5,343 square feet absorbed in the first quarter. Tenants contributing to the negative Inventory 4.1 M SF net absorption included Parsons Corporation vacating 82,750 square feet at 100 M Street, SE. Direct Vacancy 8.3% Leasing activity totaled 84,080 square feet in 8.4% the second quarter, down from the 299,333 Total Vacancy square feet leased in the previous quarter. Tenants executing leases this quarter included YTD 2019 Absorption -59,578 SF CommonGrounds signing for 44,182 square feet at 99 M Street, SE, Give Campus signing for YTD 2019 Leasing Activity 383,413 SF 11,599 square feet, also at 99 M, and Patrona Corporation renewing 10,098 square feet at 1220 Under Construction 687,950 SF 12th Street, SE. Percent Pre-Leased 83% One building broke ground this quarter; 1275 New Jersey Avenue, SE - The Yards. This YTD 2019 Deliveries 0 SF 330,000-square-foot building is 88% pre-leased to Chemonics and expected to deliver in the Asking Rental Rates 2009: 2018: YTD 2019: second quarter 2021. (PSF, Full Service) $45.15 $52.85 $55.00 1 M Street, SE (130,000 sf, 81% pre-leased) and 250 M Street, SE (227,950 sf, 77% pre-leased) remained under construction.