WASHINGTON, DC OFFICE REPORT

3Q10

ECONOMY
The District’s unemployment rate has been experiencing slight, albeit steady, declines in
ECONOMY
recent months. The monthly level in August, 10.0%, is the highest in the region and BEAT ON THE STREET
The Manhattan
higher office market
than the national rate ofcontinued to tighten
9.6%. Rates hoveringduring
in thethe firstrange
5.0% half of
in 2007, extending strengths exhibited“2010
surrounding during the second
is turning out to behalf
a veryof 2006.
active year
Steady employment growth contributed to positive absorption of available
counties are contributing to one of the lowest metro area unemployment rates in the space and rapidly escalating asking rents.
for the DC Market. Not only have we seen
substantial leasing activity and absorption,
country
The New – 6.3% in August.
York City economy expanded at a healthy pace during the first six months of the but salesled
year, are recovering.
by strongThe government
gains in office-
continues to fuel activity and furnish a solid
usingpositive
The employment. Data
influence of available through
the federal thepackage
stimulus end of May
on theshow that the
region’s City has
economy added nearly
cannot 16,800
basis jobs
for real ininvestment.
estate industries As that
we are
keyunderstated.
be to the commercial officetomarket,
According a recentwith financial
report by Theservices and professional
Wall Street Journal, the business
private services adding
absorb 7,400 and
the remaining new5,500 jobs,
construction
deliveries we will begin to see the market
respectively.
and This resulted
public sectors in increased
in the Metro DC areademand for office
have received space
more thanin three
a market
timesthat
thewas already the tightest
tighten for tenants,it particularly
had beenlargersince the
first quarter
national of 2001.
average in stimulus dollars, on a per capita basis. requirements looking for trophy space. 2011
will have a very different feel from the past
The year began with 26.1 million square feet) available throughout Manhattan. By the end of June, available space had fallen precipitously to
two years.”
OVERVIEW
20.8 a decline of 20.5%. This diminishing availability of space has been the story of the - Audrey Cramer, Vice Chairman
Despite subdued
market; April 2007jobwas
growth within
the only the District,
month theyear
in the past office
thatmarket
did nothas been aextremely
record month-to-
active. ECONOMIC INDICATORS
month decline of at least 122,000 square. As a result, Manhattan’s overall absorbed,
To date, about 3 million square feet (msf) of direct space has been vacancy rate has
nearly one million square feet of which took place in the third quarter.
tumbled to a six-year low, closing the mid-year at 5.3%. For the third consecutive quarter, National 2009 2010F 2011F
GDP Growth -2.6% 2.7% 3.1%
the vacancy
Leasing ratetotaled
activity closed nearly
below 2equilibrium,
msf during defined as a vacancy
the quarter, rateatrange
and stands of 7.0%
4.5 msf for the- 9.0%.
CPI Growth -0.3% 1.6% 1.6%
year, as much as was leased during all of 2009. Government agencies were responsible
OVERVIEW
for the largest deals. The Securities and Exchange Commission expanded into 900,000 District
Inatthis Unemployment 10.3% 10.9% 10.7%
sf 400environment,
7th Street SW.it isThe
no SEC
surprise
plansthat
onasking
hiringrates
800 newhaveemployees
skyrocketed. Up 36.2%
as part from a
of its new
year ago, Manhattan’s overall total average asking rent closed the first
regulatory oversight functions, and does not have the space in its headquarters. Other half of 2007 at Employment -4.6% 0.8% 0.5%
another record-high: $59.17 per square foot. Thusand far this year, rents renewal
have increased by an Growth
major deals included the National Transportation Safety Board’s of nearly Source: Moody’s | Economy.com
average of $1.44 each month since January, breaking the old record
180,000 sf at 470-490 L'Enfant Plaza SW and the DC Department of Transportation, set back during the
secondtook
which and 150,000
third quarters
sf at 55ofM2000.
StreetTheSE.rapid
Lawpace
firmsof have
rentalbeen
rate very
growth hasinextended
active the core MARKET FORECAST
throughout Manhattan. In every submarket but one, overall
market, with nine deals closed (including renewals) during the third quarter. rents have registered double- LEASING ACTIVITY will continue its
digit percentage increases from a year ago. Chelsea, up 4.2%, was the only exception. momentum into the fourth quarter.
The overall vacancy rate ended the quarter at 13.3%, down a full percentage point from
On quarter.
last a cautionary
Classnote, however,
A asking rentalleasing activityup,
rates ticked throughout Manhattan
but have remained was slower
essentially flatduring
this DIRECT ABSORPTION will end the year
the first
year, two quarters,
ranging partially attributable
between $54-$56 per square footto both
(psf),significantly
on average.higher rents landlord
In general, and lack of at its highest level in three years.
available space.
concessions Withon11.8
remain theleased
generousyear-to-date,
side. 2007 activity trails last year’s total through CONSTRUCTION starts in 2011 and
June by 5.4%, with Midtown trailing by nearly 20.0%. This suggests that tenants are 2012 will be almost non-existent.
Only
possiblyonebeginning
office property traded
to search for hands during space
lower-priced the quarter, although
in response about a dozen
to landlords hikingare
up
on the market for sale
rents throughout the market.as owners try to ride the wave of recently profitable sales. The
Generali Group purchased the Farragut Building at 900 17th Street NW for $93.5 AVAILABLE SPACE
million,
OUTLOOK or just over $600 psf. OVERALL VS. SUBLEASE
This
As foryear’s
new leasing has 800
deliveries, been17dominated by Manhattan’s
th St. NW was completed thisleading industries.
quarter. Financial
The 365,000-sf ENTERENT

services firms
property is the(36.4%)
home ofandPNClegal services
Bank’s firmsheadquarters,
regional (11.7%) accounted
wherefor nearly
they one of every
will occupy 15.0 Ov erall S ublease

two square feet125,000

approximately leased from
sf. January through June. In April, Lehman Brothers Holdings,
Inc. signed Manhattan’s largest new lease in 2007, a 414,575-sf sublease at 1271 Avenue
of the Americas. The frequency of transactions with taking rents starting at or above
FORECAST
msf

$125.00 continued
Cushman to climb:
& Wakefield 18 suchabout
is optimistic transactions
the stateyear-to-date
of the DC versus 21 signed
office market. in the
Once thefour
previous
jobs years been
that have combined.
announced in expansions such as the SEC begin to get filled, we
could see the start of a sustainable recovery. Risks remain, however, including shrinking
stimulus dollars and belt tightening initiatives by the Federal Government. In addition, 0.0
we are beginning to see the next wave of sublease space hitting the market. However, 3Q 08 4Q08 1Q 09 2Q09 3Q09 4Q 09 1Q10 2Q10 3Q 10

fewer construction completions next year and into 2012 will help stabilize the supply
side of the equation, lessening the risk of the effects of potential drop-offs in demand.

WASHINGTON DC OFFICE REPORT 3Q10 1

 WASHINGTON, D.C. OFFICE REPORT 3Q10

MARKET/SUBMARKET STATISTICS
OVERALL DIRECT YTD UNDER YTD YTD YTD DIRECT WTD. AVG.
NO. OF VACANCY VACANCY LEASING CONSTRUCTION/ CONSTRUCTION DIRECT OVERALL DIRECT GROSS
M ARKET/ SUBM ARKET INVENTORY BLDGS. RATE RATE ACTIVITY RENOVATION * COM PLETIONS* ABSORPTION ABSORPTION RENTAL RATE**
Capitol Hill/NoMa*** 11,713,718 43 15.9% 15.5% 617,936 749,072 1,497,577 1,687,035 1,768,229 $51.97
East End 36,103,899 153 11.9% 10.3% 1,273,978 169,038 363,041 (333,455) (179,791) $55.54
CBD 31,980,626 182 11.4% 9.7% 1,006,081 884,320 521,840 427,016 618,118 $51.45
West End/Georgetow n 5,226,557 33 12.3% 10.2% 89,848 0 0 143,620 147,617 $43.91
Uptow n 3,531,201 31 10.4% 7.9% 19,437 0 0 105,133 73,199 $39.44
Southw est*** 11,115,786 33 22.8% 22.6% 1,327,202 0 626,000 806,690 806,690 $50.86
Capitol Riverfront 4,282,403 11 12.4% 12.2% 179,995 391,923 0 158,274 180,685 $44.50
Washington, D.C. 103,954,190 486 13.3% 12.0% 4,514,477 2,194,353 3,008,458 2,994,313 3,414,747 $51.66

Class A
Capitol Hill/NoMa*** 5,653,406 16 28.9% 28.6% 486,990 136,800 1,497,577 1,542,046 1,582,961 $53.64
East End 20,337,062 68 13.1% 11.3% 1,088,319 169,038 363,041 166,318 271,326 $59.89
CBD 10,035,142 41 17.8% 15.0% 601,046 805,045 521,840 462,326 636,911 $60.89
West End/Georgetow n 1,437,437 7 9.1% 5.6% 9,993 0 0 10,991 (27,209) $56.19
Uptow n 367,832 2 20.5% 19.7% 11,129 0 0 37,423 35,413 $44.00
Southw est*** 7,926,977 18 31.6% 31.3% 1,290,814 0 626,000 784,995 784,995 $50.86
Capitol Riverfront 3,204,841 9 13.9% 13.6% 179,995 391,923 0 158,274 180,685 $45.89
Washington, D.C. 48,962,697 161 18.9% 17.4% 3,668,286 1,502,806 3,008,458 3,162,373 3,465,082 $55.52
* Under construction and construction completions include renovations and expansions.
** Asking rental rates are quoted on a $psf/year basis.
*** Revised

MARKET HIGHLIGHTS

SIGNIFICANT 3Q10 NEW LEASE TRANSACTIONS

BUILDING SUBM ARKET TENANT SQUARE FEET BLDG CLASS
400 7th Street SW Southwest GSA-Securities and Exchange Commission 900,000 A
470-490 L'Enfant Plaza SW* Southwest GSA-National Transportation Safety Board 179,519 B
55 M Street SE Capitol Riverfront D.C. Department of Transportation 150,000 A
2200 Pennsylvania Avenue NW** CBD Vinson & Elkins LLP 72,435 A
SIGNIFICANT 3Q10 SALE TRANSACTIONS
BUILDING SUBM ARKET Buyer SQUARE FEET PURCHASE PRICE
900 17th Street NW-Farragut Bld. CBD Generali Group 153,000 $93,500,000
SIGNIFICANT 3Q10 CONSTRUCTION COMPLETIONS
BUILDING SUBM ARKET M AJOR TENANT SQUARE FEET COM PLETION DATE
800 17th Street NW CBD PNC Bank 365,000 7/ 10
SIGNIFICANT PROJECTS UNDER CONSTRUCTION/ RENOVATION
BUILDING SUBM ARKET M AJOR TENANT SQUARE FEET COM PLETION DATE

2200 Pennsylvania Avenue NW CBD Hunton & Williams/ Vinson & Elkins LLP 430,900 2/ 11
1015 Half Street SE Capitol Riverfront N/ A 391,923 12/ 10
1000 Connecticut Avenue NW CBD Arent Fox 374,145 12/ 12
733 10th Street NW East End N/ A 169,038 11/ 11

*Renewal
**Pre-lease

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