MARKET SUMMARY SUBURBAN MARYLAND OFFICE Fourth Quarter 2016 Little Development Holds Vacancy Low Market Indicators Q4 2016 2017 (Projected) NET Suburban Maryland has struck a note of balance that both Northern Virginia and Washington, DC have not yet reached. Despite the continued struggle of attracting regional tenants to Maryland, restrained smart development focused in excellent locations has kept vacancy relatively stable. The NIH deals at 1 and 2 Rockledge Drive highlighted the end of the quarter and the year when they collectively signed for just under 500,000 square feet in the Rockville submarket. While highly unlikely that the NIH would look outside of Maryland, it is still important that Maryland as a whole retains the large tenants already in the area. With a fighting chance at getting the massive FBI consolidation at one of the two locations put up within the market, Maryland s near future looks the most optimistic in many years. This is the second consecutive quarter that a large private sector deal was signed. T-Rex Consulting Corporation leased 126,000 square feet at 7601 Ora Glen Drive in the Greenbelt submarket. Much like the 2U deal last quarter, T-Rex s lease will result in a significant expansion by nearly 80,000 square feet. Another positive sign, the Cystic Fibrosis Foundation also expanded in the market when they signed for 62,000 square feet at 4550 Montgomery Avenue in the Bethesda/Chevy Chase submarket. Economic Moody s economy.com is projecting that the Metropolitan DC economy will grow by 1.0 percent in 2016. This is up from 0.5 percent in 2015. Jobs will continue to grow and the unemployment rate will continue to decline with more people joining the labor force. Within the region, however, Suburban Maryland has lost nearly 1,500 jobs overall. Office employment decreased by even more, dropping just over 2,500 jobs over the last six months. With the exception of the professional and business services sectors, all office-using industries have shed jobs in Suburban Maryland. This group includes the growing information technology sector that added 1,470 new jobs. Summary Statistics Q4 2016 Office Market All Classes Class A Class B & C Vacancy Rate 16.4% 17.8% 15.2% Change From Q3 2016 (basis points) Absorption (Square Feet) New Construction (Square Feet) Under Construction (Million Square Feet) Asking Rents Per Square Foot Per Year -29-8 -47 353,028 35,141 317,887 103,550-103,550 0.07-0.07 Direct Asking Rates $26.44 $28.03 $24.56 Change From Q3 2016 -$0.02 -$0.28 $0.33 Direct Asking Rental Rates By Class $28.03/SF $24.83/SF RENTAL $21.79/SF Class A Class B Class C
Demand Net absorption in the fourth quarter registered 353,028 square feet, the highest in years. It also brought the year-to-date net absorption into the positive territory, something that both the Northern Virginia and Washington, DC markets cannot claim. Montgomery County and Prince George s County were almost identical in the positive absorption produce this quarter at 173,914 and 179,114 respectively. Within the Montgomery market, Bethesda unsurprisingly led the way with 106,365 square feet. For the year Bethesda registered more positive absorption than any other submarket in Maryland at 269,785 square feet. Prince George s County s net absorption was spread across several submarkets. Eight out of twelve submarkets had positive net absorption for the quarter with six having more than 15,000 square feet of positive net absorption. Just the Pennsylvania Avenue Corridor and College Park submarkets produced negative absorption of less than -10,000 square feet. Supply The Greencourt Innovation Center, located at 12358 Parklawn Drive, was the only building that delivered in the Suburban Maryland market in the fourth quarter of 2016. The 103,550 square foot office building, located in the Rockville submarket was one of the few building in the last several years that started construction on a speculative basis. Two more office buildings are scheduled to deliver in the first quarter of 2017. Both buildings are under 20,000 square feet in size and combined are roughly a third leased. Vacancy Rates Strong absorption in both counties pushed vacancy levels down by 28 basis points to end the quarter at 16.4 percent. This is the lowest vacancy the Suburban Maryland market has registered since the second quarter of 2014. The largest drop in vacancy occurred in Class B space which fell from 16.1 to 15.6 percent. Class A space dropped ten basis points to end the quarter at 17.8 percent. MGM GRAND CASINO & RESORT GREENCOURT INNOVATION CENTER SUBURBAN MARYL AND OFFICE MARKET SUMMARY FOURTH QUARTER 2016 COLLIERS INTERNATIONAL
Rental Rates As expected rental rates in Suburban Maryland remained largely unchanged, dropping by just two cents to end the quarter at $26.44 per square foot on a full service basis. The relative lack of new high quality space being added to the market continued to be a major factor for the stagnant asking rents in Suburban Maryland. Suburban Maryland, due to the lack of demand, has had very little redevelopment within its borders. Class A rents decreased this quarter to end at $28.03 per square foot, but they are still higher than then they were during the 1st quarter 2016 when they registered $27.91. Outlook Maryland, largely considered the worst off in terms of demand of the major markets in the region in the, has shown more stability than both Northern Virginia and the District. The cost of this stability is that much of the product in Maryland is not being updated and is having a tougher time competing for regional tenants. Certain submarkets in the Suburban Maryland are expected to continue to succeed, namely Bethesda and parts of Rockville. With the opening of MGM Casino at National Harbor, parts of Prince George s County will likely benefit, bringing excitement and needed retail to Prince George s County having long reaching implications on the success of this county and the region as a whole. Suburban Maryland Office Market All Classes Q4 2016 MARKET MONTGOMERY COUNTY EXISTING INVENTORY NEW SUPPLY YTD NEW SUPPLY UNDER YTD OVERALL DIRECT ASKING Bethesda 11,703,972 - - - 106,365 269,785 9.3% $38.26 Gaithersburg 6,632,266 - - - 12,114-502,845 12.7% $23.33 Germantown 3,133,097 - - - 36,211 63,531 16.1% $24.09 I-270 North 631,849 - - - - -1,034 85.4% n/a Kensington 1,622,017 - - - 2,108-50,062 25.3% $25.13 North Bethesda 11,090,918 - - - -447 242,625 19.4% $29.36 North Rockville 13,316,637 - - - 104,821-100,433 17.9% $26.33 North Silver Spring 3,245,350 - - 16,806 6,164 88,134 9.2% $24.54 Outlying Montgomery County East 494,789 - - - -12,503-6,962 9.0% $25.03 Outlying Montgomery County West 792,338 - - 16,194-23,698-18,913 5.4% $24.00 Rockville 10,050,552 103,550 237,719 - -28,473 57,789 14.1% $30.46 Silver Spring 6,943,981 - - - -28,748-16,289 10.9% $29.18 MONTGOMERY COUNTY TOTAL 69,700,766 103,550 237,719 33,000 173,914 29,516 15.0% $28.88 PRINCE GEORGES COUNTY Beltsville 1,685,177 - - - 68,695 53,506 30.7% $20.76 Bowie 1,881,023 - - - 21,721 53,283 12.6% $12.19 Branch Avenue Corridor 1,930,340 - - - 12,622-140,305 15.8% $21.33 College Park 4,516,345 - - - -11,481-41,033 16.6% $21.77 Greenbelt 3,636,484 - - - -3,634-33,134 32.2% $21.14 Landover/Largo 3,218,278 - - 34,089 47,973 149,202 17.4% $22.01 Lanham 2,062,822 - - - 2,750 63,056 34.4% $21.56 Laurel 2,665,963 - - - 22,198-26,217 12.4% $20.30 National Harbor 1,183,378 - - - 15,884 34,258 6.7% $29.45 Outlying PGCounty South 67,325-67,325-13,500 18,892 71.9% n/a Pennsylvania Avenue Corridor 584,684 - - - -10,648-19,471 10.7% $22.21 Upper Marlboro 196,690 - - - -466 502 1.3% n/a PRINCE GEORGES COUNTY TOTAL 23,585,509-67,325 34,089 179,114 108,349 20.6% $21.37 SUBURBAN MARYLAND TOTAL 93,286,275 103,550 305,044 67,089 353,028 137,865 16.4% $26.44 SUBURBAN MARYLAND OFFICE MARKET SUMMARY FOURTH QUARTER 2016 COLLIERS INTERNATIONAL
Suburban Maryland Office Market Class A Q4 2016 MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW SUPPLY UNDER YTD OVERALL DIRECT ASKING MONTGOMERY COUNTY Bethesda 5,672,661 - - - 82,114 224,815 8.0% $40.80 Gaithersburg 2,382,240 - - - 13,933 9,983 14.0% $23.99 Germantown 1,314,468 - - - 17,080 20,702 20.1% $25.38 I-270 North - - - - - - n/a n/a Kensington 165,000 - - - -827 47 17.6% $29.26 North Bethesda 7,186,872 - - - -14,677 236,559 22.5% $29.88 North Rockville 8,017,067 - - - 6,952-184,871 18.5% $28.28 North Silver Spring 1,399,928 - - - - 5,645 1.2% $21.00 Outlying Montgomery County East - - - - - - n/a n/a Outlying Montgomery County West 719,082 - - - -36,698-36,698 5.1% n/a Rockville 4,542,614-134,169 - -20,407-63,743 19.8% $32.18 Silver Spring 4,193,011 - - - -40,474-19,963 11.9% $30.77 MONTGOMERY COUNTY TOTAL 35,592,943-134,169-6,996 192,476 15.8% $30.06 PRINCE GEORGE S COUNTY Beltsville 767,760 - - - 13,859 2,154 47.5% $21.20 Bowie 688,392 - - - 17,036 46,112 19.1% n/a Branch Avenue Corridor - - - - - - n/a n/a College Park 1,847,977 - - - -5,779-80,230 6.0% $26.00 Greenbelt 2,166,286 - - - -1,029-17,820 35.5% $22.38 Landover/Largo 957,735 - - - -4,621 1,204 23.8% $23.69 Lanham 557,000 - - - - - 73.3% $23.00 Laurel 840,547 - - - 5,395-44,279 16.3% $19.25 National Harbor 460,752 - - - 3,284 16,383 0.0% n/a Outlying PGCounty South - - - - - - n/a n/a Pennsylvania Avenue Corridor 232,189 - - - - - 0.0% n/a Upper Marlboro 54,000 - - - - - 0.0% n/a PRINCE GEORGE'S COUNTY TOTAL 8,572,638 - - - 28,145-76,476 26.0% $22.24 SUBURBAN MARYLAND TOTAL 44,165,581-134,169-35,141 116,000 17.8% $28.03 Q4 RENTAL S $28.03 CLASS A $24.56 CLASS B&C CLASS A CLASS B&C CURRENT TOTAL OFFICE INVENTORY 16.4% 93.3M SF 44.2M SF 44.2M SF 49.1M 49.1M SF SF TOTAL INVENTORY BY CLASS CLASS A: 47.3% CLASS B & C: 52.7% 353,028 NET SUBURBAN MARYLAND OFFICE MARKET SUMMARY FOURTH QUARTER 2016 COLLIERS INTERNATIONAL
Suburban Maryland Office Market Class B & C Q4 2016 MARKET MONTGOMERY COUNTY EXISTING INVENTORY NEW SUPPLY Demand / Supply Fundamentals Net Absorption, Change in Supply, Vacancy YTD NEW SUPPLY UNDER YTD OVERALL DIRECT ASKING Bethesda 6,031,311 - - - 24,251 44,970 10.5% $37.09 Gaithersburg 4,250,026 - - - -1,819-512,828 12.0% $22.66 Germantown 1,818,629 - - - 19,131 42,829 13.2% $21.76 I-270 North 631,849 - - - - -1,034 85.4% n/a Kensington 1,457,017 - - - 2,935-50,109 26.2% $24.10 North Bethesda 3,904,046 - - - 14,230 6,066 13.6% $28.45 North Rockville 5,299,570 - - - 97,869 84,438 17.1% $22.86 North Silver Spring 1,845,422 - - 16,806 6,164 82,489 15.3% $24.85 Outlying Montgomery County East 494,789 - - - -12,503-6,962 9.0% $25.03 Outlying Montgomery County West 73,256 - - 16,194 13,000 17,785 8.0% $24.00 Rockville 5,507,938 103,550 103,550 - -8,066 121,532 9.4% $24.42 Silver Spring 2,750,970 - - - 11,726 3,674 9.5% $24.58 MONTGOMERY COUNTY TOTAL 34,107,823 103,550 103,550 33,000 166,918-162,960 14.2% $27.16 PRINCE GEORGE S COUNTY Beltsville 917,417 - - - 54,836 51,352 16.7% $19.72 Bowie 1,192,631 - - - 4,685 7,171 8.8% $12.19 Branch Avenue Corridor 1,930,340 - - - 12,622-140,305 15.8% $21.33 College Park 2,668,368 - - - -5,702 39,197 23.9% $21.46 Greenbelt 1,470,198 - - - -2,605-15,314 27.5% $18.61 Landover/Largo 2,260,543 - - 34,089 52,594 147,998 14.8% $21.88 Lanham 1,505,822 - - - 2,750 63,056 20.0% $20.79 Laurel 1,825,416 - - - 16,803 18,062 10.6% $20.90 National Harbor 722,626 - - - 12,600 17,875 11.0% $29.45 Outlying PGCounty South 67,325-67,325-13,500 18,892 71.9% n/a Pennsylvania Avenue Corridor 352,495 - - - -10,648-19,471 17.8% $22.21 Upper Marlboro 142,690 - - - -466 502 1.8% n/a PRINCE GEORGE'S COUNTY TOTAL 15,012,871-67,325 34,089 150,969 184,825 17.5% $20.72 SUBURBAN MARYLAND TOTAL 49,120,694 103,550 170,875 67,089 317,887 21,865 15.2% $24.56 2.0 18% Net Absorption Net Absorption (Millions SF) 1.5 1.0 0.5 0.0-0.5 16% 14% 12% 10% 8% 6% 4% Vacancy (%) Supply Changes Overall Vacancy Rate -1.0 2% -1.5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0% SUBURBAN MARYLAND OFFICE MARKET SUMMARY FOURTH QUARTER 2016 COLLIERS INTERNATIONAL
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