Margaret Donkerbrook Vice President, U.S. Research Dave Millard Principal

Transcription

1 Northern Virginia Market Forecast Margaret Donkerbrook Vice President, U.S. Research Dave Millard Principal

2 2014 Highlights

3 2014 Highlights Opening of Silver Line High End (Macerich/Lerner) Spec Development Reston Town Center 100% Leased Patriots Park and CNA Building Sales Corporate Executive Board Lease Multi-Family: New and Conversion from Office Marymount Redevelopment Crystal City Repositioning

4 Opening of Silver Line Phase One: $2.1 B, 11.7 miles Impact on Tysons and Reston Phase Two: Reaching to Dulles and Beyond Photo by Yue Wu The Washington Post

5 High End (Macerich/Lerner) Spec Development Macerich Intelsat Lerner

6 Reston Town Center 100% Leased Office: 14 Buildings and 3.1 MSF Notable: Apple, Bechtel, FireEye, Google, Leidos & Microsoft Retail: 430,000 SF Residential: 550 Units (2500) Above Market Rents Future Development: 4 MSF

7 Patriots Park and CNA Building Sales Patriots Park Reston Submarket CNA Building Clarendon Submarket 700,000 SF $ 321 M Sale Price $ 459 PSF 5.5 Cap Rate Seller: Boston Properties Purchaser: Hyundai 209,000 SF $ M Sale Price $ 714 PSF 5.6 Cap Rate Seller: Penzance Purchaser: KBS

8 Corporate Executive Board Pre-Lease 350,000 SF JBG Central Place in Rosslyn Delivers January Apartments (2017) 45,000 SF of Retail

9 Multi-Family Class A Apartment Absorption 11,237 Units (Metro Wide) 4,250 Units (Northern Virginia) Reposition Across Northern Virginia > 1 MSF Removed from Office Inventory New Tysons Corner 1,700 Units Under Construction Another 7,000 Units Approved Source: Delta, REIS, Costar, Avison Young

10 Multi-Family Conversion from Office 400 Army Navy Drive The Altaire Before After Lerner Year Built: ,445 SF Slab to Slab: 10 2 Column Spacing: 20 x20 LCOR 20-Story Multi-Family Residential Building 2 Towers 453 Residential Units

11 Conversion from Office 6245 Leesburg Pike Falls Church 99,000 SF Purchase Price $9.3 M Purchased by Fairfax County Public Schools New Bailey s Elementary School $10.6 M Renovation 700 Students

12 Marymount Redevelopment Before After Built ,000 SF Purchased by Marymount (1992) Academic Office Building 165,000 SF Residential: 267 Units Retail: 8,200 SF

13 Crystal City Repositioning Presidential Tower 1400 Crystal Drive 345,000 SF 12 Stories $16 M Renovation 308,000 SF 14 Stories $41 M Renovation

14 Crystal City Repositioning Crystal Tech Fund WeWork Design Lab TechShop

15 Market Overview

16 Economic Indicators D.C. Metro Employment D.C. Metro Unemployment Rate U.S. Unemployment Rate November M November % November % November M November % November % Washington Region vs. U.S. Unemployment 7.0% 5.6% 5.5% 5.0% 4.5% 3.6% Washington Area Employment (Numbers in Thousands) Nov.2014 Change from Nov.2013 to Nov.2014 Number Percent Total Nonfarm 3, Mining, Logging, and Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services Government Source: U.S. BLS, Current Employment Statistics

17 Employment Total Nonfarm Employment; YoY% Change U.S. and 12 Largest Metros November 2014 Percent Change Source: U.S. Bureau of Labor Statistics

18 Unemployment Rates The U.S. & 12 Largest Metros US DC San Fran Houston Dallas Miami Atlanta Boston New York LA Philadelphia Chicago Detroit Unemployment rates as of November each year Source: U.S. Bureau of Labor Statistics

19 Washington Metropolitan Office Market At Year-End 2014: 379 MSF 15% Vacant -1.9 MSF Net Absorption 6.8 MSF Under Construction 2013 Deliveries: 5 MSF 2014 Deliveries: 4 MSF 2015 Deliveries: 2 MSF

20 Washington Metropolitan Office Market Year-End 2014 Snapshot Northern Virginia Washington, D.C. Suburban Maryland Inventory MSF MSF 82.2 MSF Average Asking Rent $32.25 $51.08 $25.19 Overall Vacancy Rate 17.8% 9.8% 15.7% Sublet Vacancy Rate 1.0% 0.6% 0.8% Annual Absorption -1.2 MSF 0.08 MSF -0.7 MSF SF Delivered 1.8 MSF 1.1 MSF 0.9 MSF SF UC-UR at Year End 2.4 MSF 2.4 MSF 2.0 MSF Source: Avison Young

21 Metro Area Office Vacancy Comparison Vacant 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Washington, DC Suburban Maryland Northern Virginia Source: Avison Young

22 Northern Virginia Office Vacancy-Deliveries-Absorption-Rent 9 MSF 7 MSF 5 MSF 3 MSF 1 MSF -1 MSF -3 MSF 16% 12% 10% 7% 5% 4% 5% 4% 12% 16% 14% 11% 9% 9% 11% 13% 13% 13% 14% 16% 17% 18% FS Rent $35.00 $33.00 $31.00 $29.00 $27.00 $25.00 $23.00 $21.00 $19.00 $ MSF %Vacancy SF Delivered Net Absorption Rent $15.00 Source: Avison Young

23 Leasing Activity Leasing Activity 22 MSF 20 MSF 18 MSF 16 MSF 14 MSF 12 MSF 10 MSF 8 MSF 6 MSF 4 MSF 2 MSF 0 MSF Inventory 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Gross Leasing Activity, SF Inventory, % Source: Avison Young, Costar

24 Northern Virginia Market Segmentation Number of Buildings YE 2014 Inventory YE 2014 Vacancy (SF) YE 2014 Vacancy (%) 2014 Absorption Abs as % of Inventory Overall Market 1, MSF 29.2 MSF 17.8% -1.2 MSF -0.7% Class A MSF 20.0 MSF 18.0% -1.1 MSF -1.0% Built MSF 3.2 MSF 46.4% 1 MSF 15.7% Built MSF 7.0 MSF 12.0% -0.9 MSF -1.5% Source: Avison Young, Costar

25 Contiguous Blocks 100 K+ SF of Available Office Space Availability 4.5 MSF YE11 YE12 YE13 YE MSF 3.5 MSF MSF 2.5 MSF MSF MSF MSF 0.5 MSF 0.0 MSF Dulles Corridor Reston Herndon R28S Tysons Corner Merrifield Crystal City R-B Corridor Based on advertised blocks 100,000 square feet or greater in existing buildings or under construction, available within the next two years. Source: Avison Young, Costar

26 Baltimore Washington Industrial Vacancy Comparison Vacancy Rate 13% 12% 11% 10% 9% 8% 7% 6% Market Total Inventory Vacancy Northern Virginia 86 MSF 9.5% Washington Metro 183 MSF 9.5% Baltimore-Washington 385 MSF 8.8% Baltimore-Washington Washington Metro Northern Virginia Source: Avison Young

27 Northern Virginia Industrial Summary Historical Vacancy Rate Total Market Historical Net Absorption Total Market 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 3,000,000 1,500, ,500,000 YE09 YE10 YE11 YE12 YE13 YE14 YE2014 Market Indicators INVENTORY PIPELINE VACANCY ABSORPTION 86 MSF 700,000 SF 9.5% 2.1 MSF Source: Avison Young

28 Trends & Takeaways

29 Northern Virginia Data Centers Vacancy 9.3% Current Inventory 12 MSF What is a Data Center? It s all About Utilities, Connectivity and Taxes State and Local Government Approvals Our Competition What s on the Horizon?

30 Top Investment Sales by Price Northern Virginia 2014 Property Type / Market Seller Buyer Price ($Millions) Price PSF Cap Rate Patriots Park (3) 700,000 SF Office Reston Boston Properties Hyundai $321 $ Digital Realty Bldg D 132,280 SF Data Center Rt. 28 North Digital Realty Trust GC Essential Asset REIT $185.5 $1, Canal Center (4) 538,799 SF Office Old Town Tishman Speyer American RE Partners $176 $ Residences at Springfield Station 631 Units Multifamily Springfield JP Morgan Asset Management CBRE Global Investors $164.5 $260, Washington Blvd 209,000 SF Office Clarendon Penzance KBS $149.2 $ N. Courthouse 380,752 SF Office Courthouse Rockpoint Group AEW Capital Management $146 $ Sources: Avison Young, Real Capital Analytics, Inc., Costar; Reflects Sales of Office, Industrial and Multifamily Properties

31 Metro Area Sales Volume By Property Type $35 B $30 B $25 B $20 B $15 B $10 B $5 B $0 B Office Industrial Retail Multi-Family Source: Real Capital Analytics, Inc.

32 Northern Virginia Sales Volume By Property Type Office $1.8 B - 21% Multi-Family $1.3 B - 26% Multi-Family $5.1 B - 60% Industrial $0.7 B - 8% Retail $1.0 B - 11% Retail $0.7 B - 15% Office $2.5 B - 52% Industrial $0.3 B - 7% Total NOVA Volume: $8.5 Billion Total NOVA Volume: $4.8 Billion Source: Real Capital Analytics, Inc.

33 Northern Virginia Office Select Large Lease Transactions 2014 Tenant Address Submarket SF Lease Type US Department of Defense 200 Stovall Street Eisenhower Avenue Corridor 606,575 Renewal CEB 1201 Wilson Boulevard Rosslyn 350,000 Pre-Lease Northrop Grumman Federal Systems Park Drive Fairfax Center 309,757 Renewal Booz Allen Hamilton Inc Greensboro Drive Tysons Corner 222,989 Renewal ArlCo Department of Human Services Sequoia Plaza Arlington 217,448 Expansion Boeing 460 Herndon Parkway Herndon 168,154 Renewal Argon ST Fair Lakes Circle Fairfax Center 165,000 Renewal K2M Hope Parkway Leesburg / West Loudoun 145,819 Pre-Lease Financial Crimes Enforcement Network 2070 Chain Bridge Road Tysons Corner 124,990 Renewal US General Services Administration 1500 Westbranch Drive Tysons Corner 124,000 Renewal Boeing 2650 Park Tower Drive Merrifield 121,006 Renewal Parsons Government Services 5875 & 5885 Trinity Parkway Route 28 Corridor South 103,000 Renewal Marymount University 4040 North Fairfax Drive Ballston 87,000 Relocation Alarm.com 8281 Greensboro Drive Tysons Corner 85,000 Relocation

34 Notable Office Tenant Rightsizing Tenant Submarket New SF Old SF Net SF Change Intelsat Tysons Corner 211, ,000 (314,000) U.S. Fish and Wildlife Service Skyline 188, ,000 (82,000) FinCEN Tysons Corner 125, ,000 (37,000) AES Corporation Ballston 71, ,000 (43,000)

35 Government Contracting Environment Budget War or Truce? Growth: Cyber, ISR, UAS, Special Ops and Medical Impact of 2016 Election Downward Pressure on Bids Consolidation and Acquisition

36 GSA Future Leasing Activity GSA Lease Expirations Northern Virginia 3.0 MSF 2.5 MSF Approximately 62% of the NOVA GSA Real Estate Footprint (20 MSF) will Roll in the Next Five Years MSF MSF MSF MSF 0.0 MSF Source: GSA.gov, Avison Young

37 GSA Freeze the Footprint Prospectus Level Procurements Targeting Efficiency AAAP The Big Prize : FBI

38 FBI Procurement The Requirement Finalist sites: Landover, Greenbelt and Springfield Swap of the J. Edgar Hoover Building (D.C.) 2.1 MSF 11,000 Personnel New Headquarters to Include: Main Office Building A Visitors Center Parking Garage(s) Remote Delivery & Screening Facility Central Utility Plant

39 FBI Procurement The Schedule February 10, 2015: Initial Offers to RFP Phase I May 2015: Selection of Up to 5 Developers to Proceed to Phase II May 2015: Phase II RFP Issued May 2016: AWARD July 2016: GSA Land Options Expire December 2022: Final Occupancy

40 Millennials and the Built Environment Mobile Work Force Transit-Oriented and Amenity Rich Less Personal Space More Shared Space Collaborative or Crowded? Entertainment Convenience

41 Competing for Tenants Shared Building Amenities Rooftop Terrace Fitness Center Daycare Center Conference Facilities

42 Repositioning Challenges Location Proximity to Metro Façade Lobby Floorplate Size Ceiling Height Column Spacing Code Restrooms, Exiting, HVAC

43 What Worries YOU What will become of obsolete, suburban product that is not near Metrorail? Uncharacteristically high vacancies in Arlington County. Staying ahead of rapidly changing office space needs. Seeing a 15-20% square footage reduction in at least 1/3 of my renewals. Are we cannibalizing lease expirations in 2016, 2017 and beyond by doing early recasts of leases NOW? Where are the tenants coming from to fill the I-395 corridor? GSA tenants are having a harder time affording Metrorail locations. Where will the new jobs be coming from? Potential of rising interest rates.

44 Market Takeaways In Favor: Mixed Use Around Metro New Competition: Rosslyn to Reston Tenant Demand Drivers: Old and New Rightsizing is Not Over Most Valuable Real Estate is in Shell Condition New Construction and Repositioning Work is WHAT you do, not WHERE you do it

45 Sam Abramson Paul Adkins Jason Alexander Marty Almquist Brian Benninghoff Peter Berk David Birtwistle Anthony Chang Mike Cooper Jim Creedon Andy Czekaj Janet Davis Brian Fitzgerald Barry Gosnell Jill Goubeaux Elaine Gray Nick Gregorios Bill Hard Bert Harrell Lauryn Harris Peter Johnston Michael Jones Michael Klein Brian Kriz Peter Lunt Duncan Lyons Martha Marks Michelle Melvern Barbara McDuffie Doug McLearn Laurey Millspaugh Jessica Mistrik Mara Olguin David Orr Pete Otteni Ulyana Radisavljevic Tom Regnell Joe Ritchey Ray Ritchey Kara Schab Peter Scholz Brian Scull John Shooshan Benita Stocks Harmar Thompson Andrew Van Horn Rob Walters Larry Welsh Ed Zaptin Thank You! avisonyoung.com 2015 Avison Young Washington DC LLC. All rights reserved.

46 About Avison Young Avison Young at a Glance Founded: 1978 Total Real Estate Professionals: 1,700+ Offices: 63 Brokerage Professionals: 600+ Property Under Management: Approx. 70 MSF Avison Young is the world s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises more than 1,700 real estate professionals in 63 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

47 Avison Young Contact Information Margaret Donkerbrook Vice President, U.S. Research O D margaret.donkerbrook@avisonyoung.com Dave Millard Principal O D dave.millard@avisonyoung.com avisonyoung.com 2015 Avison Young Washington DC LLC. All rights reserved. The information contained herein was obtained from sources deemed reliable and is believed to be true; it has not been verified and as such, cannot be warranted nor form any part of any future contract.