Year End. Industrial Report. Northern Virginia

Year End Industrial Report Northern Virginia

Market Overview Industrial / Flex Market Overview Northern Viginia s flex and industrial market consists of three major markets: the Dulles Corridor, I-95 Corridor, and Prince William County. Collectively the markets saw strong fundamentals in with over 1,000,000 square feet of industrial net absorption and over 956,000 SF of flex net absorption. This was fueled by an improving economy coupled with the strength of the local consumer, the housing market rebound and the businesses that support it, and exploding data center demand. It was further supported by the lack of speculative development as developers remained disciplined during the market recovery. One noticeably missing driver, however, has been the Government and the contractors that support it. This historically robust section of the market has consolidated and contracted significantly having a disproportionate effect on the flex market and the I-95 corridors flex & industrial submarkets. We saw some signs of life in this driver during the 3rd and 4th quarter and remain hopeful that in carries forward into 2015. While overall fundamentals are strong, Northern Virginia s industrial market continues to show stark contrasts between the Dulles Corridor and Prince William County s strength and the I-95 Corridor s extended weakness. This contrast is highlighted by the Dulles Corridor and Prince William County s vacancy rates in the low 5% range, whereas the I-95 Corridor ends the year at 12.6%, a slight increase over 2013 numbers. This divergence is attributed to a number of factors. While the I-95 Corridor offers close proximity to DC and the surrounding submarkets, its product base is dated with many functionally obsolete buildings for today s bulk industrial tenants. Few buildings have the clear height, parking, and loading allowing for 53 tractor trailer deliveries and maneuverability. This has led to a migration of a number of large users further south or in most cases west to the Dulles Corridor where we find new institutional grade product. There are more blocks of 25,000 SF or larger available in the I-95 Corridor than has been in over 10 years. Further contributing is the lack of any data center market in the I-95 Corridor. Over 70% of the world s internet traffic goes through Ashburn, VA in the Dulles Corridor and tenants have staked claim on land and vacant buildings at an enormous pace. By way of example, Prologis developed three new buildings of 78,815, 115,627, and 135,464 SF all preleased by a data center customer while Digital Realty and Equinox and COPT are developing over 2 Million SF of Data Center. Although Ashburn is the internet hub of the region, Prince William County has a significant data center market as well concentrated in the Rt. 29/I-66 Submarket. This catalyst has helped support both their flex and industrial absorption. Lastly, the I-95 Corridor s flex and industrial market has historically been significantly buoyed by the Government and its supporting contractors. The continued contraction of this segment has taken a major driver of velocity out of the market. While the flex market has been more impacted

Market Overview by this divergence, the industrial market has also been impacted. We are hopeful that this trend will reverse although federal spending in Virginia is anticipated to decrease yet again in 2015. With the strong fundamentals in the Dulles Corridor, we have seen the comeback of speculative construction. It is anticipated that NorthWoods will break ground on their next phase in the 2nd Q 2015 for a 4th Q 2015 delivery. In addition, The Maven Group has broken ground on 45448 Severn Way, a 68,520 SF standalone flex/warehouse building in Sterling and Merritt Properties has done the same at 20700 Loudoun County Parkway, a 72,900 SF Flex building in Ashburn. Both properties are due to deliver late 2nd or early 3rd Q. Lastly, Duke Realty will break ground on TransDulles 16 45951 Yeager Ct in the 2nd Q. It is a 93,573 SF bulk building with 28 clear height. These deliveries will be a true test to the strength of the market going forward. Market Forecast With the new speculative construction hitting the market we anticipate an uptick in the Dulles vacancy rates, however, landlords should still be in a favorable position to push rental rates. Data Center activity will remain robust primarily in the Dulles Corridor but secondarily in the Rt. 29/I-66 Corridor of Prince William County. We also expect to see an uptick in local 3PL and Logistics of retailers positioning their last leg of the supply chain closer to their end users. The I-95 Corridor industrial will continue to lag the other markets forcing landlords to get aggressive especially for properties in inferior locations with functional deficiencies. The flex market will remain challenged both in the Dulles South and I-95 Corridor s with continued weakness in GSA and government contractor leasing. In addition, this product type sometimes competes with a severely depressed office market only adding to the challenges facing the product type. NAI Global has a network of over 6,700 professionals worldwide and over 380 million square feet of property managed.

Industrial / Flex Submarket Map 15 7 7 267 ROUTE R 28 8 DULLES D U S NORTH N R H INTERNATIONAL NATIONAL AIRPORT A R RT DULLES D E S 50 15 ROUTE R T E 28 2 8 SOUTH S O 28 123 REAGAN R A NATIONAL T NAL AIRPORT R R 66 7100 495 PRINCE WILLIAM W M COUNTY C N i-95 CORRIDOR R 123 95 1

Industrial Market Statistics Industrial Market Statistics MARKET END OF YEAR 2013 # OF BUILDINGS RBA TOTAL VACANT (SF) TOTAL VACANCY RATE % NET ABSORPTION RENTAL RATE PSF (AVERAGE) CONSTRUCTION COMPLETIONS (SF) Merrifield 52 1,763,767 100,644 5.8% 34,171 $13.36 0 I-95 CORRIDOR 447 17,665,333 2,220,245 12.6% (2,031) $9.16 3,108 Eisenhower Ave Corridor 38 899,617 20,951 2.4% (15,151) $10.85 0 I-395 Corridor 92 3,023,861 230,770 7.6% 142,138 $9.87 0 Newington 217 7,032,210 872,770 12.6% (40,752) $9.45 3,108 Springfield 100 6,709,645 1,095,754 16.3% (88,266) $8.32 0 PRINCE WILLIAM COUNTY 462 14,424,193 736,309 5.1% 287,962 $8.16 0 Manassas 170 4,356,419 159,943 3.7% (35,165) $9.28 0 Route 29 / I-66 Corridor 190 7,191,832 292,858 4.1% 401,308 $7.77 0 102 2,875,942 283,508 9.9% (78,181) $7.45 0 DULLES CORRIDOR 346 18,175,547 1,014,996 5.6% 762,777 $8.54 255,027 Route 28 / Dulles Corridor North 270 13,599,532 709,694 5.2% 607,690 $8.75 255,027 Route 28 / Dulles Corridor South 76 4,576,015 305,302 6.7% 155,087 $7.93 0 800,000 Industrial Market Historical Net Absorption (SF) 600,000 400,000 200,000 2013 0 Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South 2012 2011 2010 (200,000) (400,000) (600,000) 25.0% (800,000) Industrial Market Historical Vacancy Rate (%) 20.0% 15.0% 10.0% 2013 2012 2011 2010 5.0% 0.0% Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South

Industrial Submarket Statistics Industrial Submarket Statistics Industrial Submarket Net Absorption (SF) 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 (100,000) Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South Industrial Submarket Vacancy Rate (%) 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South

Flex Market Statistics Flex Market Statistics MARKET END OF YEAR 2013 # OF BUILDINGS RBA TOTAL VACANT (SF) TOTAL VACANCY RATE % NET ABSORPTION RENTAL RATE PSF (AVERAGE) CONSTRUCTION COMPLETIONS (SF) Merrifield 31 842,174 66,727 8.4% 4,345 $18.72 0 I-95 CORRIDOR 186 8,473,409 942,919 11.1% 114,662 $15.02 0 Eisenhower Ave Corridor 17 220,171 14,811 6.7% (5,084) $23.30 0 I-395 Corridor 29 833,032 92,660 11.1% 26,065 $14.05 0 Newington 86 4,788,733 552,423 11.5% 111,054 $15.15 0 Springfield 54 2,631,473 283,025 10.8% (17,373) $14.39 0 PRINCE WILLIAM COUNTY 201 7,005,487 657,336 9.4% 411,893 $10.97 257,718 Manassas 72 2,122,840 94,256 4.4% 47,648 $10.42 4,800 Route 29 / I-66 Corridor 90 3,622,076 333,023 9.2% 186,721 $10.58 129,850 39 1,260,571 230,057 18.3% 177,524 $13.00 123,068 DULLES CORRIDOR 302 18,573,966 2,401,305 12.9% 431,274 $12.10 378,000 Route 28 / Dulles Corridor North 177 11,703,905 1,401,095 12.0% 378,724 $12.17 378,000 Route 28 / Dulles Corridor South 125 6,870,061 1,000,210 14.6% 52,550 $11.98 0 1,000,000 Flex Market Historical Net Absorption (SF) 800,000 600,000 400,000 200,000 2013 2012 2011 2010 0 Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South (200,000) (400,000) 35.0% Flex Market Historical Vacancy Rate (%) 30.0% 25.0% 20.0% 2013 2012 15.0% 2011 2010 10.0% 5.0% 0.0% Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South

Flex Submarket Statistics Flex Submarket Statistics Flex Submarket Net Absorption (SF) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 (50,000) Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South Flex Submarket Vacancy Rate (%) 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Merrifield Eisenhower Ave I- 395 Corridor Newington Springfield Manassas Route 29 / I- 66 Corridor Corridor North Corridor South

NAI KLNB Completed Transactions Deutsche Asset & Wealth Mngmt KLNB Represented Tenant & Cardinal Bakery ViON Corporation 22704: 36,122 SF Eastern Motors 22705: 77,488 SF Simplex Grinnell 22712: 23,787 SF Airport Commerce Center 22713 Commerce Ctr Ct Dulles, VA 5617 Industrial Dr Springfield, VA Four Separate Transactions: 22704: 42,766 SF Tenant Mr. Floor Tenant AT&T Prologis Curtis Investments 64,578 SF 22,600 SF KLNB Represented Tenant 8308 Cinder Bed Rd Newington, VA DynCorp KLNB Represented Tenant Habitat for Humanity PS Business Parks CIII Realty Services 30,560 SF Gunston Industrial Park 7001 Newington Rd Newington, VA KLNB Represented 25,466 SF Walney Business Center KLNB Represented 4311 Walney Rd Chantilly, VA N Buyer RagingWire Data Centers Tenant Undisclosed Data Center BUILDING A BUILDING B (LEASED) BREWERS SPRING ROAD BUILDING C (LEASED) Raging Wire 44664 Guilford Dr Ashburn, VA 72 Acres KLNB Buyer Represented G BUILDING F 33,350 SF BUILDING G BUILDING (LEASED) Previos Owner Loudoun County BUILDING D (UNDER CONTRACT) FRP Development 129,580 SF Patriot Data Center KLNB 11800 Brewers Spring Rd Represented Manassas, VA

Corporate Services Our approach is consultative, partnering alongside and with you as one team. Starting with an advisory & planning process, we are able to align your business goals with your real estate needs for transaction management, project management or portfolio management. Our clients receive dedicated team services with single-pointof-contact accountability so that their needs are thoroughly assessed and understood, and strategic plans are well developed and executed. Advisory & Planning We start by listening more than we talk, and then proceed to develop the best plan of action for your circumstances. Our GCS advisory & planning process provides a wider scope of vision for your overall strategy and can produce a more comprehensive plan of action. Our strategic consultation method presents valuable options aligned with your goals which fosters your potential to be a more effective and successful business producer within your own core competency. Transaction Management As globalization drives crossborder activity, our established system helps our clients follow their market regionally or internationally with seamless worldwide service. NAI Global offers a transaction management matrix that gives clients access to some of the most successful, independent property consultants in the world. The end result is global capability with highly reputable local expertise in more markets - large and small. Project Management Our technology platform enables us to create private and secure intranets for our clients, electronically uniting an entire team into an online integrated inventory and project management system. In assembling all the parts of a project, be it construction management, green initiatives, planned maintenance, a relocation or capital improvement, we generate systematic processes which improve cycle time and reduce errors. With this system, we have the benefit of providing tested relationships with toptier experts and vendors who deliver the best product for each project. Portfolio Management Our team has expertise in executing optimum portfolio management services including property & facilities management, building consultancy and workspace planning & design. We deliver cost savings through attention to tenant retention, seamless lease administration, energy efficiency audits, project bidding and by taking advantage of the extensive amount of property we manage globally.

Logistics & Industrial Services Our reputation is built on our ability to deliver solid solutions for companies locally, nationally and globally. Whether the need is 3,000 or 3,000,000 square feet, we provide the same level of attention. We fully understand the many moving parts of any transaction, from the sprinklers & lighting to the trailer positioning & parking. We focus on the details of your industrial transaction so you can focus on your core business. We create value for our clients through the employment of unparalleled market knowledge, financial analysis and proven negotiating skills. We have extensive experience working with municipalities, economic development agencies, LEED certification, architectural and construction trades, material handling vendors, due diligence consultants and financial institutions. Logistics Solutions Our logistics team provides real estate and supply solutions to distribution and warehouse companies whose distribution and cross-dock facilities are critical to their success. Our team concentrates on the global supply chain, transportation capacity, and energy concerns, which enables us to position your real estate as a competitive advantage. Acquisition & Disposition Services We bring experience from all sectors of business to our owners and our knowledge of various points of view gives you an advantage starting with site selection and acquisition. And when your project is prime for disposition, we ensure a process of sophisticated financial modeling, underwriting, commercial judgment and negotiating skills to produce maximum results. Project Leasing Our leasing philosophy is to address every assignment as though we were the owner and to view those assignments from a focused, strategic angle. Our goal is not just to fill the vacant space in a property, but rather to increase the value of the asset by assessing the owner s needs and objectives and satisfying those goals. Tenant Representation Depending on your real estate size requirements, we scale our services to fit your needs. Our unique consultative process offers security and direction from local experts on the ground. We navigate the details of relocation, competitive properties, market data, rate negotiation and TI options. And we are equipped to help our clients locally or handle larger issues such as legal and local codes compliance as you expand across state or international lines. Management Services To maximize an asset s value for the property s owner, our property management professionals work in tandem with our industrial brokers. We provide a complete range of management services from transition to day-to-day operations to disposition.

The world s largest commercial real estate network. 55 countries. 400 local offices. 5,000 local market leaders. All actively managed to work wherever you do. 8027 Leesburg Pike, Suite 300 Vienna, VA 22182 Tel 703 288 4000 Fax 703 288 2999 www.naiklnb.com