OFFICE MARKET. Another Strong Quarter in Northern Virginia Strong demand coupled with rising rental rates. 28,200 jobs 12-months ending July 2018

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1 Q NORTHERN VIRGINIA OFFICE MARKET Another Strong Quarter in Strong demand coupled with rising rental rates OVERVIEW Vacancy Remains Unchanged as Rents Inch Higher Employment increased by 28,200 jobs in the during the 12 months ending July 2018, which is above the 5-year average of 18,300 jobs. The professional/business services sector led the way, adding 9,600 new jobs, of which the majority in this sector are office-using jobs. Following were the construction and education/health sectors with 6,000 and 3,300 new jobs, respectively. The office market had another healthy quarter. Net absorption totaled 1.3 million SF, and the direct vacancy rate remained at 15.3% at September The demand was attributable to several large leases and pre-leased deliveries. Asking rents expanded during the quarter as well, increasing to $31.95 PSF, up 0.2% from last quarter. At September 2018, the development pipeline measures 1.8 million SF, 37% of which is pre-leased. TRENDLINES 5-YEAR TREND JOB GROWTH Job Growth CURRENT QUARTER 28,200 jobs 12-months ending July msf Pre-leased deliveries drive absorption in Q3 DEMAND Demand Strong in Q3 Net absorption totaled just over 1.3 million SF in during the third quarter of Class A product registered exactly 1.3 million SF during the quarter, with B/C properties accounting for the balance. Net absorption was driven by pre-leased deliveries and leasing activity. Capital One Financial Corporation delivered their headquarters building in Tysons Corner. The 975,000 SF building was 100% pre-leased by the owner/occupier, Capital One. On the leasing side, Tysons Corner also captured most of the demand, with The Air Line Pilots Association leasing 103,700 SF at 7950 Jones Branch Drive. Other sizable leases include WeWork signing for 65,000 SF at 1201 Wilson Boulevard and Cerner signing for 38,100 SF at 1812 N. Moore Street in the RCB Corridor, UnitedHealth Group signing for 51,300 SF at 3160 Fairview Park in Merrifield, and Microsoft taking 45,300 SF at Sunset Hills Road in Reston. Herndon had the lowest levels of net absorption with negative 392,000 SF. This is in large part due to Time Warner vacating 211,800 SF at Sunrise Valley Drive and 140,100 SF at 2551 Dulles View Drive after being acquired by AT&T. Other sizable move-outs include Bechtel vacating 65,600 SF at Plaza America Drive in the Reston submarket and Accenture vacating 40,000 SF at Research Drive in the Loudoun submarket. The technology sector accounted for approximately 28% of new and re-let leasing activity in 2018 year to date, followed closely by government at 17%. Segmenting the substate by submarket, Tysons Corner and Crystal/Pentagon City had the greatest volume of leasing activity 2018 year to date, both at 19%, followed by the RCB Corridor at 17%. At 2 million SF, year-to-date net absorption has nearly surpassed 2017 total absorption of 2.2 million SF. This is significantly higher than the 5-year average of 622,600 SF. UNDER CONSTRUCTION RENTAL RATE 15.3 % Vacancy rate stable 1.8 msf Pipeline is 37% preleased $31.95 psf Rental rates edging up

2 Q NORTHERN VIRGINIA OFFICE MARKET Vacancy Stable in Q3 Contigous Block Analysis The office direct vacancy rate stayed unchanged at 15.3% during the third quarter at September NUMBER OF BUILDINGS - Q NUMBER OF BUILDINGS - Q The direct vacancy rate for Class A office product was 12.6% at September 2018, stable from last quarter. For Class B/C properties the vacancy rate also remained at 16.9% at September SUPPLY AND DEVELOPMENT Four Deliveries in Q3 with More on the Way There were four deliveries in during the third quarter of The two major deliveries were both 100% pre-leased deliveries at Capital One Drive in Tysons Corner and 3443 Historic Sully Way in the Rt. 28 South/Chantilly Submarket. Capital One leased all 975,000 SF at Capital One Drive, while an undisclosed GSA tenant took all 480,000 SF at 3443 Historic Sully Way. There is approximately 1.8 million SF of office space under construction at September 2018, of which 37% is pre-leased. Tysons Corner has the greatest volume of development activity at September 2018 with over 581,500 SF under construction. Approximately 28% of the Tysons Corner pipeline is pre-leased. Loudoun County has the second-most development in with 295,000 SF under construction Office Under Construction Q SUBMARKET ,000 SF 20,000 SF 50,000 SF 100,000 SF SQUARE FEET % PRE-LEASED RCB Corridor 240,000 51% Crystal/Pentagon City 100, % Old Town 58,460 3% Eisenhower Ave Corridor 30,000 0% Reston 186,457 6% RENTAL RATES Gradual Growth for all Classes of Space Average asking rents edged up 0.2% to $31.95 PSF during the third quarter of 2018, expanding from $31.90 PSF last quarter. Class B/C properties grew to $29.07 PSF from $28.82 PSF last quarter. Class A rates grew slightly from $35.23 PSF to $35.40 PSF. Tysons Corner 581,775 28% Rt. 28 South/Chantilly 240, % Loudoun County 295,000 3% Prince William County 87,294 27% Total 1,818,986 37% Concession packages are elevated. For a typical 10-year or greater term for a new lease signed since the start of 2018, tenant improvement allowances averaged around $85 PSF with 12.9 months of free rent. This compares to $80 PSF and 14 months during Average Office Rents $36 Class A Overall Class B/C $34 $32 $30 $28 $26 $ Q Q NORTHERN VIRGINIA OFFICE MARKET 2

3 Q NORTHERN VIRGINIA OFFICE MARKET INVESTMENT SALES Class B/C Accounts for Majority of Sales investment sales activity totaled $1.8 billion, or $252 PSF, across 55 transactions in 2018 year to date. Continuing a trend from 2017, Class B/C office properties accounted for most of the sales. The most notable sale so far this year was 1300 N. 17th Street selling for $250 million, or $629 PSF. WRIT acquired the RCB Corridor asset from Tishman Speyer during the first quarter. The largest transaction in the third quarter was the sale of the Campus at Sunrise (11130/11180/11190 Sunrise Valley Drive) in Reston. Bridge Investment Group acquired the property from Grosvenor Americas, LTD for $54,000,000, or $213 PSF. Tysons Corner and the RCB Corridor attracted the greatest investor interest in 2018 so far out of all the submarkets, each accounting for 22% of transactions year to date. Average Office Sales PSF $300 $250 $200 $150 $100 $50 $ YTD 2018 SOURCE: CoStar, Tranwestern Notable Q3 Lease Transactions TENANT DEAL TYPE ADDRESS SUBMARKET SQUARE FEET U.S. Drug Enforcement Administration Renewal Army Navy Drive Crystal/Pentagon City 511,500 Air Line Pilots Association New Lease 7950 Jones Branch Drive Tysons Corner 103,700 WeWork New Lease 1201 Wilson Boulevard RCB Corridor 65,000 UnitedHealth Group New Lease 3160 Fairview Park Merrifield 51,300 Microsoft Corporation New Lease Sunset Hills Road Reston 45,300 Cerner New Lease 1812 N Moore Street RCB Corridor 38,100 Deloitte New Lease 1919 N Lynn Street RCB Corridor 29,800 SOURCE: CoStar, County Newsletters, Washington Business Jounral, Washington Post, Transwestern OUTLOOK Gradual Recovery to Continue We anticipate business and employment counts will continue to grow. Through 2022, we project average annual job growth of 22,300, representing half of new positions created throughout the Washington metro area. Most of this growth will occur during 2018 and We expect the health care/social assistance, professional/scientific/technical, and accommodation/food service sectors to fuel job growth in the period ahead. We expect leasing activity will progress at a steady pace during the balance of Although we expect tenant trends towards efficiency through densification and consolidation to continue, it should occur at a lesser rate than in the recent past. New office product coming online in competitive submarkets, such as Tysons Corner and the RCB Corridor, will command top-of-market asking rents. However, older buildings in less competitive submarkets will continue to see stubbornly high vacancy rates, dampening the rates for the substate overall. Landlords will likely continue to use robust concessions packages as a means of recruiting and retaining tenants, making this economic cycle s recovery more measured than those experienced historically. The region, particularly, is awaiting Amazon s HQ2 location announcement by the end of the year. If awarded to Northern Virginia, it will be a game changer for this substate and the region as a whole. We project the overall vacancy rate (inclusive of sublease space) to edge down slightly through year-end 2019, hovering around the mid-15%, compared to today s overall vacancy rate of 16.1%. We expect asking rents will edge up 2% to 3% during Q NORTHERN VIRGINIA OFFICE MARKET 3

4 Q NORTHERN VIRGINIA OFFICE MARKET Office Market Indicators PROPERTY CLASS INVENTORY SF OVERALL UNDER CONSTRUCTION Q YTD 2018 AVERAGE RATE PSF Class A 71,918,780 9,091, % 13.5% 1,788,692 1,288,000 2,112,000 $35.40 Class B/C 123,744,206 20,874, % 17.6% 30,294 64,000 (45,000) $29.07 Total 195,662,986 29,966, % 16.1% 1,818,986 1,354,000 2,070,000 $31.95 Office Market Indicators - All Space SUBMARKET INVENTORY SF OVERALL UNDER CONSTRUCTION Q YTD 2018 AVERAGE RATE PSF RCB Corridor 24,879,474 4,602, % 20.3% 240, , ,000 $43.98 Crystal City/Pentagon City 14,098,585 2,157, % 15.5% 100,000 (42,000) 254,000 $35.79 Old Town 8,389, , % 10.0% 58,460 (8,000) (8,000) $33.05 Eisenhower Ave Corridor 9,057,501 1,440, % 16.1% 30,000 45,000 (34,000) $32.67 Springfield/Huntington/I-95 8,030,384 1,606, % 20.2% 0 8,000 (40,000) $28.35 Bailey's/Falls Church/Annandale 7,382,823 2,207, % 30.1% 0 (7,000) (126,000) $29.47 Merrifield 9,247,243 1,202, % 13.7% 0 46,000 (92,000) $30.17 Reston 19,096,487 2,081, % 11.6% 186,457 (76,000) (119,000) $30.78 Herndon 12,253,982 2,230, % 19.6% 0 (392,000) (233,000) $29.48 Tysons Corner 30,188,079 3,864, % 13.5% 581,775 1,025,000 1,242,000 $34.82 McLean/Vienna 2,436, , % 10.3% 0 15,000 12,000 $34.57 Oakton/Fairfax City 5,840, , % 15.0% 0 (6,000) (29,000) $24.85 Fairfax Center 7,548,110 1,645, % 23.0% 0 15, ,000 $25.31 Rt. 28 South/Chantilly 14,367,593 2,083, % 15.8% 240, , ,000 $26.66 Loudoun County 16,287,417 2,052, % 13.1% 295, , ,000 $24.61 Prince William County 6,559, , % 13.8% 87,294 (58,000) (19,000) $23.15 Total 195,662,986 29,966, % 16.1% 1,818,986 1,354,000 2,070,000 $31.95 CONTACT Elizabeth Norton Managing Research Director Mid-Atlantic elizabeth.norton@transwestern.com Jack Blaine Research Associate Mid-Atlantic jack.blaine@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office properties located in the Washington metro area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Transwestern is a privately held real estate firm of collaborative entrepreneurs who deliver a higher level of personalized service the Transwestern Experience. Specializing in Agency Leasing, Tenant Advisory, Capital Markets, Asset Services and Research, our fully integrated global enterprise adds value for investors, owners and occupiers of all commercial property types. We leverage market insights and operational expertise from members of the Transwestern family of companies specializing in development, real estate investment management and research. Based in Houston, Transwestern has 35 U.S. offices and assists clients through more than 211 offices in 36 countries as part of a strategic alliance with BNP Paribas Real Estate. Experience Extraordinary at transwestern.com Copyright 2018 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein. Q NORTHERN VIRGINIA OFFICE MARKET 4

5 Q NORTHERN VIRGINIA INDUSTRIAL MARKET Market Strengthened by High Demand in Q3 Strong demand and stable vacancy rate OVERVIEW Mid-Sized Deals Drive Absorption Employment increased by 28,200 jobs in the during the 12 months ending July 2018, which is above the 5-year average of 18,300 jobs. The professional/business services sector led the way, adding 9,600 new jobs. Following were the construction and education/ health sectors with 6,000 and 3,300 new jobs, respectively. industrial market conditions strengthened in the third quarter of Net absorption totaled 234,000 SF and the direct vacancy rate declined 20 basis points to 7.2% at September The most recent quarter s vacancy rate is a 20 basis point increase over the third quarter of Industrial asking rents were unchanged this quarter at $9.77 PSF, but are up 3.7% year to date. TRENDLINES 5-YEAR TREND JOB GROWTH CURRENT QUARTER 28,200 jobs 12-months ending July ,000 sf Strong Q3 for absorption DEMAND Fourth Straight Quarter of Positive Absorption industrial net absorption was 234,000 SF during the third quarter of The demand this quarter comes from a healthy amount of mid-sized leasing activity. Notable leases include Tapestry Solutions signing for 53,500 SF at Shaw Road and JE Richards signing for 22,750 at Glenn Drive, both in the Dulles Corridor submarket. A handful of notable move-outs offset the demand slightly in the third quarter of Universal Dynamics vacated 53,300 SF at Dabney Road in Prince William County, and Metro Air Service left 20,400 SF at Old Ox Road in the Dulles Corridor. Bulk warehouse net absorption was 168,000 SF, accounting for most of the absorption among the three industrial property types this quarter. Flex/warehouse registered 49,000 SF net absorption, and flex/r&d had the lowest net absorption by property type in the third quarter with just 16,000 SF. By submarket, Dulles Corridor captured the most leasing year to date, with 43% of deals signed in this submarket. The I-95 Corridor captured the second-most with 36% of the region s leasing activity year to date. Year-to-date net absorption of 663,000 SF year is already nearly double 2017 total net absorption of 395,000 SF. However, this is still slightly below the 5-year average of 935,200 SF. UNDER CONSTRUCTION RENTAL RATE 7.2 % Vacancy dips during Q3 1.7 msf Pipeline is 54% preleased $9.77 psf Rates unchanged in Q3

6 Q NORTHERN VIRGINIA INDUSTRIAL MARRKET Vacancy Down Slightly The direct vacancy rate registered at 7.2% at September 2018, down 20 basis points from last quarter. Flex/warehouse had the lowest direct vacancy among industrial property types, with 7% at September Bulk warehouse ended the quarter with 7.4%, while flex/r&d had the highest direct vacancy with 8.8%. SUPPLY AND DEVELOPMENT One Delivery in Dulles Corridor One industrial property delivered in during the third quarter of 2018 in the Dulles Corridor submarket. Broad Street Equities delivered a 77,700 SF bulk warehouse building at Ladbrook Drive. The building was 100% pre-leased to A & A Transfer. Industrial Under Construction Q SUBMARKET Industrial Under Construction SQUARE FEET % PRE-LEASED I-95 Corridor 190, % Dulles Corridor 1,322,090 67% Prince William County 169,600 11% Total 1,682,067 54% There is 1.7 million SF of industrial product under construction at the third quarter of 2018, of which 54% is pre-leased. RENTAL RATES Rents Unchanged in Q3 Asking rents were $9.77 PSF in the third quarter, unchanged from the quarter prior. Rent growth was strong in bulk warehouse building type, up 2.4% to $8.44 PSF. Flex/warehouse dropped 60 basis points to $9.96 PSF and flex/r&d declined 70 basis points to $13.53 PSF. Although industrial asking rents were flat during the third quarter, rents have increased 3.7% year to date. This is ahead of the 1.7% growth achieved during Q Average Industrial Rents Bulk Warehouse $15 $14 $13 $12 $11 $10 $9 $8 $7 Flex/Warehouse Flex/R&D $ Q WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. Q NORTHERN VIRGINIA INDUSTRIAL MARKET 2

7 Q NORTHERN VIRGINIA INDUSTRIAL MARRKET INVESTMENT SALES Investors Target Bulk Warehouse Assets Two notable industrial sales occurred in during the third quarter of These transactions were in the I-95 and Dulles Corridors. The largest deal of the quarter was the sale of 8600 Cinder Bed Road to Lanihau Properties. The Hawaiian commercial real estate investment company bought the building from Miller s Office Products for $9.2 million, or $141 PSF. Year to date, sales volume has totaled $275 million, or $123 PSF, with most activity in flex/warehouse assets. This compares to $324 million, or $108 PSF, during all of Average Industrial Sales PSF Area $160 $140 $120 $100 $80 $60 $40 $20 $ YTD 2018 OUTLOOK Market Fundamentals to Strengthen We anticipate business and employment counts will continue to grow. Through 2022, we project average annual job growth of 22,300, representing half of new positions created throughout the Washington metro area. Most of this growth will occur during 2018 and We expect the health care/social assistance, professional/scientific/technical, and accommodation/food service sectors to fuel job growth in the period ahead. We anticipate strong demand for industrial product will continue through 2019 due to the region s affluent demographics, strategic location along the East Coast, and proximity to Washington, D.C. These factors, in conjunction with rapid e-commerce growth, will result in improvements to industrial market fundamentals. We anticipate declines in the overall vacancy rate from 7.3% today to the high-6% range by December Declines in area vacancy rates should be accompanied by increases in asking rent, which we project to grow 3.5% to 4.5% for 2018, with select submarkets seeing spikes in rent. With positive conditions, as well as an oversupply of obsolete product and undersupply of newer inventory, we expect developers may break ground in select locations where the land value pencils out. Consistently strong demand for efficient properties with superior trailer loading, clear heights, column spacing, and parking, however, suggests vacancy rates will remain below historical levels in the near- to intermediate-term. Notable Q3 Lease Transactions TENANT DEAL TYPE ADDRESS SUBMARKET SQUARE FEET Tapestry Solutions New Lease Shaw Road I-95 Corridor 53,500 Cosmos Granite Renewal 3900 Stonecroft Boulevard Dulles Corridor 47,300 JE Richards New Lease Glenn Drive Dulles Corridor 39,700 Micron New Lease B Dean Drive Prince William County 24,600 The Bowers Group New Lease Ladbrook Drive Dulles Corridor 21,300 Medliminal New Lease Innovation Drive Prince William County 17,400 DPR Construction New Lease 8397 Terminal Road I-95 Corridor 15,200 SOURCE: CoStar, County Newsletters, Washington Business Jounral, Washington Post, Transwestern Q NORTHERN VIRGINIA INDUSTRIAL MARKET 3

8 Q NORTHERN VIRGINIA INDUSTRIAL MARRKET Industrial Market Indicators SUBMARKET INVENTORY SF OVERALL UNDER CONSTRUCTION Q YTD 2018 AVERAGE RATE PSF Bulk Warehouse 304, % 0.0% N/A Flex/Warehouse 3,180, , % 6.9% 0 24,000 (9,000) $13.16 Flex/R&D 366,459 46, % 12.8% 0 (1,000) 5,000 $13.55 Beltway (I-495) 3,851, , % 6.9% 0 23,000 (4,000) $13.20 Bulk Warehouse 4,748, , % 3.0% 190,377 28,000 28,000 $9.18 Flex/Warehouse 19,184,932 1,272, % 6.6% 0 (6,000) 19,000 $9.03 Flex/R&D 1,210, , % 9.8% 0 2,000 2,000 $14.01 I-95 Corridor 25,143,635 1,533, % 6.1% 190,377 25,000 50,000 $9.30 Bulk Warehouse 70, % 0.0% N/A Flex/Warehouse 1,575, , % 10.7% 0 (21,000) (12,000) $15.12 Flex/R&D 592,480 79, % 13.5% 0 12,000 21,000 $14.17 Reston/Herndon 2,238, , % 11.1% 0 (9,000) 9,000 $14.86 Bulk Warehouse 11,555, , % 7.1% 709, , ,000 $8.38 Flex/Warehouse 22,311,993 1,890, % 8.7% 612,360 93, ,000 $11.07 Flex/R&D 2,181, , % 6.8% 0 4,000 37,000 $13.37 Dulles Corridor 36,049,385 2,847, % 8.1% 1,322, , ,000 $10.35 Bulk Warehouse 5,559, , % 12.4% 139,000 22,000 52,000 $7.94 Flex/Warehouse 13,702, , % 5.0% 30,600 (41,000) 59,000 $8.11 Flex/R&D 333,066 16, % 4.9% 0 (1,000) 0 $11.65 Prince William County 19,595,125 1,371, % 7.1% 169,600 (20,000) 111,000 $8.12 Bulk Warehouse 22,239,702 1,640, % 7.4% 1,039, , ,000 $8.44 Flex/Warehouse 59,954,560 4,174, % 7.2% 642,960 49, ,000 $9.96 Flex/R&D 4,684, , % 8.8% 0 16,000 65,000 $13.53 Total 86,878,468 6,225, % 7.3% 1,682, , ,000 $9.77 CONTACT Elizabeth Norton Managing Research Director Mid-Atlantic elizabeth.norton@transwestern.com Jack Blaine Research Associate Mid-Atlantic jack.blaine@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on industrial properties located in the Washington metro area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Transwestern is a privately held real estate firm of collaborative entrepreneurs who deliver a higher level of personalized service the Transwestern Experience. Specializing in Agency Leasing, Tenant Advisory, Capital Markets, Asset Services and Research, our fully integrated global enterprise adds value for investors, owners and occupiers of all commercial property types. We leverage market insights and operational expertise from members of the Transwestern family of companies specializing in development, real estate investment management and research. Based in Houston, Transwestern has 35 U.S. offices and assists clients through more than 211 offices in 36 countries as part of a strategic alliance with BNP Paribas Real Estate. Experience Extraordinary at transwestern.com Copyright 2018 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein. Q NORTHERN VIRGINIA INDUSTRIAL MARKET 4