MARKETBEAT

INDUSTRIAL SNAPSHOT
SUBURBAN MARYLAND
A Cushman & Wakefield Research Publication

Q4 2011

ECONOMIC OVERVIEW
The November unemployment rate of 4.8% for the Bethesda-Rockville-Frederick metropolitan division, remains well below Marylands rate of 6.9%. Year-over-year, job gains remain centered around the public sector, and education and health services. The manufacturing sector continues to bleed jobs, losing over three thousand since November 2007.

STATS ON THE GO
4Q10 Overall Vacancy Direct Asking Rents (psf/yr) YTD Leasing Activity (sf) 13.0% $9.62 1,052,576 4Q11 13.1% $9.48 1,357,478 Y-O-Y CHANGE 0.1pp -1.5% 29.0% 12 MONTH FORECAST

INCREASED ACTIVITY FOR SALES AND LEASING

Year-to-date leasing activity grew by almost 29.0% compared to the one million square feet (msf) recorded for 2010. At 1.4 msf, leasing activity was closer to the level of activity in 2009 but far from the 2.1 msf of transactions recorded for 2007. Notable new deals for the year included: A&M Supplys lease of 102,000 sf of warehouse space at 9821 Fallard Court, TSIs prelease of 69,000 sf of warehouse space at 8520 Pepco Place (a build-to-suit property) and the GSAs lease of 51,158 sf at 6500 Sheriff Road. Sales activity finished the year with almost 1.3 msf traded, a 77.0% increase from last years number. Investor sales accounted for1.0 msf of the total, indicating increased confidence in the Suburban Maryland industrial market.

OVERALL OCCUPIER ACTIVITY

msf

0.05

0.12

0.11

0.00

2007

2008

2009

2010

2011 YTD

LEASING ACTIVITY

USER SALES ACTIVITY

ABSORPTION TURNED POSITIVE

Despite a poor showing in the flex sector, total overall net absorption finished 2011with 108,795 square feet (sf) of positive absorption, a considerable improvement over the negative 151,345 sf reported for 2010. This turnaround was due to a boost in warehouse/distribution activity which closed the year with a total of 179,410 sf of positive overall net absorption. Notable tenants who moved in during the fourth quarter included Microfit (41,800 sf) at 10726 Tucker Street and 1-800-Rack Pack (29,823 sf) at 8420 Westphalia Road.

DIRECT RENTAL VS. VACANCY RATES

$11.00 $10.00 15.0% 13.0% 11.0% 9.0% 7.0% 5.0%

psf/yr

$9.00 $8.00 $7.00 $6.00

2007

2008

2009

2010

4Q11

OUTLOOK
The flex market continues to struggle with vacancies, and little new tenant activity. Rents have continued to be compressed due to lack of demand. The average direct net rental rate for flex space in Prince Georges County, $9.55 per square foot (psf), declined by $0.14 psf from one year ago and has not reached double-digits since the second quarter of 2010. The warehouse/distribution sector remains fairly strong. There are only four class A grade spaces over 24' clear available, with 77,000 sf being the largest availability. Two spec warehouse projects are under construction and should be leased by the end of 2012. There are several re-development projects that are expected to fill the class A pool later in 2012 or early 2013.

DIRECT NET RENTAL RATE

DIRECT VACANCY RATE

0.25

2.1

1.9

1.3

1.1

1.4

SUBURBAN MARYLAND
SUBMARKET INVENTORY OVERALL VACANCY RATE 9.5% YTD LEASING YTD USER ACTIVITY SALES ACTIVITY 180,081 339,205 519,286 202,238 48,000 0 301,774 27,277 258,903 838,192 126,689 0 126,689 80,836 0 0 0 0 39,900 120,736 UNDER CONSTRUCTION YTD YTD DIRECT YTD OVERALL CONSTRUCTION NET ABSORPTION NET ABSORPTION COMPLETIONS 0 0 0 0 0 0 0 0 0 0 0 87,096 (55,905) 31,191 (53,120) 90,174 0 (176,696) (34,107) 165,347 (7,682) 23,329 115,384 (69,998) 45,386 771 87,644 0 (156,246) (34,107) 165,347 63,409 108,795 **HT N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A **MF N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A DIRECT WEIGHTED AVERAGE NET RENTAL RATE OS W/D $15.71 $10.61 $13.95 $10.38 $14.75 $10.51 $9.38 $9.63 $12.11 $9.19 $7.62 $8.78 $9.55 $6.30 $6.91 $0.00 $6.76 $7.82 $5.94 $6.51 $7.33

North Bethesda/Rockville Gaithersburg/Germantown MONTGOMERY COUNTY Beltsville/College Park Laurel Greenbelt Landover/Lanham Bowie Oxon Hill/Suitland PRINCE GEORGES COUNTY TOTALS

8,401,432

0 0 0 0 0 0 141,226 0 69,000 210,226 210,226

9,276,255 11.1% 17,677,687 10.3% 7,381,237 12.0% 3,030,303 15.2% 347,513 79.8% 12,159,932 13.0% 2,117,015 19.2% 4,036,316 17.0% 29,072,316 14.8% 46,750,003 13.1%

1,357,478 247,425

N/A N/A $11.34

* RENTAL RATES REFLECT ASKING $PSF/YEAR

**HIGH-TECH & MANUFACTURING INVENTORY DOES NOT EXIST IN THIS MARKET

OS = OFFICE SERVICE W/D = WAREHOUSE/DISTRIBUTION

MARKET HIGHLIGHTS
SIGNIFICANT 2011 LEASE TRANSACTIONS 9821 Fallard Court 8520 Pepco Place 6500 Sheriff Road SIGNIFICANT 2011 SALE TRANSACTIONS Portfolio Sale 13200 and 13201 Mid Atlantic Boulevard 1100 and 1101 Hampton Park Boulevard SIGNIFICANT 2011 CONSTRUCTION COMPLETIONS N/A SIGNIFICANT PROJECTS UNDER CONSTRUCTION 9260 Alaking Court/Steeplechase A4 8520 Pepco Place/TSI Building 1030 Hampton Park Boulevard/Steeplechase F1 SUBMARKET Oxon Hill/Suitland Oxon Hill/Suitland Landover/Lanham SUBMARKET Various Laurel Beltsville/College Park SUBMARKET TENANT/BUYER A&M Supply TSI GSA BUYER Area Property Partners Prudential Hampton Park Boulevard LLC MAJOR TENANT PROPERTY TYPE Warehouse/Distribution Warehouse/Distribution Warehouse/Distribution PURCHASE PRICE $235,800,000 $33,390,000 $21,000,000 COMPLETION DATE SQUARE FEET 102,000 69,000 51,158 SQUARE FEET 391,810 272,938 189,103 SQUARE FEET

SUBMARKET Landover/Lanham Oxon Hill/Suitland Landover/Lanham

MAJOR TENANT N/A TSI N/A

COMPLETION DATE 2Q12 1Q12 2Q12

SQUARE FEET 92,669 69,000 48,557

*RENEWAL-NOT INCLUDED IN LEASING ACTIVITY STATISTICS

Cushman & Wakefield of Maryland, Inc. 500 E. Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2012 Cushman & Wakefield, Inc. All rights reserved.