Office Insight

Suburban Maryland | Q3 2015

Renewals continue to dominate leasing activity

Absorption was positive in all three counties
Prince Georges County has been a soft market for years as vacancy has
steadily increased since 2007. In the third quarter, Prince Georges County office
absorption was the highest among the three counties of Suburban Maryland.
This was largely due to the delivery of 7800 Harkins Road in Lanham near the
New Carrollton Metro. Berman Enterprises constructed the 110,000-square-foot
office building for the Maryland Department of Housing and Community
Development. This spike in positive absorption could be short-lived as there are
no upcoming deliveries that are fully leased or major expansions in the
marketplace.

Absorption by county

Government sector dominated leasing activity with renewals

Leasing activity in the third quarter was the highest of 2015, with 499,532 square
feet of all major leases over 20,000 square feet. MacroGenics signed the top
lease of the quarter with 122,600 square feet. After searching the area for the
past year, the company decided to relocate in the same submarket at 9704
Medical Center Drive. The government sector had the highest leasing activity.
The U.S. Department of Treasury renewed at 6505 Belcrest Road in Prince
Georges County for 109,000 square feet. U.S. Department of Health and Human
Services renewed for 70,500 square feet at 7501 Wisconsin Avenue in
Bethesda.

Q3 2015 leasing activity by industry (over 20,000 s.f.)

Class A office buildings lead sales in Suburban Maryland

Class A assets captured 94.1 percent of the total sales year-to-date, which is a
new trend compared to the previous year. Class A assets sold for an average of
$251 per square foot. 7550 Wisconsin Avenue was the most expensive sale of
the third quarter; German-based GLL purchased the property for $629 per
square foot. Two buildings in Prince Georges County were purchased this
quarter, however, both buildings traded for under $100 per square foot as the
sellers were special servicers.

37,371

Prince George's County

7,275
Montgomery County
Frederick County

162,836
Source: JLL Research

Technology

27,465

Other professional services

28,010

Healthcare
Aerospace defense transportation
Life sciences

51,155
60,860
122,600

Government

209,442

Source: JLL Research

Sales YTD by Class

Class A assets have dominated
YTD sales activity. Last year,
Class A assets accounted for only
36.4 percent of the sales by total
building size.

94%
Class A

2,257
Source: JLL Research

65,821,368

207,482

$26.65

542,418

Total inventory (s.f.)

Q2 2015 net absorption (s.f.)

Direct average asking rent

Total under construction (s.f.)

20.1%

-534,646

-1.1%

7.8%

Total vacancy

YTD net absorption (s.f.)

12-month rent growth

Total preleased

Current conditions submarket

Historical leasing activity (s.f.)

Peaking
market

Falling
market

Frederick County

Bottoming
market

Rising
market

Bethesda-Rock
Spring
Silver Spring, I-270 Corridor

Tenant leverage

Landlord leverage

8,000,000
Prince Georges
County

7,181,456
6,419,617
5,466,204

6,000,000

3,968,635

4,000,000

2,336,766

2,000,000
0

Rockville Pike

2011

Bethesda-CBD, Chevy Chase

Source: JLL Research

2012

2013

2014

YTD 2015

Source: JLL Research

Total net absorption (s.f.)

1,500,000

1,329,062
886,587

1,000,000

424,174

346,988

500,000

10,652

0
-29,255

-500,000

-299,677

-1,000,000

-736,643

-1,500,000

-534,646

-1,197,774

2006

2007

2008

2009

2010

2011

2012

2013

2014

YTD 2015

19.5%

20.1%

Source: JLL Research

Total vacancy rate (%)

25.0%
20.0%
18.4%

15.0%
10.0%

11.9%

13.4%

14.7%

16.5%

16.9%

17.2%

17.9%

2010

2011

2012

2013

2014

YTD 2015

$26.69

$26.56

$26.55

$26.69

$26.65

2013

2014

YTD 2015

5.0%
0.0%
2006

2007

2008

2009

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$29.00

$28.22

$28.00

$27.53

$27.00
$26.00

$25.93

$26.20

$25.35

$25.00
$24.00
$23.00
2006

2007

2008

2009

2010

2011

2012

Source: JLL Research

For more information, contact: Sara Hines | sara.hines@am.jll.com

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