2016 Washington TrendLines Report - FINAL PDF

2016
Trends in Washington Commercial Real Estate
A Region in Transition
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
A Collaborative Publication of Delta Associates and Transwestern.

2016. All Rights Reserved.
You may neither copy nor disseminate this report. If quoted, proper attribution is required.
To order your copy of TrendLines, contact the Publications Administrator at 202.778.3100.
2
Foreword
To our friends, clients and colleagues:
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
We are pleased to share this 19th annual edition of

TrendLines: Trends in Washington Commercial Real
Estate, a collaborative effort of Delta Associates and
Transwesterns research group. In this report, we review
the results of 2015 and shed light on the forces and issues
that we anticipate will shape the regions economy and
commercial real estate markets in 2016 and beyond.
As expected, 2015 was a year of economic expansion
in the Washington area, due in no small part to the
stabilization of federal government employment and
procurement after several years of cutbacks. The
private side of the regional economy particularly the
professional and business services sector picked up
the slack and the region recorded the most significant
job growth in a decade. In response to a growing
economy, market conditions improved for all major
property types during 2015 trends that are poised
to continue during 2016.
Though market fundamentals in the Washington area are
strengthening, we detect a transition in forces that will
power economic and real estate market growth in the
future. Historically, the federal government drove growth
in the Washington area, through its employment, leasing,
and contracting activity. But the federal presence in the
region, although stabilized, is unlikely to grow significantly
in the foreseeable future as a share of the overall
economy. As a result, the private sector will lead the
current expansion cycle, relying more than ever before on
innovation, international trade, and regional cooperation.
The regions public and private sector leaders have
already identified the need to change the way that
business is done in the Washington metro area. Two
major efforts emerged in 2015 that will help guide the

conversation about how the region will grow and prosper
in the future: the Roadmap for the Washington Regions
Economic Future led by George Mason University and
the 2030 Group; and the Global Cities Initiative by the
Metropolitan Washington Council of Governments, the
Greater Washington Board of Trade, and the Consortium
of Universities of the Washington Metropolitan Area.
These initiatives, if widely embraced by local jurisdictions
and the private sector, can change the approach to
economic development and improve the regions
chances of fostering sustainable economic growth
and a flourishing real estate market.
Overall, we expect 2016 to be a year of continued
growth, but also a year of rapid change. To succeed in
the marketplace, real estate developers, owners, and
investors must understand how these changes will
influence investment and development opportunities.
This report highlights major changes afoot not just in the
Washington region, but nationally and globally as well.
With this in mind, we have subtitled this report A Region
in Transition.
PhilLIP M. McCarthy
Executive Managing
Director - Market Leader
Mid-Atlantic Region
Keith A. foery
Executive Managing
Director - Market Leader
Mid-Atlantic Region
Over the years, we have been fortunate to work with the

individuals and organizations contributing the success
of the Washington areas economy and its real estate
markets. Thank you for your business. We appreciate your
interest in our consulting and other services including
brokerage, property management, investment sales, and
development and we look forward to being your real
estate service partner in the period ahead. Best wishes
for a successful 2016.
David Weisel, CRE
Chief Executive Officer
To our valued clients, colleagues, and business associates:
Dear TrendLines Recipient,
Baker Tilly is proud to continue our partnership and support of TrendLines as

Washington, DCs leading real estate accounting and advisory firm.
In todays rapidly evolving real estate environment, access to timely and accurate market
information is vital to running your business successfully. The TrendLines Report has
delivered a valuable overview of the Washington, D.C., real estate market for many years.
This year marks the nineteenth annual TrendLines conference, and with it, a
longstanding tradition of informative and forward-thinking conversations among
the Washington, DC real estate community. Companies and institutions investing
in the regions real estate rely on TrendLines as the premier resource for
development and investment opportunities.
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
During the past year, innovative steps have been taken to boost the areas
economic growth with collaborative efforts throughout the DC metropolitan region.
Our nations capital continues its gentrification with exciting new projects located
in the SE and SW waterfront, as well as the expansion of the U Street, Shaw, and
14th Street neighborhoods. Virginia has immensely benefitted from Metros Silver
Line expansion and Maryland will open another casino this year at National Harbor.
Accompanying these developments, the recovering economy will complement
our growth as a region and as such, major corporations are choosing our region
for their headquarters. Together, these factors contribute to greater employment
opportunities, which increase our tax base for education and infrastructure.
Baker Tilly is dedicated to the real estate community and is recognized for
exceptional delivery of tax, assurance, and consulting services. Our professionals
look forward to continuing to advise the businesses and entrepreneurs who shape
DCs real estate industry. Our breadth and depth of resources focused on the real
estate industry help our clients maximize opportunities, implement actionable
ideas, and minimize risk in an ever-changing landscape.
PNC Real Estate is happy to continue sponsoring this premier resource for our regions
commercial real estate professionals. The Real Estate Banking segment of PNC Real
Estate has been a major participant in the Washington, D.C., marketplace since 1987.
Just in the last three years, our D.C. office has provided more than $3.0 billion in new
capital, including construction loans, bridge loans, lines of credit and permanent loans.
PNC Real Estate as a whole delivers one of the broadest platforms of products and
services in the industry. Our capabilities include acquisition, construction and permanent
financing for public and private developers and investors; agency financing for
multifamily and seniors housing properties; debt and equity capital for the affordable
housing industry; and access to the capital markets and treasury management services.
In addition, through Midland Loan Services, we provide third-party loan servicing, asset
management and technology solutions.
PNC is one of the nations top banks by deposits, with $362 billion in assets and 2,600
branches in 19 states and the District of Columbia as of September 30, 2015. Our
strength lies not only in our size, but in the innovative ways in which we deliver products
and solutions to help you achieve your business goals.
To learn how we can bring ideas, insight and solutions to you, call us or visit pnc.com/
realestate.
Sincerely,
Sincerely,
BAKER TILLY VIRCHOW KRAUSE, LLP
Todd Stokes, Managing Partner DC Metro Area

Baker Tilly Virchow Krause, LLP
703.923.8236
todd.stokes@bakertilly.com
Connect with us: bakertilly.com
Michael N. Harreld
William R. Lynch III
President Senior Vice President
PNC Bank Greater Washington Area
PNC Real Estate
202.835.5513 202.835.4513
m.harreld@pnc.com william.lynch@pnc.com
PNC is a registered mark of The PNC Financial Services Group, Inc. (PNC).
2016The PNC Financial Services Group, Inc. All rights reserved.
Table of Contents
Navigation Panel
Table of Contents
Previous Page
S1
S2
Section 1
Section 2
The National Economy
18
Section 3
The Washington Area Economy
28
Section 4
The Washington Area Office Market
35
Section 5
The Washington/Baltimore Regional Flex/Industrial Market
44
Section 6
The Washington Area Apartment Market
50
Section 7
The Washington Area Condominium Market
60
Section 8
The Washington Area Retail Market
70
Section 9
Capital Markets and Investment Trends
78
Section 10
2016 TrendSetter Award Recipients
87
S3
S4
S5
Sections
S6
S7
S8
S9
S10
Next Page
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
Acknowledgments: The editor, David Weisel, CRE, wishes to

acknowledge and thank the TrendLines team at Delta Associates:
David E. Versel, AICP, Senior Vice President; David Parham, Senior
Vice President; William Rich, Senior Vice President; Jonathan
Chambers, Associate; and Dylan Jones, Associate. Special thanks
are due to Elizabeth Norton, Transwesterns Managing Research
DirectorMid-Atlantic Region, who authored and reviewed sections
of the report. The entire Delta Associates team made valuable
contributions in various ways. Ji Chang and his creative design team
at Transwestern who made the report visually attractive have our
gratitude. Finally, we greatly appreciate the dozens of industry leaders
who contributed their insights about the future of the commercial real
estate industry in the Washington area.
Representations: Although the information contained herein is based
on sources that Delta Associates (DA) and Transwestern (TW) believe
to be reliable, DA and TW make no representation or warranty that
such information is accurate or complete. All prices, yields, analyses,
computations, and opinions expressed are subject to change without
notice. Under no circumstances should any such information be
considered representations or warranties of DA or TW of any kind.
Any such information may be based on assumptions that may or may
not be accurate, and any such assumption may differ from actual
results. This report should not be considered investment advice.
S1 | A Region in Transition
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
S2
While the overall economic news is positive, it comes with a major caveat: the forces that will drive
economic growth in the Washington region in the future will differ from those that have driven growth
in the past. Where past growth cycles in the region were led mostly by Federal employment and
procurement, all signs point to flat or declining Federal spending in the region over the next several
years. Consequently, the impetus for growth in the Washington economy and real estate market must
come from the private sector. There are several nascent efforts aimed at fostering better conditions
for starting and growing businesses in the Washington area. To succeed, these efforts must capitalize on the dramatic political, economic, and cultural changes that are reshaping how the region
will grow and prosper. With this in mind, we believe that Washington is a region in transition. Our
research for this years TrendLines highlights several ways in which the Washington area is changing.
S3
We think that change in the Washington area will be shaped in part by these four MegaTrends:
S4
1. THE FEDERAL GOVERNMENT IS AT A CROSSROADS. The influence of the Federal government

over the Washington metro areas economy direct employment, procurement, and related
activity has waned dramatically over the past several decades. The regions economic prospects
going forward will necessarily depend far more on the performance of the private sector.
S1
S5
S6
S7
S8
S9
S10
2. THERE IS A MISMATCH BETWEEN HOUSING SUPPLY AND DEMAND IN THE REGION. At recent
construction rates, the Washington metro area is producing 13,000 fewer housing units per year
than would be justified by job and household growth. Undersupply is helping fuel appreciation
growth that increasingly prices households out of the market. Two huge demographic cohorts
Baby Boomers and Millennials are driving the housing market, but with different and often
contradictory preferences. The mismatch between overall supply and demand and between
selection/price and household preference/budgets will be key issues for the region in the
coming years.
3. THE SHARING ECONOMY LOOKS A LOT LIKE LEASING OR BUYING. Today, it is possible to
take a vacation that includes driving a shared car, staying in a private room or home, using someone elses bicycle or golf clubs that you rented, eating a meal in a home with a local family while
wearing someones clothing that you rented, and then returning to work in your shared office
space. These are examples of the sharing economy one of todays hottest economic topics.
We take a look at two sharing economy examples that directly affect real estate: Airbnb and the
hotel industry; and coworking space and its relation to the conventional office market.
4. COMMERCIAL REAL ESTATE MUST BECOME MORE RESILIENT. Catastrophic events, both
natural and man-made floods, storms, droughts, terrorism, cyber-attacks, and even economic
shocks require preparation and a new way of looking at the world. The term that has emerged
to describe these efforts is resilience. The commercial real estate community planners, developers, architects, engineers, construction companies, owners, and managers -- will need to be more
proactive in order to make their assets more resilient and protect their investments.
S1 | 8
This year is likely to be one of transition for the Washington metro areas economy and commercial
real estate market. We are likely to see a transition from weak job growth to stronger, from excess
apartment deliveries to more equilibrium conditions, and from experiential real estate as a new
niche to a full-fledged template of how to develop and operate real estate.
Yet, for all the change in our market, we see a lot of the constants enduring, qualities of the region
that have underpinned our successful market for decades: The highest-paid and best-educated
workforce in the country; the presence of the Federal government that lends stability and which
appeals to long-term investors; and the entrepreneurial spirit that is creating jobs and attracting
Millennials. Savvy investors can capitalize on this blend of transition and consistency to yield
successful real estate results.
S6
S7
S8
S9
S10
+17
Reagan
Bush
+8
Clinton
Bush II
Obama
+21
-55
+23
-17
=+4
350
+74
300
-5
250
Megatrend #1: Federal Government at a

Crossroads
200
Still Important, But Not As Dominant, THE Federal Government

Faces Changes
Source: BLS (Not Seasonally Adjusted), GMU Center for Regional Analysis, Delta Associates; February 2016.
For better or worse, the Washington metro area economy has long been dominated by the Federal
government. While the conventional wisdom remains that Washington is recession-proof, the truth
is much less optimistic. In fact, the influence of the Federal government over the Washington metro
areas economy has waned dramatically over the past several decades. In 1950, 38% of all jobs in the
region were provided by the Federal government; today, government workers account for just 12%
of the regions jobs. While the number of Federal jobs has fluctuated over the past 20 years, there
are presently about 365,000 people in the regions Federal workforce the same as in 1994.
Federal Procurement
Equally important to the regions economy is the influence of Federal procurement. Between 1980
and 2010, the amount of annual Federal procurement spending in the region increased from $4.2
billion to $82.4 billion. From 2010-2015, though, procurement spending decreased by 14%, and is
not expected to approach its 2010 peak anytime soon.
The combination of flat Federal employment and declining procurement is contributing to a dramatic
decline in the influence of the Federal government on the Washington areas economy. In 2010, the
Federal Government sector accounted for about 40% of the regions Gross Regional Product (GRP).
According to the George Mason University Center for Regional Analysis, by 2020 Federal spending
will represent only 27% of the Washington areas GRP.
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
150
1960
S5
NixonFord Carter
+35
1955
S4
KennedyJohnson
400
1950
S3
Eisenhower
Washington Metro Area | FY1980 2015

2010:
$82.5B
90
80
2015:
$71.1B
70
60
50
40
30
20
10
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
S2
We hope the information in this report assists you in making informed decisions to meet your
business objectives in 2016 and beyond. Best wishes for success in the period ahead.
Washington Metro Area | 1950 2015*
$ Billions
S1
Federal Employment
Source: GMU Center for Regional Analysis, Delta Associates; February 2016.
S1 | 9
The negative impacts of Federal cutbacks on the regions office market have been exacerbated by
the actions of the General Services Administration (GSA). During the current cycle, GSA has consolidated more Federal agencies in owned space, reduced the amount of square footage per employee,
and relocated several agencies to lower-cost spaces. As a result, from 2012-2015 the total amount of
office space leased by GSA in the region declined by three million square feet and the average rent
for GSA leases dipped by about $4.50/SF. The GSA is expected to continue these trends this will
further depress office demand and rental rate growth in the regions office market.
Share of Gross Regional Product By Source

Washington Metro Area | 2010 & 2020
Fed Wages
& Salaries
10.0%
Looking ahead, several factors could have profound effects on the role of the Federal government in
the Washington areas economy:
S2
S3
S4
S5
S6
S7
S8
S9
S10
Non-Federal
60.2%
The 2016 presidential election is shaping up to be the most unpredictable race since at least
1968, and the results of the election could result in a fundamental reshaping of the governments footprint in the region. Or not cataclysmic changes anticipated ahead of previous
changes in administration and parties often did not pan out.
Pressure is building in Congress to pursue another round of Base Realignment and Closure
(BRAC) activity. The 2005 BRAC process resulted in a shift of millions of SF of office space from
leased buildings to GSA-owned properties, and between submarkets within the region.
Total Federal
39.8%
Fed Wages
& Salaries
6.7%
Total Federal
27.2%
Non-Federal
70.2%
Procurement
12.8%
Procurement
19.1%
2010
2020
The heightened threat of terrorist attacks is likely to lead to higher security standards for
government agencies, which would favor GSA-owned properties over leased space.
The potential for an international military conflict would ramp up defense spending, which
would drive procurement spending for defense and cybersecurity contractors.
GSA Leasing Trends: Downsizing

Washington Metro Area
Regardless of how these factors play out, it is clear that the Federal government will not dominate
the Washington regions economy in the future as it has in the past. The regions economic prospects going forward will necessarily depend far more on the performance of the private sector.
60
59
Millions of SF Leased
S1
Other Federal
7.7%
Other Federal
10.7%
58
57
56
55
54
53
2012
2013
2014
2015
Approx. 40% of expiring GSA leases will be downsized and moved to

smaller/consolidated space
Source: GSA, Delta Associates; February 2016.
S1 | 10
Megatrend #2: Housing Market Mismatch
Demand for Housing: Type of Housing
Not Enough Housing to Meet Demand, and Not Always the

Right Types

Net change: 255K
1,800
At recent construction rates, the Washington metro area is producing 13,000 fewer housing units per
year than would be justified by job and household growth.
S4
S5
S6
S7
S8
S9
S10
While expected job growth will sustain demand for housing in the region, in practice, the regions
housing production has not kept pace with demand during this cycle. During the last expansion
cycle from 2000-2005, the region added an average of 37,000 housing units per year by comparison, the region only added an average of 21,000 units per year from 2010-2014. With demand projected to average 34,000 units per year, this recent construction pace amounts to an undersupply of
13,000 units per year. The repercussions of this undersupply include individuals sharing housing or
delaying household formation, and households finding homes outside the metro area and enduring
long commutes. Partly due to the slow pace of housing construction, the median home sale price in
the Washington metro area increased by 24% between June 2010 and June 2015.
The undersupply of housing in the region has also had a dramatic effect on the rental market,
particularly for low-income renters. From 2009-2015, Delta Associates research shows that the average effective apartment rent in the Washington area increased by 20%. The Washington area has
become of the most cost-burdened rental markets in the U.S. as of 2014, 81% of households in the
region that earn less than $45,000 per year spent more than 30% of their incomes on housing.
As with the rest of the U.S., the Washington areas housing market is primarily being influenced by
the wants and needs of two generations: Baby Boomers and Millennials. The divergent and often
contradictory preferences of these two generations will shape the regions housing market over
the next decade and beyond.
Thousands of Households
S3
2011
1,440
2023
1,400
1,200
Net change: 155K
1,000
830
67%
68%
800
675
600
400
32%
33%
200
0
Single-Family
Multifamily
New Building Permits for Privately Owned Residential Units

45,000
2004:
38K
40,000
5+ Units
2-4 Units
SF
35,000
Permits Issued
S2
2014:
24K
30,000
25,000
20,000
15,000
10,000
As with the rest of the U.S., the

Washington areas housing market
is primarily being influenced by the
wants and needs of two generations:
Baby Boomers and Millennials.
S1
As of 2011 there were 2.12 million housing units in the Washington metro area. Of these, 675,000
(32%) were multi-family units. According to the George Mason University Center for Regional
Analysis, housing demand in the region between 2011 and 2023 will total 410,000 additional
housing units, an average of 34,000 per year. Of this demand, 155,000 units (38%) will be for
multi-family units.
1,695
1,600
5,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Census Bureau, Delta Associates; February 2016.
S1 | 11
Demand for Housing: Washington Has One of Highest Cost Burdens

for Lower Income Renters
S5
S6
65%
81%
60%
Photo
79%
78%
55%
73%
70%
63%
50%
57%
45%
56%
49%
48%
46%
to
S.
us
U.
Ho
s
lla
go
ica
Da
ta
lan
ph
At
Ch
ia
de
ila
Ph
rk
sto
Bo
Yo
w
es
el
Lo
Ne
sA
an
Fr
n
ng
cis
to
co
40%
S4
70%
ng
S3
75%
Sa
S2
80%
hi
S1
85%
as
Share of Renters Making $30,000-$44,999

with Cost Burdens
Largest Housing Markets | United States
Note: Cost-burdened households pay more than 30% of income for housing.
Source: JCHS tabulations of US Census Bureau ACS Data, Delta Associates; February 2016.
S7
S8
S9
Baby Boomers: Postponing Retirement and Aging in Place

Labor Force Participation Rate and Housing Mobility
18%
S10
Labor Force Participation Rate
16%
65+ Labor Force Participation Rate

65+ Annual Housing Mobility Rate
14%
12%
10%
8%
6%
4%
2%
0%
1990
2000
2010
2014
Year
Source: Census Bureau Decennial Census, ACS, and Current Pop. Survey, Delta Associates; February 2016.
S1 | 12
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
Millennials find themselves in a very different position. Only about one-quarter of young adults in
the U.S. are married and living in their own households, compared with 43% in the 1980s and 56%
in the 1960s. Many Millennials have yet to even form their own households: as of 2015, 35% of those
age 18-34 live with their parents this figure has historically hovered around 30%. Among those who
are living on their own, most are renting their homes, and a growing share is living in central cities or
close-in suburbs.
The critical question for the housing market as it relates to Millennials is this: Will they start buying
homes in large numbers and, if so, where will they buy? Like prior generations, Millennials do want to
be homeowners: Trulia reports that 93% of adults age 18-34 plan to buy a home in the future. More
critically, as documented in a recent ULI survey, a significant number of Millennials actually want to
live in the suburbs. With median single-family prices in excess of $500,000 in most of Washingtons
close-in suburbs, however, most young buyers will either need to settle for condos or townhouses, or
seek homes in outlying areas.
Millennials Still Plan to Buy

United States
100%
Percentage Who plan to Buy a Home

Some Time in the Future
Boomers are bucking the patterns of previous aging generations in two key ways. First, they are
working longer the 2014 national labor force participation rate among the 65+ population was
17%, up from 15% in 2010 and from 12% in 1990. Second, Boomers more likely to stay in their
homes and age in place than prior generations, with the mobility rate for individuals age 65 and
older dropping from 5.0% in 1990 to 4.1% in 2014. Even with many Boomers aging in place, the
sheer size of this generation contributed to Boomers accounting for about half of all new renter
households in the U.S. over the past 10 years. So, contrary to popular notions, Millennials are not
the only force behind apartment demand.
93%
90%
80%
75%
72%
70%
60%
50%
39%
40%
30%
20%
10%
0%
18-34
35-44
45-54
55+
Age
Source: Goldman Sachs, Trulia, Delta Associates; February 2016.
Megatrend #3: The Sharing Economy and Real

Estate
The Sharing Economy: Seems Like Leasing or Buying
The sharing economy is one of todays hottest economic topics. What began as a cottage industry
focused on lending, borrowing, and trading now has the potential to generate at least $335 billion
in revenues by 2025, according to estimates from PwC. The sharing economy has definitely become
big business.
From forerunners such as Couchsurfing and Craigslist that were based on exchanging excess or unused goods and services between individuals, sometimes for free, the sharing economy has exploded since the 2008 recession. Known by a variety of terms Collaborative Economy, Gig Economy,
On-Demand Economy, Collaborative Consumption, Peer Economy, among other it now comprises
hundreds of large and small companies and organizations that are selling, lending, or giving away
just about anything imaginable. It has become monetized and depends on technology to maximize
convenience to users, and it increasingly relies on branding as the measure of quality and trustworthiness. Significantly, some companies are growing in part through service expansion. For example,
Uber not only gives rides but it has also started food delivery (UberEATS) and a messenger service
(UberRUSH).
S1 | 13
Sharing and the Hotel Industry
Examples of Sharing Economy Companies

SPACE
TRANSPORTATION
GOODS/FOOD
SERVICES
MONEY
Airbnb
Uber
Chegg
Freelancer
Lending Club
HomeAway
Lyft
Ebay
Instacart
Funding Circle
Love Home Swap
ZIpcar
Craigslist
Task Rabbit
Prosper
Onefinestay
RelayRides
Rent the Runway
Angies List
Kick Starter
Wework
Zimride
Etsy
Elance
Go Fund Me
Regus
Car2Go
Cookening
Bidwilly
Zopa
S1
S3
S4
S5
S6
S7
S8
S9
S10
Today, it is possible to take a vacation that includes driving a shared car from Turo or Getaround,
staying in a private room or home that you found through Airbnb or HomeAway, using someone
elses bicycle or golf clubs that you rented through Spinlister or GearCommons, and eating a meal
in a home with a local family that you discovered through BonAppetour or Cookening while wearing
someones clothing that was listed on Rent the Runway or Vinted. And during your vacation, a pet sitter from DogVacay or Rover.com can take care of your dog. You can facilitate all of these transactions
through a website or an app on your smartphone, and when you return to work in your shared office
space at WeWork or Cove, you can write an electronic review of your experiences for others to read,
helping them to decide if this is for them. By the way, you will also be rated for your desirability as a
customer or a guest, so if you broke your Airbnb hosts best china without offering to replace it or pay
for it, you may want to look for a different service the next time around.
Perhaps you have noticed that none of these transactions involved any real sharing all of them
require a monetary payment. In other words, sharing is actually very similar to those conventional
concepts of buying and renting.
So how is the sharing economy affecting the real estate industry? We will try to answer that by looking
at two sectors where the sharing concept has had direct consequences for real estate: the lodging
and office sectors.
Airbnb does not own any hotels, but

it has more rooms (listings) than the
new Marriott/Starwood and Hilton
combined. At $25.5 billion in market
capitalization, it is the third-largest
hospitality company in the U.S.
S2
Airbnb does not own any hotels, but it has more accommodations (listings) than the newly-merged Marriott/Starwood and Hilton combined,
according to The New York Times, and it is by far the largest sharing
economy service in the lodging sector. Since its founding in 2008,
Airbnb says it has grown to over two million listings serving 60 million
guests in more than 34,000 cities and 190 countries. It has a current
market capitalization of $25.5 billion; only Marriott/Starwood and
Hilton Worldwide are more valuable. Airbnbs revenue grew 106% in
2015 far outpacing Choice Hotels and Hilton, the next-closest hotel
chains, each of which saw about 9% growth.
In the District of Columbia, Airbnbs inventory is only about 12% as
large as the hotel room inventory, but this figure is growing. Given
that the Districts hotel occupancy rate has risen since 2010, even as
the room supply has grown, it appears that Airbnb may be helping to
expand the market instead of cannibalizing existing market share. Its
pricing may be affecting the composition of hotel demand, particularly
in the economy sector. The $118 average price of an Airbnb accommodation in the District in 2015 is about 43% less than the average
daily rate for a hotel room, indicating that Airbnb is primarily serving
the leisure travel sector, rather than business travelers, and perhaps
inducing new demand from guests who would not otherwise pay for
a hotel.
This could change, however, with the introduction of serviced apartments through Airbnb for Business, a new division offering rentals with
business class hotel amenities through a partnership with BridgeStreet, which has more than 50,000 mid-range and luxury rentals in
about 60 countries. Additionally, the Wall Street Journal reports that
Airbnb has discussed arrangements with national apartment operators
to allow tenants to rent out their units in exchange for a share of the
revenue. However, it remains to be seen if Airbnb will succeed in convincing local governments, tenant organizations, and property owners
and managers that increasing the number of apartments on Airbnb
will not cut the rental housing supply overall (affordable housing in
particular has been a sensitive political topic), flout existing zoning
regulations, affect tax revenues, or compromise security and safety
issues that have been raised in several cities already. Looking ahead,
Airbnb is expanding into new services that will improve the experiences of both its hosts and their guests and is expected to broaden
its strategic partnerships with apartment operators and perhaps even
hotel companies.
S1 | 14
Sharing and the Office Real Estate Industry

The same shifts in consumer attitudes fueling the growth of Airbnb and other sharing economy
companies are driving changes in the commercial office market. In addition, there are basic differences in the types of office jobs being created today, with independent contractors supplanting
some permanent, full-time employees. These changes are affecting how and when office space is
used and thus how it is designed and leased. New coworking concepts such as WeWork are offering
coworking space with a new set of design, leasing, and occupancy parameters that are better-suited
for todays workers in sectors of the economy where the work is more demand-based. By 2020 up to
one million professionals will work in coworking facilities, according to Emergent Research.
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
In the case of WeWork, their business model involves renting large blocks of office space and building them out as fully furnished coworking spaces that range from unassigned desks in a large open
area to enclosed, lockable, private offices that can accommodate one or more people, and leasing
them on a month-to-month basis.
Today there are over 70 coworking or on-demand office space locations of various types in the Washington area. Variations include Cove, MakeOffice, Carr Workplaces, Metro Offices, Regus, and LiquidSpace (which is an online matchmaking service to list and find workspaces). The principal opportunity in the on-demand office space sector is that owners and managers can maximize their rents. For
example, it has been estimated that a typical coworking space in the Washington area averages 55
square feet per person and an average membership cost of $500 per month equating to more than
$90 per square foot in rent to the operator. Of course, this premium rent is offset by higher operating
expenses, and occupancy rates typically are lower than in the conventional office market. But the lure
of making productive use from otherwise vacant or under-utilized space is appealing.
While we expect coworking to continue to grow and to be a useful component of the office market, it
is not likely to replace the vast majority of conventional office space demand.
Megatrend #4: Resilience: Commercial Real

Estate Must Adapt
Preparing for Problems, Designing for Recovery
The specter of climate change and sea level rise is having a dramatic effect on the real estate and
urban development world. In the wake of Hurricane Katrina, Superstorm Sandy, and other natural
disasters, public and private interests alike have identified the need to plan and prepare for future
catastrophic events.
The term that has emerged to describe these efforts is resilience. This term, as commonly used, refers to preparations for all types of catastrophic events, both natural and man-made: floods, storms,
droughts, terrorism, cyber-attacks, and even economic shocks. Business and political leaders around
the world are rapidly embracing the notion that, unless cities and buildings are made more resilient
to such events, the losses could be dire in both human and economic terms.
S1 | 15
The uptick in catastrophic weather events over the past 20 years is real and increasingly alarming.
From 1950 through the 1990s, there was an average of about two natural catastrophes per year
in the U.S. The average over the past decade has been eight per year; in 2011 alone there were
14 such events. In terms of economic damage, the two costliest types of natural catastrophes are
hurricanes/tropical storms and tornadoes. Between 1950 and 2013, these two types of events
caused more than $300 billion in damages (in 2014 dollars), representing 80% of the total damage
nationwide.
S1
S2
S3
S4
S5
S6
S7
S8
A wide variety of responses have been advanced to address the mounting threat from both natural
and man-made catastrophes. The Federal government now requires local governments to prepare
hazard mitigation plans in advance of disasters in order to qualify for FEMA funding. Congress has
passed several new laws aimed at improving the National Flood Insurance Program. Numerous state
and local governments have undertaken adaptation plans that ensure that infrastructure and buildings are protected from rising sea levels. The nonprofit community has taken on many initiatives,
most notably the Rockefeller Foundations 100 Resilient Cities program that is building a dialogue
among peer cities facing similar issues.
Professionals in the planning, engineering, and design fields have been devising new approaches
to resilience. This is exemplified by RELi, a resiliency standard created by the design firm Perkins +
Will that is modeled on LEED (the Leadership in Energy & Environmental Design rating system of
the U.S. Green Building Council) and measures how effectively buildings are designed to respond to
different types of hazards and events. RELi is envisioned as a standard that can be used by underwriters to measure the mitigation of risk for structures built in vulnerable locations.
Catastrophe Costs by Type

United States | 1950 2013
0%
5% 2%
In Billions of 2014 Dollars
6%
Hurricanes/Tropical Storms $161.2
7%
41%
Tornadoes $154.9
Winter Storms $26.9
Terrorism $24.5
Wind/Hail/Flood $21.4
39%
Fires $6.0
Geologic Events $0.5
Source: Munich Re, Delta Associates, February 2016.
S9
S10
S1 | 16
Resilient Building Design Strategies

Extreme Heat
Extreme Wind
Drought
Siting and shading to reduce heat gain
Power center above floodplain
Envelope strengthening
Graywater recycling
Super-insulated building envelopes
Landscape features: berms, wetlands,

mangroves
Impact resistant glass
Rainwater catchment
Backup power capacity to HVAC
Xeric landscapes
Material specification
Reduce water useindoor
Tornado safe room
Reduce water uselandscape
Operable windows
Glass that deflects heat
Green roofs
S1
Sea-Level Rise/Flooding
Trees and vegetation
Permeable or pervious paving

Reduce soil compaction
Sewage backflow valve
S2
S4
S5
S6
S7
S8
S9
S10
The commercial real estate community has been somewhat slower to respond to the rapidly
increasing need for resilience, though. The conventional wisdom in the real estate development
and finance world is that resiliency requires enormous upfront capital outlays with no increase on
return. The challenge is that future damages from floods and other natural disasters are typically not
measured in development pro formas, so there is no way to know the potential costs of ignoring
resilience measures.
There are several recent projects that are challenging this mindset mainly located in floodplains or
coastal areas. While these have mainly been large-scale mixed-use projects such as The Wharf here
in Washington, there have been some smaller scale developments in other cities that have begun
to incorporate resilience into their designs. As the threat of catastrophic events rises, the real estate
community will need to be more proactive in order to protect their investments.
The Washington area is, in spite of its low-lying location and prevalence of floodplain, well positioned to thrive in a resilience-focused world. A recent study by Grosvenor examined the vulnerability and adaptability of cities in the U.S. and globally. While this study found that Washington was
moderately at risk for future catastrophes, particularly flooding, it also found that Washington was
among the most prepared cities in the world in terms of its ability to respond to hazards. This adaptability should be a great asset for Washington real estate in the years to come.
The Washington area is, in spite of

its low-lying location and prevalence
of floodplain, well positioned to
thrive in a resilience-focused world.
Resiliency Rankings
United States | 2010-2015
Least Vulnerable
Most Adaptive
1. Chicago
1. New York
2. Pittsburgh
2. Los Angeles
3. Atlanta
3. Washington, D.C.
4. Boston
4. Chicago
5. Detroit
5. San Francisco
6. Washington, D.C.
6. Houston
7. Seatlle
7. Boston
8. New York
8. Pittsburgh
9. San Francisco
9. Seattle
10. Los Angeles
10. Atlanta
Source: Grosvenor International, Delta Associates; February 2016.
S3
S1 | 17
S2 | The National Economy

S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
S2
After a sluggish start, the national economy ended 2015 on a high note with strong job gains and
respectable GDP growth. Through November 2015, the U.S. economy marked 70 consecutive
months of job gains and added more jobs in the past two years than in any two-year period since
1998-2000. The unemployment rate is low, new claims for unemployment insurance are at cyclical
lows, and home prices rose. Still, some indicators have been only tepid and economic and political
troubles around the globe reverberate through the U.S. economy, leading to the feeling that things
are not quite stable yet.
S3
Here are some highlights from 2015:
S4
Payroll job growth was strong, with 2.71 million jobs added during 2015; job growth was led
by the Professional/Business Services sector, which is among the highest paying employment
sectors. In addition, the Federal government finally posted a net job gain in 2015, ending
several consecutive years of reductions.
S1
S5
S6
S7
S8
S9
S10
The unemployment rate continued to decline through the year, and stood at 5.0% at December
2015.
After a sluggish start to 2015, GDP growth resumed in the 2nd quarter of 2015 and remained
healthy throughout the balance of the year.
GDP growth was primarily driven by increased consumer spending, though inventory cutbacks and
a slowdown in net exports prevented stronger growth. Strong employment growth over the year
pushed the national unemployment rate down throughout the year, even as the labor force
participation rate increased. Despite the healthy job increases, much of the growth has come in
lower paying industries, leading to weak wage growth. This should change over the next couple of
years, as higher-wage industries add more jobs and the low unemployment rate forces businesses
to compete for top talent.
Another encouraging sign for the national economy is continued growth in consumer buying power
from increases in both household net wealth and revolving credit. These trends reflect the upside of
historically low interest rates, which have encouraged consumers to invest their cash in riskier assets
and reach for their credit cards. With the national economy having weathered a scare in the international markets in August, the Federal Funds Rate was increased for the first time in nearly a decade
at the December 2015 meeting of the Federal Open Market Committee (FOMC). The increase was
just one quarter of a percent and will likely slow consumer spending and revolving credit somewhat,
but will strengthen the dollar even further.

15%
12-Month Percentage Change
THE NATIONAL ECONOMY OVERCAME A SLOW START AND EMERGED

FROM 2015 IN GOOD CONDITION, BUT CONCERNS LINGER
Revolving Credit
10%
5%
0%
-5%
-10%
-15%
1999
2001
2003
2005
2007
2009
2011
2013
2015*
*12-month percentage change through November 2015, seasonally adjusted.

Source: Federal Reserve Board, Delta Associates; February 2016.
Change in U.S. Household Net Worth

15.0%
12-Month Percentage Change
Cumulative Annual Growth Rate (CAGR) = 2.96%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015*
*As of 3rd Quarter 2015.

Source: Federal Reserve Board, Delta Associates; February 2016.
Moving forward, the U.S. economy is poised to continue gaining strength through 2016 and beyond.
Major economic indicators are moving in a positive direction, although wage growth, international
trade, and economic turbulence in China and Europe remain areas of concern. The timing and size
of additional increases to interest rates also bear watching over the coming year.
S2 | 19
S8
Net monthly job growth for the last three months of 2015 averaged over 275,000 jobs; this resurgent
job growth has helped dispel concerns that the economic recovery was faltering after recording two
consecutive months of net job additions below 200,000 in August and September. Month-to-month
gains (seasonally adjusted) from January to December 2015 has averaged approximately 221,000
jobs per month:
S9
October 2015: 307,000
S10
November 2015: 252,000 (Preliminary)
S6
S7
December 2015: 292,000 (Preliminary)

The rebound in public sector hiring has been driven largely by the state and local government
subsectors, though there has finally been some recent growth at the Federal level. Following 47
consecutive months of year-over-year declines, Federal employment increased in every month of
2015 except for January.
Overall, the public sector has now added jobs (year-over-year) for 18 consecutive months after
shedding jobs over the previous several years. Federal employment is expected to continue growing
over the next couple of years, especially now that the Federal government finally approved a budget
in November after five years of turmoil and continuing resolutions. The agreement increases
discretionary spending by $80 billion over the next two years, and will go a long way towards
easing uncertainty in economic sectors relying on Federal spending.
During the 12-month period ending November 2015 the top four sectors in job gains were Education/
Health Services, Professional/Business Services, Leisure/Hospitality, and Retail Trade. These four sectors
alone added about 2 million new jobs, accounting for 73% of net job growth. Job gains were positive
across all major super sectors, and seven of the 13 sectors added at least 100,000 payroll jobs over
the year. A healthy Professional and Business Services sector is especially important for commercial
real estate markets, since these jobs typically boost both retail spending and office demand.
2,000
1,500
1,000
500
15
15
c.
De
15
v.
No
15
t.
Oc
15
p.
Se
15
g.
Au
15
ly
Ju
15
ne
ay
Ju
15
.1
r.
Ap
15
ar
M
b.
15
Ja
Fe
14
n.
14
c.
14
0
De
S5
2,500
v.
S4
Public Sector
3,000
t.
S3
Job growth was robust throughout 2015 with the national economy adding 2.71 million new payroll
jobs over the year. Nearly all job growth was in the private sector, with 2.6 million private jobs added
over the 12-month period. After several years of job reductions, public sector employment began
to pick up in 2015, especially in the latter half of the year, with 110,000 new jobs added during the
year. The pace of public sector hiring is currently at its highest level since early 2010.
Private Sector
3,500
No
S2
Payroll Jobs
United States | Year-Over-Year
Oc
S1
Payroll Job Growth
Thousands of New Payroll Jobs
Now, for a look at major U.S. economic indicators:
Moving forward, the economy is

poised to continue gaining strength
through 2016 and beyond.
Note: Data are not seasonally adjusted.

Source: Bureau of Labor Statistics, Delta Associates; February 2016.
Payroll Job Growth

United States | 12 Months Ending December 2015
Education/Health
Professional/Business Services
Leisure/Hospitality
Retail Trade
Financial Activities
Construction/Mining
Transportation/Utilities
State and Local Government
Other Services
Wholesale Trade
Information
Manufacturing
Federal Government
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000
Job Change
S2 | 20
S2
S3
S4
S5
S6
S7
S8
S9
S10
An ongoing area of concern for the national economy is the national average hourly wage, which
has increased at a slow rate since the end of the recession. Over the past five years, the growth rate
of average hourly wages has hovered around 2.0%. Prior to the recession, from 2007 to 2009, the
hourly wage growth rate averaged 3.1%. This is a pressing issue for many aspects of the economy,
including price levels and consumption patterns.
The unemployment rate should

continue to decline in 2016, but at a
slower rate, as the number of cyclically
unemployed persons dwindles.
S1
The unemployment rate (seasonally adjusted) declined to 5.0% as of December 2015, down from
5.6% one year earlier, and marking its lowest level since before the Great Recession. This decline
occurred despite the labor force increasing 1.9% during the same time period. As the nations
economy has returned to a healthy state, unemployed persons are becoming more confident in
being able to find full-time jobs. The unemployment rate should continue to decline in 2016, but
at a slower rate, as the number of cyclically unemployed persons dwindles.
There are multiple competing theories that may explain the weak wage growth. One is that slow
growth in wages is an indicator that the jobs being created are in lower-paying industries. Even
if people are finding jobs, they are likely to be underemployed, meaning job seekers are taking
jobs that are below the education and experience levels they have achieved. Another theory has
to do with the changing composition of the workforce. The average age of workers has remained
relatively constant over the last few years, which indicates that younger workers are entering the
workforce at a faster pace than other age cohorts. These younger workers tend to start with lower
salaries, which may partly explain depressed average wage growth.
A third theory is that, due to slow moving wage adjustments, known as sticky wages, firms could
not adequately reduce wages to offset lower demand during the Great Recession, and we are
witnessing a slow correction in wages or pent-up wage cuts as workers become more accepting of
reduced nominal wages. Wage growth tends to be a lagging indicator of an economic recovery, and
the current recovery has progressed much slower than most. The combination of low unemployment and continued employment growth should lead to stronger wage growth in 2016 and beyond.
Unemployment Rate
12%
10%
U.S. Unemployment Rate
Overall, initial unemployment claims have steadily decreased since peaking in March 2009. As of
the first week of January 2016 initial claims were 275,750, based on a four-week seasonally-adjusted
moving average. This is 5.8% below the same week in 2015, and 27.2% below the 15-year average
of 348,794. Unemployment claims should continue to erode into 2016 as the nation approaches full
employment and cyclical unemployment approaches zero.
8%
6%
4%
2%
0%
80
85
90
95
00
05
10
15
Note: Seasonally adjusted; shaded bars represent recessions.

Average Hourly Earnings

12-Month Percentage Growth | 2007 December 2015
5%
12-Month Percentage Growth
Labor Force and Wages
Average 2007-2009 = 3.1%

4%
3%
Average 2010-2015 = 2.0%
2%
1%
0%
2007*
2008
2009
2010
2011
2012
2013
2014
2015
*Data available starting March 2007.

S2 | 21
Employment Levels by Job Status

4,000
Full-Time
3,000
Part-TIme
2,000
1,000
0
-3,000
-6,000
S6
S7
2015
S5
2010
-5,000
2014
-4,000
S4
2013
S3
-2,000
2012
S2
2011
S1
-1,000
Note: Data are seasonally adjusted.

S8
S9
S10
Number of Unemployed vs. Job Openings

12-Months Average Ending November 2015
Mining
Information
Financial activities
Number of Job Openings

Number of Unemployed
Transportation and utilities

Other services
Government
Construction
Manufacturing
Education and health services
Professional and business services
Leisure and hospitality
Wholesale and retail trade
0
200
400
600
800
1,000
1,200
1,400
Thousands of Jobs
Note: Based on 12-month trailing average. Data are not seasonally adjusted.
S2 | 22
Gross Domestic Product (GDP)
S2
S5
S6
S7
S8
S9
S10
Real GDP growth for the 3rd quarter of 2015 was estimated at 2.1%, somewhat below the expected
growth rate of 2.7% for the quarter. GDP growth in 2015 was largely driven by consumer expenditures, state and local government spending, and exports, but was held back by restrained inventory
accumulations by businesses. After starting 2015 on a sour note, with 1st quarter GDP coming in at
a paltry 0.6%, GDP quickly recovered, recording a very healthy 3.9% growth rate in the 2nd quarter.
The economy shook off many of the weaknesses during 2015 including harsh weather, declining oil
prices, a sell-off in international markets (mainly China), and accelerated appreciation of the dollar,
which sent net exports plunging.
Looking forward into 2016, strong consumer spending will continue to be the main engine of economic growth, but steady improvements in the housing market, Federal and state/local government
spending, and business investments will move the economy forward as well.
The most recent report from the Federal Reserve Bank of Philadelphias Survey of Professional
Forecasters projects real GDP growth to be 2.8% in the 4th quarter of 2015 and 2.4% for all of 2015.
Looking further ahead, real GDP is predicted to average 2.6% in 2016, 2.5% in 2017, and 2.8% in 2018.
Corporate Profits
U.S. corporate profits totaled $2.06 trillion during the 3rd quarter of 2015 on an annualized basis,
down very slightly from $2.08 trillion in 2nd quarter of 2015 and from $2.20 trillion in the 3rd quarter of 2014. Corporate profits have largely plateaued in recent years as more companies are taking a
cautious approach of buying back shares and slowly increasing dividends. Companies are continuing to weigh options on how to best deploy earnings and profits and, in many cases, are showing
a preference for mergers and acquisitions over riskier, capital intensive projects that could rock the
boat for shareholders. However, the recent increases in hiring indicate that corporate leaders are
becoming more confident about consumer demand.
6%
20-Year Average = 2.4%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15
Note: Quarters are seasonally adjusted at annual rates.
U.S. Corporate Pre-Tax Profits

2008 2015
$2.5
$120
Corporate Profits
S&P 500 12-Month EPS
$100
$2.0
$80
$1.5
$60
$1.0
$40
$0.5
$0.0
S&P 500 12-Month EPS
S4
S1
Annual GDP Change in 2009

Constant Dollars
S3
Another positive indicator is the declining job availability ratio the relationship between potential
applicants and the number of jobs available. The national job availability ratio was 1.2 as of November
2015, down from 1.6 in November 2014. The Professional/Business Services sector had the greatest
number of job openings as of November 2015, with 1,074,000 jobs, and had the lowest job opening
ratio at 0.8, tied with the Education and Health Services sector.
GDP Percent Change
Corporate Profits in Trillions
The past year has been an auspicious time for underemployed workers seeking full-time employment.
As recently as 2011, the U.S. economy was adding more part-time than full-time jobs. Since 2014,
though, the gap (seasonally adjusted) between full-time and part-time employment growth has
grown along with the overall workforce. In August 2015, the gap between the 12-month net gain
in employment for full-time and part-time jobs reached a post-recession high of 4.03 million. The
gap narrowed somewhat in the fall, and was 2.69 million as of December 2015. Full-time positions
translate to more hours worked and higher paychecks. Recent trends in full-time employment seem
to also indicate that any negative effects of Obamacare on full-time hiring have been blunted by the
need for more full-time workers.
$20
2008
2009
2010
2011
2012
2013
2014
2015*
$0
Note: *Through Sept. 2015, seasonally adjusted at annual rates. Yearly data are not seasonally adjusted.
EPS reflect operating earnings as of Sept. 2015.
Source: Bureau of Economic Analysis, Standard and Poor's, Delta Associates; February 2016.
S2 | 23
Home prices in the 20 major metro areas covered by S&P/Case-Shiller increased 5.5% during the
12 months ending October 2015, the most recent data available. This is up from the September
2015 figure of 5.4%. The growth rate of home prices largely stabilized in 2015 as expanding
inventories of homes for sale in many metro areas eased pricing pressure. With an interest rate
hike just implemented, mortgage rates will almost certainly see a corresponding increase. However,
we expect the housing market to continue to flourish into 2016 with increased construction and
higher sales prices.
S2
According to the National Association of Realtors, the annualized pace of existing home sales
decreased to 4.8 million (preliminary) in November 2015, down from 5.0 million in November 2014.
The average existing home sales price was $263,900 (preliminary) in November 2015, up 4.0% from
$253,800 in November 2014.
S3
The Federal Budget
S4
The Federal budget deficit for the 2015 fiscal year was $439 billion (2.5% of GDP)--the lowest level
since FY 2007, and below the 40-year average. The budget shortfall in FY 2015 marked the sixth
consecutive year that the deficits share of the GDP has decreased since peaking at 9.8% in 2009.
The smaller deficit is attributed to greater than anticipated tax revenues from businesses and households as a result of the improving economy. In spite of this progress, the U.S. is still running a deficit
we are not paying down our debt, we are just increasing it at a slower rate.
S7
S8
S9
S10
After years of political wrangling Congress finally passed a budget bill in the 4th quarter of 2015,
which was signed by President Obama in November. The budget brought an end (at least for the
short term) to the ongoing drama of impending Treasury defaults, Federal government shutdowns,
and forced continuing resolutions. Federal discretionary spending caps were raised by $80 billion
over the next two years and provide $32 billion in overseas contingency funds to the Pentagon.
While the budget deal provides

some fiscal stability over the next
couple of years, there are still many
long-term concerns.
15%
10%
5%
0%
-5%
-10%
-15%
-20%
2008
2009
2010
2011
2012
2013
2014
2015
Note: Data reflect 20-city composite index.

Source: S&P/Case-Shiller, Delta Associates; February 2016.
U.S. Existing Home Sales vs. Sales Price

2006 2015
6,500
Number of Existing Home Sales**

Average Existing Home Sales Price
6,000
$280,000
$270,000
$260,000
5,500
$250,000
5,000
$240,000
4,500
$230,000
4,000
$220,000
3,500
3,000
Average Sales Price
S6
20%
Number of Sales Thousands of Units
S5
-25%
S1
Annual Change in Existing Home Sale Prices
Percent Change For Median Price

of Single-Family Homes
Housing Market
$210,000
2006
2007
2008
2009
2010
2011
2012
2013
2014 2015*
$200,000
*Data as of November 2015. **Seasonally adjusted annual sales rate.

Source: National Association of Realtors, Delta Associates; February 2016.
While the budget deal provides some fiscal stability over the next couple of years, there are still
many long-term concerns. Without action, the deficit would reach $1.0 trillion by 2025, with growth
driven by an aging population, rising health care costs, an expansion of Federal subsidies for health
insurance, and growing interest payments on the Federal debt. The national elections of 2016 could
have a major impact on the long-term picture as well, since the outcome could lead to profound
changes in Federal taxation and spending policies.
S2 | 24
Over the past couple of years the economic recovery has been fueled by healthy employment
growth. All major employment sectors have experienced strong job growth, with the high-wage
Professional/Business Services sector leading the way. The unemployment rate steadily declined
by 60 basis points over the 12 months ending December 2015, and the national economy is now
approaching the point of full economic employment. We expect that the sustained health of the
employment market will lead to improvements to the housing and retail markets in 2016.
2017
2018
2019
2020
2021
2022
2023
2024
2025
Deficit as a % of Real GDP
0.0%
Baseline budget projections as of August 2015.

Source: Congressional Budget Office, Delta Associates; February 2016.
Selected U.S. Government Interest Rates

2000 2015
7%
Effective Federal Funds Rate

10-Year Treasury
6%
30-Year Treasury
5%
4%
3%
2%
1%
14
13
12
11
10
09
08
07
15
20
20
20
20
20
20
20
20
20
06
0%
05
The national economic recovery continued in 2015, with most of the damage done by the Great
Recession now in the rear view mirror. GDP growth is projected to be 2.8% in the 4th quarter and
2.4% for all of 2015.
2016
20
Economic Outlook
2015
0.5%
% of GDP
04
Inflation remained flat during the 12 months ending November 2015, with a strong dollar and
lower domestic energy prices keeping prices in check. This is well below the Feds benchmark of a
2.0% increase, which had been a contributing factor to the delay in raising the Federal Funds Rate.
The personal consumption expenditure price index (PCEPI), which takes into account changes in
consumption habits as people substitute some goods and services for others, rose 0.4% during
the 12 months ending November 2015. We expect inflation to be contained in the near-term due
to modest wage growth and a strong dollar, coupled with the fact that price pressure tends to lag
economic growth by a year or more. Given these conditions, inflation will likely remain in the 0.5%
to 1.0% range on an annualized basis through 2016.
-1,200
Deficit
20
S10
1.0%
-1,000
03
S9
1.5%
-800
20
S8
2.0%
02
S7
2.5%
-600
20
S6
3.0%
01
S5
3.5%
-400
20
S4
Global financial markets are expected to experience continued volatility in the short-term, at least
until uncertainty surrounding the Chinese economy, and the Chinese governments corrective
measures, diminishes. Sudden swings in commodity prices and exchange rates also remain a concern. Sectors that have benefited from record-low borrowing rates will experience the most market
volatility. Commercial real estate and the REIT sphere are experiencing downward pressures as the
market accounts for higher costs of capital, though REITs with solid property fundamentals should
be able to weather the storm. As of the end of trading on January 12, 2015, the S&P 500 index stood
at 1938.68, down about 4% over the previous 12 months. The Index reached a 2015 high of 2130.82
on May 21, up 13% over 12 months.
4.0%
-200
00
S3
In addition to the December 2015 interest rate increase, the Fed has also indicated its intention to
enact further incremental increases to interest rates in 2016. Still, interest rates have been at historically low levels, so the expected modest increases will keep long-term interest rates relatively low.
4.5%
20
S2
20
S1
Baseline Budget Projections
Federal Deficit ($ Billions)
There had been a great deal of discussion throughout 2015 about when the Fed would increase
the Federal Funds Rate, and by how much. Stock market woes on Wall Street brought about by a
faltering Chinese economy and extremely low oil prices led the Federal Open Market Committee to
decline to raise rates at its September meeting. The somewhat disappointing August and September job growth numbers furthered the rumor that any interest rate hike would be pushed into 2016.
However, revitalized job growth in October and November, and consumer price increases, provided
the FOMC with the confidence to implement a slight, 0.25% increase in the Federal Funds Rate
target at the December 16 board meeting. The rate hike, which was nearly universally anticipated,
is the first since the recession.
Interest Rates (%)
Interest Rates and Inflation
Data are non seasonally adjusted monthly averages. 30-Year Treasury not issued between
March 2002-Dec. 2005.
Source: Federal Reserve Economic Data (FRED), Delta Associates; February 2016.
S2 | 25
S2
S3
S4
S5
S6
S7
S8
S9
S10
Overall, 2016 will bring another year of sustained, but modest economic growth. The national
economy will expand and add jobs over the next year, but growth will continue to be slower than
in past economic recovery cycles.
Overall, 2016 will bring another year

of sustained, but modest economic
growth.
Specifically, we believe the economic outlook is as follows:
S1
Another major concern moving forward in 2016 is international trade. China, one of the largest U.S.
trading partners, is in the midst of a considerable economic slowdown which will likely be a drag on
U.S. net exports bad economic news from China has already caused significant of economic turbulence in the first weeks of 2016. In addition, a strong U.S. dollar which saw virtually zero inflation in
2015, will also hurt the nations trade balance. We do expect inflation to return modestly, especially
since energy prices have likely hit bottom.
Real GDP growth: 2.6% in 2016.
U.S. Inflation and Personal Consumption Expenditure Index

1980 2015
16%
Percentage Change
Despite the generally good economic news in 2015, the current recovery has shown a few areas
of weakness. The primary area of concern is the lack of significant wage growth, stemming from
job growth in lower-paying sectors and limited competition for quality workers. We expect 2016 to
bring improvement in this area, as the pool of unemployed workers looking for jobs continues to
dry up and employers increase compensation to attract the best qualified personnel.
14%
CPI-U
12%
PCEPI
10%
8%
6%
4%
2%
0%
-2%
80
85
90
95
00
05
10
Note: *CPI-U and PCEPI through November 2015. Data reflects 12-month percentage change.
Source: Federal Reserve Economic Database (FRED), Delta Associates; February 2016.
U.S. Payroll Job Growth

year
job change
% change
2015
2,707,000
1.9%
2014
2,649,000
1.9%
2013
2,289,000
1.7%
Payroll jobs: 2.75 million added in 2016.
2012
2,262,000
1.7%
Housing: Price appreciation around 5.5% to 6.0% in 2016.
2011
1,567,000
1.2%
Unemployment rate: 4.6% at end of 2016.
2010
-958,000
-0.7%
2009
-5,937,000
-4.3%
2008
-766,000
-0.6%
2007
1,538,000
1.1%
2006
2,393,000
1.8%
2005
2,256,000
1.7%
Inflation: 1.5-2.5% for 2016 as consumer demand continues to strengthen, but fuel costs
remain low.
2004
1,431,000
1.1%
2003
-310,000
-0.2%
National Payroll Job Growth Summary
2002
-1,446,000
-1.1%
Federal Funds Rate: At least one incremental increase in 2016, following the 0.25% increase
in December 2015.
Long-term interest rates: Edging higher during 2016, particularly short-term rates, following
the Federal Funds Rate increase. Long-term interest rates will only increase very modestly.
The U.S. economy gained 2.65 million payroll jobs over the 12 months ending November 2015,
virtually unchanged compared to all of 2014. This compares to the 25-year annual average of 1.2
million jobs at a 1.0% average growth rate.
15*
Note that BLS has rebenchmarked figures since their initial publication; the figures presented above are
the most recent estimates.
Source: Bureau of Labor Statistics, Delta Associates, February 2016.
S2 | 26
12-Month Payroll Employment Change Through November 2015

job change
METRO AREA
New York
167,000
job change
%
1.8%
LA Basin
S1
S2
S3
METRO AREA
Denver-Boulder
36,600
2.7%
Portland (OR)
36,500
3.3%
Los Angeles/Long Beach/Glendale
73,200
1.7%
Austin
36,100
3.9%
Orange County (Santa Ana/Anaheim/Irvine)
39,000
2.5%
Charlotte
35,500
3.3%
Riverside/San Bernardino/Ontario
46,100
3.5%
San Antonio
35,300
3.7%
158,300
2.2%
Philadelphia
34,500
1.2%
Detroit (Detroit/Warren/Livonia)
33,800
1.8%
San Jose/Sunnyvale/Santa Clara
52,300
5.1%
Baltimore
31,600
2.3%
San Francisco/San Mateo/Redwood City
42,200
4.1%
Minneapolis-St. Paul
30,700
1.6%
Total LA Basin
San Francisco Bay Area
S4
Oakland/Fremont/Hayward
S5
Total Bay Area
1.7%
Indianapolis
30,100
3.0%
3.6%
Nashville
26,900
3.0%
101,200
3.0%
Sacramento
24,400
2.7%
Atlanta
86,500
3.4%
Houston
23,700
0.8%
S7
Washington, DC
61,900
2.0%
Salt Lake City
23,400
3.5%
S8
Seattle
55,100
2.9%
Las Vegas
23,100
2.6%
Columbus (OH)
21,700
2.1%
Cleveland
18,700
1.8%
S6
S9
S10
Dallas/Ft. Worth
18,100
112,600
South Florida
West Palm Beach/Boca Raton
12,800
2.2%
Fort Lauderdale
27,000
3.4%
Raleigh-Durham
18,300
2.2%
Miami/Miami Beach/Kendall
18,100
1.6%
Cincinnati
16,800
1.6%
Total South Florida
57,900
2.3%
Jacksonville
16,300
2.6%
Phoenix
49,600
2.6%
Kansas City
12,300
1.2%
Boston (Metropolitan NECTA)
47,900
1.8%
Pittsburgh
12,000
1.0%
Chicago
47,000
1.0%
Oklahoma City
10,700
1.7%
Tampa-St. Petersburg
40,500
3.3%
St. Louis
9,700
0.7%
Orlando
39,900
3.5%
Memphis
San Diego
37,800
2.7%
New Orleans
5,300
0.8%
(1,700)
-0.3%

S2 | 27
S3 | The Washington
Area Economy
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
2015 Highlights
RESURGENT ECONOMY PRODUCES STRONGEST JOB GROWTH IN A

DECADE, BUT IS ENTERING A PERIOD OF TRANSITION
S2
S3
S4
S5
S6
S7
S8
S9
S10
The regions labor market is also doing well, with the unemployment rate continuing to decline
even as the labor force expands. The regional unemployment rate as of November 2015 was 4.1%,
well below the national average of 5.0%. One area of concern is the regions average wage, which
is down substantially from its 2010 peak. Wages are likely to begin increasing in 2016, though, as
growth has resumed in the metro areas Professional/Business Services sector, which has by far the
highest average wage among the regions top employment sectors. The recent passage of a Federal
budget has removed a major source of short-term uncertainty and should help bolster the regions
economic growth prospects. As economic output and labor demand increase, competition among
firms for top talent will also drive wage growth.
The Washington metro areas

economy performed very well in
2015, with most economic indicators
showing positive trends.
Job Change: Increased 61,900 during the 12 months ending

November 2015. Compares to 36,500 in the 12 months
ending November 2014.
Unemployment Rate: 4.1% at November 2015, down from
4.6% one year ago, one of the lowest among the nations
largest metro areas.
Inflation: Prices increased 0.6% during the 12 months ending
November 2015.
Housing Prices: Increased 2.1% during the 12 months ending
September 2015.
Source: Bureau of Labor Statistics, S&P/Case-Shiller; February 2016.
S1
The Washington areas economy performed very well in 2015, with most economic indicators
showing positive trends. Job growth has been particularly strong, with 61,900 net job additions
during the 12-month period ending November 2015, and year-end employment growth figures are
expected to show the regions strongest job growth in a decade. The private sector has been the primary source of job growth as it gains influence on the regional economy, but Federal employment
and procurement have stabilized after several years of declines. The Professional/Business Services
and Education/Health sectors led the region in job creation, adding 36,400 jobs combined between
November 2014 and November 2015.
Payroll Employment: 3.2 million at November 2015.
The Washington metro is still an attractive place to do business, visit, and live. A recent Washington
Business Journal article documented how Washington sits at or near the top of many top 10 best
cities lists covering a range of factors, including: growth in STEM employment (science, technology,
engineering, math), women in technology, energy efficiency, walkability, gender pay equity, and job
opportunities for young professionals. With the regions fundamentals now back on track as well, all
indicators point to sustained economic growth over the next five years.
S3 | 29
Following two weak years, 2015 brought a return to strong job growth for the Washington metro
area economy, mirroring national trends. During the 12 months ending November 2015, the metro
area added an impressive 61,900 new payroll positions, well above the 20-year annual average of
41,800. Looking ahead to 2016, we expect job growth in the Washington metro area to continue at a
pace similar to what it did in 2015. With 3.2 million payroll jobs, the Washington metro area ranks as
the fifth largest job market, behind only New York, the LA Basin, Chicago, and Dallas/Ft. Worth.
S2
S3
S4
S5
S6
S7
S8
S9
S10
Washington Metro Area | 1994 2015

140
120
The top four sectors for job growth in the Washington metro area in the 12 months ending
November 2015 were Professional/Business Services, Education/Health, State/Local Government,
and Construction. These sectors alone accounted for a net gain of 50,900 jobs, representing more
than three-fourths of the total employment increase. The most positive development in 2015 was
in the Professional/Business Services sector, which rebounded from a net job loss in 2014 to reclaim
its place as the primary driver of job growth in the metro area. This is significant for the regional
economy since jobs created in the Professional/Business Services sector tend to pay well and
increase demand for office space.
Another notable trend in 2015 was the modest gain in Federal Government employment. This
sector shed jobs each year from 2011 and 2014 due to Federal budget reductions, so the increase,
however slight, is an indication that the recent period of Federal turmoil has been resolved at least
until the 2016 election. The only major sector to shed jobs over the year was Retail Trade, which is
one of the regions lowest-paying sectors.
The stronger performance in the Washington metro areas job market has been influenced by a
steadily growing private sector share of the regional economy. The private sector has been responsible for the vast majority of the job growth in the Washington region over the past two years,
although the waning effects of Federal budget cuts have helped. The bump in Federal employment growth, the recently approved Federal budget, and growing state and local budgets point to
a brighter future for public sector employment, but the majority of job growth will continue to be
sourced from the private sector.
20-Year Annual Average = 41,800/Year
100
80
60
40
20
0
-20
-40
Payroll Jobs by Sector
-60
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
*12 months ending in November 2015.
Payroll Job Growth

Selected Large Metro Area | 12 Months Ending November 2015
180,000
160,000
S1
The Washington areas rebound in 2015 was due in part to a surging national economy most of the
major metro areas also recorded healthy job growth over the year. The New York metro area led the
nation in total job growth in during the 12 months ending November 2015, followed by the LA Basin
and San Francisco Bay metro areas. During this time period, the Washington metro area ranked sixth
in the nation in terms of net job growth. The Professional/Business Services and Education/Health
sectors were the leading sources of job growth in most metro areas in 2015, including Washington.
Payroll Job Growth

(Annual Average)
Payroll Jobs
140,000
120,000
100,000
80,000
61.9
60,000
40,000
20,000
0
NY
LA SF Bay DFW
Basin
Atl
Was
South
FL
Phx
Bos
Chi
Denver Hou
S3 | 30
Trends in Employment by Major Sector
Payroll Job Growth
Washington Metro Area | 12 Months Ending November 2015

November
2015
S1
12-month
change
20-Year Annual
Average
Professional/Business Services
Education/Health
Professional/Bus. Svcs.
735.3
24.9
15.6
Education/Health
427.8
11.5
9.1
Construction/Mining
State and Local Govt.
344.2
8.3
4.1
Leisure/Hospitality
Construction/Mining
157.4
6.2
1.7
Leisure/Hospitality
304.5
4.2
5.6
Federal Government
Other Services
197.4
2.8
3.6
66.8
2.5
-0.1
State and Local Government
Other Services
Wholesale Trade
S2
S3
Federal Government
364.8
1.4
0.6
Manufacturing
151.5
0.1
1.0
Retail Trade
63.3
0.1
0.0
Wholesale Trade
S5
Information
76.2
0.1
-0.3
S6
Manufacturing
50.0
0.0
-1.0
281.4
-0.2
1.9
3,220.6
61.9
41.8
S8
S9
S10
Total
The Washington metro area, along

with most other major metro
areas, saw a marked decline
in unemployment in 2015.
Unemployment Rate
- 200
-5,000
1,000
7,000
13,000
19,000
25,000
Job Change
Unemployment Rate
Note: In thousands of payroll jobs. Data are not seasonally adjusted.

Source: BLS, Delta Associates; February 2016.
Large Metro Areas | November 2014 vs. November 2015
S7
Retail Trade
Information
The Washington metro area, along with most other major metro areas, saw a marked decline in
unemployment in 2015. Although it maintained the lowest unemployment rate among the nations
large metro areas during the recent recession, the Washington metro area now has the fifth lowest unemployment rate among its peer group. Still, the regions unemployment rate has declined
steadily from its post-Recession peak of 7.1% and its November 2014 level of 4.6% to just 4.1%
in November 2015. This compares favorably with the national (seasonally adjusted) rate of 5.0%
as of November 2015, which is also down substantially from its November 2014 level of 5.8%.
We expect the Washington metro areas unemployment rate to hover around 4.0% during 2016.
8%
November 2014
November 2015
7%
Unemployment Rate
S4
62,100
National
Rate*
5.8%
6%
5.0%
5%
4%
3%
2%
1%
0%
Den SF Bay DFW
Basis Point -70

Change
-100
-40
Bos
Was
NY
Hou
Phx
S Fla
Atl
-50
-50
-110
60
-60
-60
-120
LA
Chi
-200
-60
Basin
*Seasonally adjusted.
S3 | 31
S1
Overall inflation was relatively flat in the Washington/Baltimore region in 2015, but it ticked upward
toward the end of the year as the economy grew. During the 12 months ending November 2015,
prices in the metro area increased 0.6%, which was higher than the national inflation rate of exactly
0.0% over the same period, but still minimal. Both the regional and national rates are far below the
2.0% rate that the Federal Open Market Committee (FOMC) targets. The marginal increase in the
regional inflation rate was driven by a 1.8% increase in the cost of housing and 5.6% increase in the
cost of medical care, but these were offset by a 7.0% decline in transportation costs. Low oil prices
and a strong dollar are holding back significant gains in the CPI, but this will likely change over the
long term. We expect inflation to pick up slightly in 2016 as the economy grows. Wage growth in the
coming years will also cause inflation to pick up.
S2
Housing Prices
S3
Home prices increased 2.1% (seasonally adjusted) in the Washington metro area during the 12
months ending September 2015, according to the S&P/Case-Shiller Home Price Index. This compares to a growth rate of 5.5% for the 20-City MSA Composite Index. The regions price growth has
been hampered by a growing inventory of homes for sale and a shift in market share toward condominium units, which priced lower than single-family units. Looking ahead, sustained job growth
should drive increased housing prices over the next few years.
S4
S5
S6
Consumer Price Index (CPI)

Washington/Baltimore Region | 2009 2015
5%
4%
Annual Price Index Change
Regional Consumer Price Index
10-Year Annual Average = 2.6%
3%
2%
1%
0%
-1%
-2%
2009
2010
2011
2012
2013
2014
2015
Note: Data is 12 months ending in each period, through November 2015.

S7
S8
Percent Change in House Prices
S9
Washington MSA vs. U.S. 20 MSA Composite | 2001 2015
S10
25%
Washington MSA
20%
U.S. 20 MSA Composite
Percent Change
15%
10%
5%
0%
-5%
-10%
-15%
-20%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Note: Seasonally adjusted.

Source: S&P/Case-Shiller, Delta Associates; February 2016.
S3 | 32
Regions Core Industries

The Gross Regional Product (GRP) for the Washington metro area is expected to reach $501.7 billion
in 2015 a 5.5% increase from the estimated $475.5 billion in 2014. While the Federal government
remains the largest contributor to the Washington area economy, its share of spending is shrinking.
Federal government spending currently accounts for approximately 35% of GRP. By 2020, we expect
this share to fall to 27%, as private sector economic growth will accelerate while Federal spending will
remain relatively flat.
S3
S4
S5
S6
S7
S8
S9
S10
Federal Government
As with direct Federal employment, the stabilization of Federal procurement has been a major factor
in the regions economic rebound during 2015. Contractors are finally adjusting to the new economic environment in the region, which now depends more strongly on the private sector than the
public sector. Growth in Professional/Business Services by far the regions largest economic sector
bodes extremely well for continued forward momentum in the regional economy in 2016.
We estimate that an annual average

of 54,500 payroll jobs will be added
to the Washington metro area
economy during the five-year
period from 2016 to 2020.
The Education/Health Services sector has stayed on its long-term growth trajectory: it was the only
non-government sector in the region to gain jobs during the Great Recession, and it has continued
to post strong employment gains throughout the recovery. The impact of this sectors growth is
blunted by the fact that most of its growth has occurred in lower-wage occupations, though. This
is also a concern for two other sectors: Retail Trade and Leisure/Hospitality.
35%
34%
Technology
Building Industry
$502
Billion
Int'l Business
Health/Education
Hospitality
3%
Other
5%
5%
5%
15%
Source: George Mason University Center for Regional Analysis, U.S. Conference of Mayors, Delta Associates;
February 2016.
Annual Change in Federal Procurement Spending

Washington Metro Area (Current Dollars)
25%
15-Year Annual Average = 6.1%
20%
Percent Change in Spending
S2
Washington Metro Area | 2015 Projections
A major share of Federal spending in the metro area economy is from procurement the governments purchase of goods and services from the private sector. After three years of declines,
total procurement spending in the Washington metro area (measured by place of performance)
increased 3.0% during 2014 (compared to revised 2013 data), to roughly $71.2 billion (in 2014
dollars). This represents 45% of all Federal funds flowing into the area economy. Since these dollars
drive private sector investment and job growth, they have a much greater secondary economic
impact than do dollars spent on Federal payroll.
S1
Share of GRP
15%
10%
5%
0%
-5%
-10%
-15%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
*Projected
Source: George Mason University Center for Regional Analysis, Delta Associates; February 2016.
S3 | 33
After experiencing slow and inconsistent growth between 2011 and 2014, the Washington metro
area finally experienced a sustained economic expansion in 2015 we expect this positive trend to
continue through 2016 and beyond. Net job growth improved from 36,500 during the 12 months
ending November 2014 to a solid 61,900 for the 12 months ending November 2015. We expect future years to bring more gains, with 66,400 new jobs expected in 2016 and 57,800 in 2017. Although
employment growth is expected to slow somewhat in 2018 and beyond, the five-year forecast of
54,500 net new jobs per year represents a higher level of growth than the region has experienced
since the middle of the last decade.
S2
S3
S4
S5
S6
S7
S8
S9
S10
Private sector job growth will in turn depend on expanding businesses already located in the region
rather than businesses lured from outside the region. The Washington areas high wages, property
costs, and taxes put the region at a competitive disadvantage for attracting companies that are
looking for low-cost places to do business. Efforts to build on the regions native assets a highly
skilled workforce, access to international markets, high quality education, and vast cultural resources
should drive strong employment growth in the Professional/Business Services sector. Growth in this
sector will both increase demand for commercial space and create additional jobs in the Education/
Health, Retail Trade, Leisure/Hospitality, and Construction sectors.
The region will need to respond to

profound changes in the global
economy, security, the climate,
demographics, the housing market,
and other factors.

140
District
Sub. MD
No. Virginia
120
100
20-Year Annual Average = 41,700/Year
5-Year Projected Average = 54,500/Year
80
60
40
20
0
-20
-40
-60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: Bureau of Labor Statistics, George Mason University Center for Regional Analysis, Delta Associates;
February 2016.
S1
This expansion cycle will necessarily be driven by the regions private sector. The regions business
community and elected leaders have correctly identified that Federal employment and contracting
can no longer be relied upon to drive economic growth, although the heavy Federal presence in the
region will continue to provide economic stability and shield the area from the worst effects of any
national or global economic downturns.
Payroll Job Growth

(Annual Average)
Washington Area Economic Outlook: A Region in Transition
The passage of a Federal budget and related appropriation bills at the end of 2015 is critical to the
Washington metro areas economy. Moving forward into 2016, the regional economy is entering
a period of transition. While the Federal governments role in the economy is expected to remain
stable, its influence on the regional economy continues to wane. The region will need to respond to
profound changes in the global economy, security, the climate, demographics, the housing market,
and other factors. These factors are already reshaping business and real estate in the region and will
continue to do so over the next several years.
S3 | 34
S4 | The Washington Area

Office Market
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10

This section of TrendLines was prepared by Transwesterns in-house research team
OFFICE MARKET TURNS THE CORNER IN 2015; VACANCY RATE DECLINES

FOR THE FIRST TIME SINCE 2010
On balance, we believe that the Washington metro area office market finally turned the corner in
2015, and is beginning a period of sustained improvement on the heels of several subpar years.
S2
S3
S4
S5
S6
S7
S8
S9
S10
During 2015 net absorption totaled 1.9 million SF and the overall vacancy rate declined 40 basis
points during the year the first decline in the vacancy rate since 2010. Despite these improving conditions, rents remain under pressure and declined 0.5% during 2015, as the vacancy rate
remains elevated. However, the pace of decline eased during the year, as generous concession
packages leveled off.
We believe performance fundamentals will continue to improve

during 2016, as the economy
strengthens and tenants become
more certain about the economic
outlook.
S1
We believe performance fundamentals will continue to improve during 2016, as the economy
strengthens and tenants become more certain about the economic outlook. Rental rate momentum
will appear in some submarkets in 2016, with metro-wide growth slightly positive and below average.
There are limited blocks of new Class A space on the market. Given the flight to quality, the pipeline
of new or renovated product could expand during 2016.
National Context
At 421 million SF of private office space, the Washington metro area is the 3rd largest office market
in the nation, behind New York and Los Angeles.
Net absorption of office space in the Washington metro area totaled positive 1.9 million SF during
2015. The San Francisco Bay, Dallas/Ft. Worth, and Houston markets were leaders in net absorption
during 2015.
S4 | 36
The Washington areas overall vacancy rate is 14.2% at year-end 2015, down from 14.6% one year
ago. Still, the Washington metro has the highest overall vacancy rate among large metro areas in the
United States. The San Francisco Bay and Boston metro areas have the lowest vacancy rates at 6.2%
and 8.4%, respectively.
Largest U.S. Office Markets

Selected Metro Areas | 2015
1,000
2015 Highlights
S1
Net absorption: Positive 1.9 million SF during 2015, compared to negative 1.2 million SF
during 2014. The flight to quality continues: 2.1 million SF of Class A/Trophy space was
absorbed in 2015.
S2
Overall vacancy rate: 14.2%, down from 14.6% one year ago. Compares to 10.6%
national rate.
S3
Direct vacancy rate: 13.5%, down from 13.8% one year ago.
S4
Pipeline (U/C and U/R): 7.8 million SF, down from 5.4 million SF one year ago.
S5
Pipeline pre-lease rate: 50%, compared to 38% one year ago.
S6
Effective rents: Effective rents: Down 0.5% during 2015, compared to a decline of 4.1%
during 2014.
S7
S8
Investment sales: $6.2 billion ($355/SF) during 2015, compared to $5.8 billion ($392/SF)
during 2014.
Inventory (Millions of SF)
900
800
700
600
500
421
400
300
200
100
0
NY
LA Basin
Was
Chi
Bos
SF Bay
Phil
DFW
Hou
Atl
Source: CoStar, Transwestern; February 2016.
Office Net Absorption

Selected Metro Areas | 2015
S9
12
Net Absorption
Net absorption in the Washington metro area totaled positive 1.9 million SF during 2015, compared
to negative 1.2 million SF during 2014. This compares to the 15-year average annual absorption of
3.6 million SF.
Each substate area within the Washington metro area had positive net absorption during 2015, with
the District of Columbia leading the way. The regions positive absorption was driven by a handful
of pre-leased deliveries and healthy leasing activity. For example, the Department of Justice signed
a 336,000 SF deal at 175 N Street, NE in NoMa. In addition, MRP Realty delivered 111,000 SF at 900
G Street, NW in the East End, which was 46% pre-leased at delivery to Simpson Thacher & Bartlett
and Herman Miller.
Net absorption was offset during 2015 by a handful of move-outs, including: Freddie Mac vacated
217,000 SF at 8000 Jones Branch Drive in Tysons, LMI vacated 235,000 SF at 2000 Corporate Ridge
Road in Tysons, and NIH vacated just over 150,000 SF at 6610 Rockledge Drive in North Bethesda.
Net Absorption (Millions of SF)
S10
10
4
1.9
SF Bay
DFW
Hou
Bos
LA Basin
NY
Atl
Chi
Phil
Was
S4 | 37
Office Vacancy Rates

Selected Metro Areas | Year-End 2015
16%
14.2%
National Vacancy Rate: 10.6%
14%
S1
S2
Overall Vacancy Rate
12%
8%
6%
4%
S3
2%
S4
0%
S5
S6
10%
SF Bay
Bos
NY
Phil
LA Basin
Chi
Atl
Hou
DFW
Was
Source: Transwestern; February 2016.
S7
S8
S9

Metro Washington Area | 2000 2015
S10
Net Absorption (Thousands of SF)
18,000
16,000
14,000
12,000
15-Year Annual Average = 3.6 Million SF
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
S4 | 38
Throughout this cycle the markets newer buildings have significantly outperformed older properties.
Between 2009 and 2015, the net absorption of space in buildings less than 15 years in age was
positive 23 million SF, which buildings more than 15 years old suffered negative net absorption of
15 million SF.
S1
Net Absorption of Office Space
S2
Washington Metro Area | 2014 vs. 2015 | Thousands of SF
S5
2014
Northern Virginia
(376)
464
Suburban Maryland
(1,132)
634
District of Columbia
271
841
(1,237)
1,939
S6
S7
Source: Transwestern; January 2016.
S8
S9
S10
2015
Washington Metro Area | 2015

900
800
700
600
500
400
300
200
100
0
Northern Virginia
Suburban Maryland
Office Net Absorption by Class of Space

Tenants continue to favor Class A

space, but the gap between
Class A and Class B/C space
narrowed in 2015.
Leasing Activity
25,000
Leasing activity in the Washington metro area increased during 2015, bolstered by some of the largest deals in this cycle. Notably, leasing by the Federal government increased to 15% of the total SF
leased during 2015, up from 5% during 2014. Major GSA leases during 2015 included: the Department of Defense renewing 912,000 SF at 2530 Crystal Drive and 2521 S. Clark Street in Crystal City/
Pentagon City and the Department of Justice signed for 336,000 SF at 175 N Street, NE in NoMa.
While 2015 was a better year than 2014, the Federal share of total leasing activity still remains well
below its 10-year average of 22%.
S4
Market
S3
Tenants continue to favor Class A space, but the gap between Class A and Class B/C space narrowed
in 2015. Net absorption of Class A space totaled 2.1 million SF during 2015, compared to negative
151,000 SF in the Class B/C market. During 2014, Class A absorption totaled 2.1 million SF and was
offset by negative absorption of 3.3 million SF of Class B/C space.
20,000
15,000
10,000
5,000
0
-5,000
-10,000
Suburban Maryland
Northern Virginia
-15,000
-20,000
Built 15 Years or Younger
Built Over 15 Years
S4 | 39
S2
S3
S4
S5
S6
Leasing activity in the Washington

metro area increased during 2015,
bolstered by some of the largest
deals in this cycle.
S7
S8
S9
S10
Vacancy Rate
S1
The Washington areas overall vacancy rate is 14.2% at year-end 2015, down from 14.6% one year
ago. The Washington metro areas direct vacancy rate was 13.5% at December 2015 down from
13.8% one year ago.
The Washington areas overall Class A vacancy rate is 12.6% at year-end 2015, down significantly
from 13.9% one year ago. The Washington areas direct Class A vacancy rate is 11.7%, down from
12.7% one year ago.
Overall Vacancy Rate (All Classes)
Washington Metro Area | Federal Government vs. All Others

100%
Percentage of Office Leasing
There are 1,160 buildings with contiguous blocks of available space that are 10,000 SF or greater at
December 2015, level compared to 1,161 one year ago. Just over half of the total blocks are located
in Northern Virginia. There are 142 buildings with blocks of space available over 100,000 SF, down
from 150 buildings one year ago. The number of large blocks decreased in Northern Virginia and
Suburban Maryland, but increased slightly in the District of Columbia.
Office Leasing
Balance
80%
Federal
60%
10-Year
Average =
22%
65%
40%
45%
20%
26%
15%
2009
Gross Leasing
Activity (SF) 26.2 M
9%
2010
2011
2012
2013
5%
2014
31.4 M
34.8 M
32.6 M
32.9 M
28.7 M
0%
DEC. 2014
DEC. 2015
Northern Virginia
17.0%
16.8%
Suburban Maryland
16.4%
15.9%
9.8%
9.2%
14.6%
14.2%
2015
30.9 M
Office Buildings with Contiguous Blocks of Available Space

Washington Metro Area | December 2015
1200
1,160
1000
DC
800
Sub MD
NOVA
696
600
400
308
200
142
Washington Metro Area | Dec. 2014 vs. Dec. 2015

Market
15%
Number of Ofice Buildings
Leasing activity from GSA could pick up during 2016, as several potential leases are waiting for
approval from Congress. However, we expect leasing will remain below average as Congress
continues to force densification measures on agencies requesting office space.
10,000 SF
20,000 SF
50,000 SF
100,000 SF
Note: Includes buildings under construction or renovation.

S4 | 40
Developers started construction on 4.0 million SF during 2015, up from 3.3 million SF during 2014.
Northern Virginia accounted for just over 50% of the total groundbreakings in the metro area, with
the District of Columbia closely following with 46% of the metro total. Although starts increased during 2015, the level is below the 10-year annual average of 6.1 million SF.
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
During 2015, Property Group Partners started on a total of 1.0 million SF at 200 and 250 Massachusetts Avenue, NW in the Capitol Hill submarket. The buildings are currently 0% pre-leased and are
expected to deliver by year-end 2018. The buildings are part of the Capitol Crossing mixed-use
project, which will deliver just over 2.0 million SF of office, retail, and residential combined upon full
build out. Also, Capital One started work on its 975,000 SF headquarters near the McLean Metro
station in Tysons; this building will deliver by 2018.
We expect construction starts to ramp up during 2016, as there is limited new space on the market.
However, groundbreakings should occur only in the very few submarkets where the supply and
demand is balanced. We expect renovations of Class B/C buildings to rise, as landlords position
themselves to compete for Class A tenants. In underperforming submarkets, conversation of older
vacated office space to multifamily, medical office, or self-storage could occur.
Developers delivered 1.7 million SF of office space, including renovations, in the Washington
metro area during 2015. These projects came online at 41% pre-leased. Notably, Boston Properties
delivered 479,000 SF at 601 Massachusetts Avenue, NW in the East End. This building was 84% preleased at delivery, with Arnold & Porter occupying 384,000 SF. In addition, COPT delivered 160,000
SF at 4870 Stonecroft Boulevard in the Rt. 28 South/Chantilly submarket, fully leased to GSA.
Office Space Under Construction

Washington Metro Area | Millions of SF
SUBSTATE AREA
DEC. 2013
DEC. 2014
DEC. 2015
Office Vacancy Rate

16%
14%
12%
Direct Vacancy Rate
There is 7.8 million SF of office space under construction or renovation in the Washington metro
area at December 2015, up notably from 5.4 million SF one year ago. 50% of the space under
construction is pre-leased at December 2015, compared to 38% one year ago. This compares very
favorably to the 10-year average pre-lease rate of 40%.
10%
8%
6%
4%
2%
0%
2000
2010
2011
2012
2013
2014
2015
Northern Virginia
10-Year Annual Average = 6.1 Million SF
6,000
4,000
2,000
0
*Does not total due to rounding.

2009
8,000
0.5
3.7
2008
Suburban Maryland
10,000
0.9
7.8
2007
12,000
1.3
2.4
2006
Suburban Maryland
5.4*
2005
14,000
3.6
2.4
2004
16,000
2.0
64*
2003
2.8
Total
2002
Office Construction Starts
Northern Virginia
2001
In Thousands of SF
Construction
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
S4 | 41
We project the metro-wide overall vacancy rate will continue to decline over the next two years
from 14.2% now to the low-to-mid 13% range by December 2017. Although we expect demand to
gradually increase over the next two years, we do not believe this demand will be robust enough
to significantly lower the vacancy rate metro-wide, as tenants consolidate or vacate space as new
product delivers. A portion of the demand will be generated by pre-leased deliveries arriving to the
market over the next two years.
We project the Northern Virginia overall vacancy rate will edge down to the high-15% range by
December 2017, from 16.8% today.
S2
S3
S4
S5
S6
S7
S8
S9
S10
We project the Suburban Maryland overall vacancy rate will edge down to the mid-14% range
by December 2017, from 15.9% today.

14,000
Although the Federal government approved a budget deal in late 2015 that will alleviate some of
the lingering effects of sequestration, the deal is a short-term solution to a longer-term problem,
as the looming deficit remains an issue. Regardless, we expect tenants to become more confident
about the economy over the next two years and therefore be more apt to lease office space, but at a
reduced rate compared to past recovery periods.
We project the metro-wide overall

vacancy rate will edge down to the
mid-13% range by December 2016,
from 14.6% today.
Effective Rents
The average effective office rent declined 0.5% during 2015, though the decrease was far smaller
than the 4.1% decline during 2014. Concession packages remained elevated during 2015, as landlords competed for tenants. For a typical 10-year term for a new lease deal signed during 2015, tenant improvement allowances averaged around $74.00 PSF with 11.6 months of free rent. Concessions remained relatively on par with the 2014 levels of $72.00 in tenant improvement allowances
and 11.1 months in free rent.
SF Available at Delivery
SF Leased at Delivery
12,000
We project the District of Columbia overall vacancy rate will edge down to the mid-8% range by
December 2017, from 9.2% today.
S1
Office Construction Deliveries
In Thousands of SF
Projected Supply vs. Demand
10-Year Average = 6.2 Million SF

(45% Leased Upon Delivery)
10,000
8,000
6,000
4,000
2,000
0
57%
36%
36%
23%
72%
61%
67%
52%
63%
41%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
NCREIF Return Index1

Office Properties
metro area
12-month total return at

3 rd quarter 2015 1
San Francisco
18.05%
New York
16.60%
Phoenix
15.53%
Atlanta
15.52%
Chicago
13.47%
National Average
13.05%
Denver
12.65%
Boston
11.64%
Dallas
10.82%
Los Angeles
9.80%
Houston
8.80%
Washington
6.79%
Wash. CBD
8.81%
Wash. Suburbs
1.96%
NCREIF compiles return based on its members $168.7 billion office portfolios.
The index includes both current income and capital appreciation returns.
Source: Delta Associates, based on data in NCREIFs 3rd Quarter 2015 Real Estate Performance Report.
S4 | 42
We expect that effective rents will edge up 0.5% to 1.5% during 2016 as the economy improves and
leasing activity picks up. Newly-constructed office buildings should experience greater rent gain as
the availability of such space is dwindling. Overall, the market remains in tenant favor, but the window of opportunity to secure lowered rents on larger blocks of quality Class A space in the centrally
located submarkets is closing or has closed in submarkets with better supply/demand balance.
Investment Sales
Investment sales totaled $6.2 billion or $355/SF in the Washington metro area during 2015, up from
$5.8 billion or $392/PSF during 2014.
S2
S3
S4
S5
S6
S7
S8
S9
S10
Investment Returns
Total returns (cash flow plus appreciation) realized in the Washington office market were 6.79% for
the 12 months ending September 2015. The Washington area return is outpaced by the national
return of 13.05%, as other metro areas surpass the Washington market. Washingtons CBD returns
were notably higher compared to those of the suburbs.
We expect the Washington metro

area office market to gain greater
traction during 2016.
S1
The average cap rate for core office assets in the Washington metro area, on a 12-month trailing basis, was 6.1% at the end of the 4th quarter of 2015, according to Real Capital Analytics. The average
cap rate is down 27 basis points from one year ago. We believe the 12-month trailing average cap
rate will remain in the low-6% range during 2016. However, trophy assets will likely continue to trade
at lower cap rates. Cap rates for recent Class A/Trophy trades have been in the mid-4% to mid-5%
range.
Office Market Outlook

We expect the Washington metro area office market to gain greater
traction during 2016. We project the metro-wide overall vacancy rate
will edge down from 14.2% today to the low-to-mid 13% range by
December 2017. Although we expect demand to gradually increase
over the next two years, we do not believe this demand will be robust
enough to lower the vacancy rate significantly.
Leasing activity from the GSA could rise during 2016, as several large
potential leases are waiting for approval from Congress. The private
sector will drive leasing activity, particularly from the tech sector.
We believe average metro-wide effective rents will edge up by 0.5%
to 1.5% during 2016, but remain below average as the vacancy rate
will remain elevated. Generous concession packages leveled off during 2015 and should start to decline during 2016. We expect newlyconstructed office buildings to experience greater rent growth as the
availability of such blocks is dwindling.
As the regional economy evolves, the Washington office market is
entering a period of transition. Changing demographics, the sharing
economy, and new types of business activity are all poised to alter
tenants preferences for the character and location of their office
spaces. In this environment, successful investors and developers in
should pay attention to the following factors:
Renovation of well-located properties to Class A status so they can
compete for tenants seeking to upgrade their space.
Attraction of tenants looking to consolidate regional operations
into a single location.
Improvement of property performance to attract a potential sale,
given the amount of capital still entering the Washington market.
Preparation for the next round of new development by securing
sites at premium locations 24/7, live/work sites served by
Metrorail.
Identifying where and how Millennials want to work, as this is
becoming increasingly important in the recruitment and retention
of younger employees.
S4 | 43
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
S5 | The Washington/Baltimore
Regional Flex/Industrial
Market
The Washington/Baltimore Regional

Flex/Industrial Market
Largest Flex/Industrial Markets

Large Metro Areas | 2015
1,800
This section of TrendLines was prepared by Transwesterns in-house research team
S3
S4
S5
S6
S7
S8
S9
S10
1,400
1,200
1,000
800
600
400
400
200
0
LA Basin
Chi
NY/NNJ
Phil
DFW
Atl
Det
SF Bay
Hou
Bos
Was/Bal
We expect greater traction during 2016, as rising demand, coupled with fewer large blocks of available
space, will create tighter market conditions that will lower the vacancy rate and push up asking rents.
Flex/Industrial Vacancy Rates
We expect greater traction during

2016, as rising demand, coupled
with fewer large blocks of available
space, will create tighter market
conditions that will lower the
vacancy rate and push up
asking rents.
National Context
Selected Metro Areas | Year-End 2015

10%
9%
8.6%
National Vacancy Rate: 6.6%
8%
S2
S1
Demand resulting from a much-improved economy in the Washington/Baltimore region and global
changes in retailing and distribution of consumer goods, together with a limited supply of large
contiguous blocks of space, combined to create very favorable conditions for the flex/industrial
market in 2015. Net absorption totaled positive 3.1 million SF due to pre-leased deliveries and
leasing activity, primarily in bulk warehouse space. The overall vacancy rate edged down 10 basis
points to 8.6% at year-end 2015. With tenants demanding efficient and modernized space, the
construction pipeline expanded. Given these conditions, asking rents grew 2.3% during 2015,
which was above average.
Inventory (Millions of SF)
1,600
HEALTHY MARKET CONDITIONS, MORE CONSTRUCTION,

ABOVE-AVERAGE RENT GROWTH
7%
6%
5%
4%
3%
2%
1%
0%
LA Basin
Hou
SF Bay
Det
NY/NNJ
DFW
Chi
Phi
Bos
Atl
Was/Bal
The Washington/Baltimore flex/industrial market, at 400 million SF, is the smallest market among the
nations largest metro areas. The markets primary function is regional distribution, accommodation
of R&D, and a low-cost office alternative in flex space.
S5 | 45
At 8.6%, the Washington/Baltimore regions overall vacancy rate is above the national average of
6.6%. The LA Basin and Houston metro areas have the lowest vacancy rates at 2.6% and 4.6% as of
December 2015, respectively.
2015 Highlights
Net absorption: 3.1 million SF during 2015, compared to 6.4
million during 2014.
Net Absorption
Overall vacancy rate: 8.6%, down from 8.7% one year ago.
Flex/industrial net absorption totaled 3.1 million SF in the Washington/Baltimore region during 2015,
compared to 6.4 million SF during 2014. This is slightly below the 15-year average of 3.6 million SF
per year. Although net absorption was lower compared to the year prior, it is important to note that
several large pre-leased deliveries drove net absorption during 2014. For example, 2010 Broening
Highway delivered 1.0 million SF fully leased to Amazon Fulfillment Center and 1467 Perryman Road
delivered 946,000 SF fully leased to Clorox in Harford County.
Direct vacancy rate: 8.4%, down from 8.5% one year ago.
Under construction: 3.8 million SF, up from 3.2 million SF one
year ago.
Pre-leased deliveries and other major lease deals boosted absorption during 2015. For instance:
Pre-leased space: 55% of the space under construction is

pre-leased, compared to 29% a year ago.
22745 and 22755 Relocation Drive in the Dulles Corridor delivered 251,000 SF fully leased
to Amazon.
Asking rents: Up 2.3% during 2015, compared to rising 1.2%

during 2014.
S5
7210 Preston Gateway Drive in the BWI submarket delivered 291,000 SF fully leased to
Coca-Cola.
Investment sales: $1.2 billion or $84/SF during 2015,

compared to $706 million or $87/SF during 2014.
S6
Pier 1 Imports leased 644,000 SF at 500 Old Post Road in Harford County.
S7
Canusa Corporation Fiber Group leased 216,000 SF at 8203 Fischer Road in Dundalk.
S2
S3
S4
S8
S9
S10
Office Movers leased 95,000 SF at 10100 Willowdale Road in Prince Georges County.
Bulk warehouse was the leader in net absorption during 2015, accounting for 2.5 million SF or 80%
of the total for all property types. The Washington metro area captured 82% of the regions net
absorption with Baltimore accounting for only 18%. This was due to several move-outs in Baltimore
City that hampered gains. For example, Henry Bath vacated 532,000 SF at 2200 Broening Highway
and Unilever vacated 152,000 SF at 3701 Southwestern Boulevard.
Flex/Industrial Inventory & Absorption

Washington/Baltimore Region | 2015
inventory at 12/2015
(millions of sf)
type of space
net absorption
2015
SF
SF
Bulk Warehouse
126.3
32%
2,457,000
Flex/Warehouse
245.6
61%
243,000
27.6
7%
358,000
399.58
100%
3,058,000
Flex/R&D
Total Flex/Industrial
Flex/Industrial Net Absorption

10,000
8,000
Net Absorption in 000s of SF
S1
15-Year Average = 3.6 Million SF
6,000
4,000
2,000
0
-2,000
-4,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
S5 | 46
Flex/Industrial Inventory & Absorption
Flex/Industrial Blocks of Space
Washington/Baltimore Region | December 2015

net absorption (thousands of SF)
sf
Washington
189.4
47%
2,497
82%
Baltimore
210.1
53%
561
18%
399.5
100%
3,058
100%
S1
S2
Gross Leasing Activity
S3
There were 935 buildings with contiguous blocks of available space over 10,000 SF in the Washington/Baltimore region at year-end 2015. This compares to 985 buildings one year ago. There are 89
buildings with blocks of available space over 100,000 SF in the region, down from 95 one year ago.
S5
S6
S7
S8
S9
S10
The largest block of available space is 1.3 million SF of Class C space at 2800 Eastern Boulevard in
the Baltimore metro area. The largest block of space in the Washington metro area is 509,000 SF
of flex/warehouse building located at 6805 Industrial Road in the I-95 Corridor. However, plans are
in place to convert this building to the 436,000 SF St. James Sports and Wellness Complex. Once
converted, this building will be removed from the flex/industrial inventory.
The regions overall flex/industrial

vacancy rate was 8.6% at year-end
2015, down from 8.7% one year
prior.
Vacancy Rate
1,000
935
Bulk Warehouse
Flex/Warehouse
800
Flex/R&D
564
600
400
232
200
S4
1,200
Number of Buildings
SF
The regions overall flex/industrial vacancy rate was 8.6% at year-end 2015, down from 8.7% one
year prior. The Washington areas overall vacancy rate is 50 basis points lower than the Baltimore
areas rate, a reverse trend compared to December 2014 when Baltimores rate was 60 basis points
lower than Washingtons rate. The regions direct vacancy rate was 8.4% at December 2015, down
from 8.5% one year ago.
89
0
10,000 SF
20,000 SF
50,000 SF
100,000 SF
Minimum Size of Contiguous Blocks of Space

Note: Contiguous blocks of available space. Includes buildings under construction or renovation.
Flex/Industrial Direct Vacancy Rate

12%
10%
Direct Vacancy Rate
Inventory at 12/15 (millions of SF)

Metro
8%
6%
4%
2%
0%
2000
2002
2001
2004
2003
2006
2005
2008
2007
2010
2009
2012
2011
2014
2013
2015
The direct vacancy rate has been on a steady decline since peaking in 2009 at 10.6%. The rate is
currently below the 10-year average of 9.2%.
S5 | 47
Construction
The amount of flex/industrial space under construction in the region is 3.8 million SF at year-end
2015, up from 3.2 million SF one year ago. Space under construction is 55% pre-leased at December 2015, up significantly from 29% one year ago.
Redwood Capital Investments broke ground on 306,000 SF project at 2001 Wharf Road in Baltimore
County East during 2015. This project is fully leased by FedEx and is expected to deliver during the
1st quarter of 2016. In the Washington metro area, Prudential started on 236,000 SF at 13150 Mid
Atlantic Boulevard in Prince Georges County. This project should deliver by mid-2016.
S1
S2
S3
S4
S5
Tenants are in the market for upgraded space with a focus on efficient building design and site layout, which includes better trailer loading, clear heights, column spacing, and parking. As a result, we
anticipate spec construction to ramp up to satisfy the undersupply of upgraded space during 2016.
Although the pipeline is set to expand, we believe several older and inefficient flex/industrial buildings will be demolished and converted to another property type. Notably, of the product that has
been demolished over the past 10 years, 49% has been converted to multifamily. We expect this to
occur in submarkets located inside the Beltway.
S7
Developers added 4.2 million SF of flex/industrial inventory to the market during 2015, compared to
5.6 million SF during 2014. Projects came on line at 36% pre-leased during 2015, compared to 87%
pre-leased on projects delivering during 2014.
S8
Supply v. Demand
S9
S10
The regional flex/industrial vacancy rate likely will tick down to the mid-to-high 7% range by yearend 2016, from 8.6% today. The vacancy rate will decline as leasing activity accelerates during the
next 12 months. Demand will be boosted by pre-leased deliveries, as over half of the 3.8 million SF
pipeline is pre-leased.
The regional flex/industrial vacancy

rate likely will tick down to the
mid-to-high 7% range by year-end
2016, from 8.6% today.
Washington/Baltimore Region
year-end
2005
year-end
2010
year-end
2015
Washington/Baltimore Region
8.1%
10.6%
8.4%
7.3%
11.4%
8.0%
Baltimore Metro Area
8.9%
9.7%
8.7%
market
Flex/Industrial Space Under Construction

Year-End 2014 vs. Year-End 2015 | Millions of SF
at 12/2014
Metro area
SF U/C
%
pre-leased
at 12/2015
sf u/c
%
pre-leased
Washington
1.5
35%
2.5
61%
Baltimore
1.7
23%
1.3
44%
3.2
29%
3.8
55%
S6
Direct Flex/Industrial Vacancy Rates
Flex/Industrial Deliveries
metro area
millions of sf
delivered
Washington
%
pre-leased
1.7
42%
Baltimore
2.5
31%
Regional Total
4.2
36%
Asking Rent Change by Product Type

submarket
Bulk Warehouse
Flex/Warehouse
Flex/R&D
% change
december 2014 to december 2015
0.4%
4.0%
-1.4%
S5 | 48
Asking Rents
Flex/industrial asking rents in the Washington/Baltimore region increased 2.3% during 2015,
compared to a 1.2% increase during 2014. Flex/warehouse experienced the greatest gain in rent at
4.0%, which was slightly offset by the 1.4% decline in Flex/R&D rents.
Flex/industrial rents should rise during 2016 as market conditions continue to improve. We expect
flex/industrial rents to increase 2.5% to 3.0% during 2016.
Investment Sales
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
Flex/industrial investment sales volume totaled $1.2 billion or $84/SF in the Washington/Baltimore
region during 2015, up from $706 million or $87/SF during 2014. Notably, MRP Realty and JP
Morgan Asset Management purchased the Northern Virginia Industrial Park in the I-95 Corridor for
$86.5 million, or $106/SF. In the Baltimore metro area, First Industrial Realty Trust purchased 400
and 500 Old Post Road in Harford County for $61.9 million or $62/SF.
We expect investment sales activity to remain healthy in 2016 as market conditions continue to
strengthen. We anticipate those with cash will continue to take advantage of purchasing flex/industrial assets in the Washington/Baltimore market, given its long-term growth prospects and stable
nature.
Flex/Industrial Market Outlook

We expect the Washington/Baltimore flex/industrial market to perform well during 2016. We expect
flex/warehouse space will be in demand to accommodate an improving housing market and distribution of goods, whereas the on-line retailers are supporting an expansive bulk distribution market.
The flex/R&D market will be supported by biotech as well as tenants looking for a more affordable
office option.
We project the overall vacancy rate will tick down to the mid-to-high 7% range by year-end 2016 as
demand strengthens. Given these conditions, we believe rents will rise, by 2.5% to 3.0%
during 2016.
Tenants are in the market for upgraded space with a focus on efficient building design and site
layout, which includes better trailer loading, clear heights, column spacing, and parking. As a result,
we anticipate spec construction to ramp up to satisfy the undersupply of quality space during
2016. Given the amount of dated product on the market, demolition and conversion to an alternative product type is poised to rise during 2016. As this product is converted to another use, these
vacated buildings will be removed from our inventory, further lowering the vacancy rate.
Overall, we expect healthy market conditions during 2016 and beyond.
S5 | 49

Apartment Market
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
2015 Highlights
Stabilized vacancy for all classes of investment grade apartments decreased by 60 basis points over the past year
currently at 3.9%, while Class A vacancy decreased by
100 basis points to 4.6%.
DEMOGRAPHIC CHANGES STILL FAVOR APARTMENTS
S3
S4
S5
S6
S7
S8
S9
S10
Class A rents edged up by 0.5% in 2015. Rents in the metro

area also increased by 0.5% when including Class B product.
Washington continues to experience record-breaking Class
A absorption, with 13,429 Class A units absorbed in 2015
more than double the regions 10-year average. Absorption
including Class B product totaled 14,115 units.
Will these trends continue? Before we get to our outlook for 2016, lets understand the regions
national context and review the apartment markets recent performance.
Demographic and economic shifts

in the market favoring apartments
helped the region withstand the
ongoing influx of new supply in 2015.
National Context
Though seventh in population, the Washington metro area is the sixth-largest apartment market in the
U.S. with an inventory of approximately 580,000 units, which places it behind New York, the Los Angeles
Basin, Chicago, the San Francisco Bay Area, and Dallas/Fort Worth. The Washington metro-wide
vacancy rate is 3.9% for all classes of apartment product at 4th quarter 2015. The national rate is 4.3%.
The 36-month development pipeline is down 12% from a year

ago to 32,164 units, with 20,120 of those units currently under
construction.
Construction starts during 2015 increased by 18% from 2014
to 10,785 units.
Meanwhile, deliveries decreased by 14% from 2014, with
12,310 units delivered in 2015 (still almost twice the long-term
average).
Apartment Vacancy Rates

Major Apartment Markets
7.0%
6.0%
Rents
Vacancy Rate (All Classes)
S2
S1
Washington area Class A apartment absorption continues to break records six quarters in a row
and counting as the number of apartments filled remains well above historic norms. Demographic
and economic shifts in the market favoring apartments helped the region withstand the ongoing
influx of new supply in 2015. Absorption outpaced deliveries in Northern Virginia and The District.
Rent growth remains positive albeit very slight and vacancy is on the decline. Meanwhile, the
development pipeline was down overall for the year.
Metro area effective rents for all classes of investment-grade apartments rose by 0.5% in 2015. Class
A rents increased by 0.5% and Class B rents rose by 0.6%. Rent performance for Class A low-rise
product (up 1.4%) outperformed mid- and high-rise product (down 0.5%).
Vacancy
Washington metro area stabilized vacancy for all classes of apartments is 3.9% at 4th quarter 2015,
60 basis points lower than a year ago.
The December 2015 vacancy rate for stabilized Class A apartments in the Washington metro
area is down 100 basis points from a year ago to 4.6%.
Mid- and high-rise stabilized vacancy is down 150 basis points, while low-rise stabilized vacancy
is down 40 basis points.
National Rate:1
4.3%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
NY
LA
Chi
Wash
Phi
Phx
DFW
Balt
Hou
Atl
The 79 largest apartment markets in the U.S.
1
The Quarter
79 largest
apartment
markets
in the U.S. Baltimore, and Philadelphia which are as of Fourth Quarter 2015.
*3rd
2015
data except
for Washington,
1
*3rd Quarter 2015 data except for Washington, Baltimore, and Philadelphia which are as of Fourth Quarter
2015.
Source: REIS, Delta Associates; February 2016.
S6 | 51
Annual Net Apartment Absorption

Class A & B Units | Washington Metro Area | 2013 2015
S1
S2
S3
Net Absorption of Class A & B Units
18,000
16,000
15,648
13,983
14,000
12,000
14,115
12,014
Long-Term Average = 6,021*
10,000
8,000
5,943
6,000
5,540
6,400
7,032
4,752
4,000
2,000
S4
1,614
0
3/13
S5
S6
14,963 15,211
6/13
9/13 12/13
3/14
6/14
9/14 12/14
3/15
6/15
9/15 12/15
*Includes Anne Arundel and Howard counties.

Source: Delta Associates; February 2016.
S8
Effective Rental Rate and Vacancy Rate
S9
All Types and Classes of Apartments | Washington Metro Area* | 1999 2015
S10
6.0%
Stabilized Vacancy Rate
5.0%
Average Effective Base Rent

Stabilized Vacancy
4.0%
3.0%
2.0%
1.0%
0.0%
$1,900
$1,800
$1,700
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
$1,000
$900
$800
$700
Average Effective Base Rent
S7
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
3.6% / Year
Long-Term Rent Growth
*Historic data includes Anne Arundel and Howard counties.
S6 | 52
Pipeline
S2
S3
S4
S5
S6
S7
S8
S9
S10
The pipeline of likely deliveries over

the next 36 months decreased by
12% during 2015, standing at
32,164 units at the end of the year.
Share of Planned vs. Under Construction in 36-Month Pipeline
S1
The pipeline of likely deliveries over the next 36 months decreased by 12% during 2015, standing
at 32,164 units at the end of the year. We expect the 36-month pipeline to continue to shrink to a
more healthy level over the next 12 to 24 months as financial feasibility becomes more difficult in the
face of rising construction costs and relatively flat rents. Most of the pipeline decline will come from
projects that delay starting construction. Few pipeline projects are likely to deliver as condos, as only
11% of the 19,919 units currently under construction (but not yet leasing) metro-wide are of a scale
suitable for switching to condominiums before delivery. So far in this cycle, a handful of apartment
projects, ranging in size from 60 to 200 units, have switched to condominiums.
Washington Metro Area | 2015

period
% Planned
% Under Construction
Q1 2015
16%
84%
Q2 2015
20%
80%
Q3 2015
21%
79%
Q4 2015
19%
81%
Absorption Pace per Project per Month

For Projects in Initial Lease-Up | Washington Metro Area | 2008 2015
20
18
Monthly Absorption Pace Per

Project Since Marketing Began
Per-project lease-up pace in 2015 was 15 units per month, unchanged from 2014, as a similar
number of new projects were open and competing for market share. There are 63 projects in active
lease-up at 4th quarter 2015 compared to 67 projects at 4th quarter 2014. The number of projects
in lease-up will remain elevated, with a large slate of projects set to deliver in the coming months,
likely putting pressure on the per-project lease-up pace during 2016.
16
14
12
10
8
6
4
2
0
Number of Projects
in Initial Lease-Up:
12/08
12/09
12/10
12/11
12/12
12/13
12/14
12/15
49
34
30
18
29
56
67
63
Market Rate Apartment Development Pipeline

Washington Metro Area | 2005 - 2015
40,000
35,000
Market Rate Units Planned

and Under Construction
Lease-Up Pace
30,000
25,000
20,000
15,000
10,000
5,000
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
S6 | 53
During 2015, 10,785 units started construction in the Washington metro area, which is above the
long-term annual average. An estimated 14,004 units are slated for delivery in 2016, a 13% increase
over the 12,310 units delivered in 2015. Deliveries are expected to slow to 8,886 units in 2017, more
consistent with the absorption rate in recent years.
Growing Demand
S1
Class A apartment absorption in the Washington metro area was 13,429 units during 2015 a new
record for the region and more than double the 10-year annual average. Unlike past dynamics, Class
A absorption was not at the expense of the Class B market, which also experienced positive absorption. Contributing factors to this uptick include:
S2
A plentiful supply of new apartments.
S3
An increase in the types of jobs and income categories that tend to generate demand for rental
apartments rather than ownership housing.
S5
S6
S7
S8
S9
S10

7,000
District
No VA
Class A Projected Quarterly Absorption ~ 2,400
5,000
4,000
3,000
2,000
1,000
Q1
Q2
An increase in Millennial households that tend to/prefer to rent rather than own.
An increase in the overall share of renter households vs. owners.
Sub MD
6,000
0
Q3
Q4
Q1
Q2
2013
Q3
Q4
Q1
2014
Q2
Q3
Q4
2015
Over the coming quarters, three factors will be necessary for sustained rental demand:
Job growth.
Projected Deliveries
Demographic shifts:
36-Month Development Pipeline | Washington Metro Area | 2016 2018
The de-nesting of 25- to 34-year-olds who are living at home.
The un-grouping of 25- to 34-year-olds who are living together to save money.
The trading down of Baby Boomers from single-family homes to apartments.
Renter/owner preference shifts: The ratio of renters to owners stays the same or increases.
In recent months, at least two of these three factors have continued to favor the apartment market.
Job growth during 2015 was stronger than the 10-year average, and the share of renter households
in the metro area is on the rise. We expect all three of these factors to continue through the end of
this decade. These trends will produce solid Class A apartment absorption, supporting our projected
annual demand of 9,667 Class A units over the next three years, lower than the 13,429 units absorbed
during 2015, but substantially higher than the 10-year average.
4,500
Number of Class A Market-Rate Units
S4
Class A Apartment Unit Starts
Number of Class A Market Rate Units
Starts and Deliveries
District
Sub MD
No VA
4,000
3,500
Class A Projected Quarterly Absorption ~2,400
3,000
2,500
2,000
1,500
1,000
500
0
Q1
Q2
Q3
Q4
2016
Q1
Q2
Q3
2017
Q4
Q1
Q2
Q3
Q4
2018
S6 | 54
S2
S3
S4
S5
Renter Households
Washington Metro vs. U.S. | 2007 2015
37%
36%
Percent of Total Households
S1
These trends will produce solid Class A

apartment absorption, supporting our
projected annual demand of 9,667
Class A units over the next three years,
lower than the 13,429 units absorbed
during 2015, but substantially higher
than the 10-year average.
35%
34%
33%
32%
Washington Metro
31%
U.S.
30%
29%
28%
2007
2008
2009
2010
2011
2012
2013
2014
2015*
*As of Third Quarter.

Source: U.S. Census, Delta Associates, February 2016.
S6
S7
S8
S9
S10
S6 | 55
Development Opportunities Remain
S2
S3
S4
S5
S6
S7
S8
S9
S10
Years of Apartment Supply

Washington Metro Area Class A Low-Rise Submarkets | 4th Quarter 2015
Years of Supply
Less than 1
1 1.9
2 2.9
3 3.9
In addition to submarket-level development prospects, there are niche opportunities that

can be exploited in the period ahead:
Upgrade well-located Class B and Class C assets to compete for either value-conscious
renters or Class A renters seeking quality accommodations below top-of-the-market
prices.
Repurpose obsolete assets (multifamily or office) or build new apartment projects that
appeal to Millennial preferences smaller units with best-in-class common area amenities
at 24/7 active locations.
Build new units that appeal to empty-nesters or Baby Boomers at locations that feel
familiar and with product designed to appeal to them. For example, design units with
larger rooms and a layout that feels like a single-family home.
Accommodate work-at-home tenants (e.g., with dens that can be used as offices) to
capitalize on the regions non-payroll job growth and the increasingly-common pattern
of telecommuting.
Although the 36-month pipeline

is high across the metro area,
absorption records have been
broken for several quarters in
a row.
S1
Although the 36-month pipeline is high across the metro area, absorption records have
been broken for several quarters in a row. When the prior years absorption is compared
to the development pipeline at the submarket level, 13 low-rise submarkets in Northern
Virginia and Suburban Maryland mostly outside the Beltway have less than four years of
supply (or less than one years worth of product overhang). Twelve of these submarkets have
less than two years of supply and could be considered supply-constrained. There are also
11 high-rise submarkets that have less than four years of supply; six of these have less than
two years worth. This suggests there are still development opportunities in the metro area,
despite an overall market perception of oversupply.
Note: Calculated by dividing 36-month development supply by net absorption during the past
12 months.
Unshaded submarkets have four or more years of supply.
Source: Delta Associates, February 2016.
Years of Apartment Supply

Washington Metro Area Class A High-Rise Submarkets | 4th Quarter 2015
Years of Supply
Less than 1
1 1.9
2 2.9
3 3.9
Note: Calculated by dividing 36-month development supply by net absorption during the past
12 months.
Unshaded submarkets have four or more years of supply.
S6 | 56
Given the projected delivery schedule of projects currently under construction, we expect that the
region-wide vacancy rate for stabilized Class A apartment properties will be 90 basis points lower in
three years than it is today 4.6%, but in the intervening years the rate likely will rise to nearly 5% as
the level of deliveries remains elevated in the short term. However, there will be significant variation
in conditions among submarkets.
S3
S4
S5
S6
S7
S8
S9
S10
Washington Metro Area Class A Apartment Market | Dec. 2015 Dec. 2018
Demand
16
Net Absorption
9,667/Year = 29,000
14
12
Supply1
10
Planned and may

deliver by 12/18:
4,878 units
8
6
Under Construction
Supply: 27,286 units2
Total = 32,164 units
2
0
We expect that the region-wide

vacancy rate for stabilized Class A
apartment properties will be 90 basis
points lower in three years than it is
today 4.6%, but in the intervening
years the rate likely will rise to nearly
5% as the level of deliveries remains
elevated in the short term. However,
there will be significant variation in
conditions among submarkets.
NoVA
Sub MD.
The District
3.5%
3.7%
4.0%
1 Probable supply after

projected attrition.
2 Includes unleased units at
projects in lease-up.
Projected Stabilized Vacancy Percent at December 2018

Projected Stabilized Vacancy Rate at December 2018: 3.7% Metro-Wide
Class A Apartment Vacancy Rate

Washington Metro* | 4th Quarter 2008 2018
7%
Stabilized Vacancy Rate
S2
S1
At the regional level, Class A rents likely will increase slightly in 2016 due to the large slate of
scheduled deliveries although projected demand remains above historic levels. Rents have thus far
held up surprisingly well despite the increased competition over the past couple of years, thanks to
record absorption. Also aiding the Class A market has been strong absorption of Class B product.
We expect rent growth to recover to the 2.5% to 3.5% range by 2017 as growth in 2018 approaches
long-term rates.
Demand and Supply Projections
Market Rate Units in Thousands
Supply/Demand and Rent Outlook
No VA
Sub MD *
The District
6%
5%
4%
3%
2%
Washington 2008
Metro
Vacacncy* 3.6%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
4.4%
3.6%
5.0%
4.2%
4.7%
5.6%
4.6%
4.9%
4.2%
3.7%

S6 | 57
Total return (cash flow plus appreciation) on apartment investment in the Washington market continues to track below the national average. The 12-month total return through September 2015 was
4.29%, significantly off the cyclical peak of 28.64% in 2010 and lower than other cities in the MidAtlantic. Washington was early to recover from the 2009 recession and also early to peak in investment returns. Investors seeking the risk-adjusted safety of Washington apartments bid up prices
even as rent growth was slowing leading to lower overall returns. Nevertheless, recent apartment
investment activity remains healthy and valuations for new transactions (in terms of cap rates and
per-unit prices) are strong, as discussed below.
S1
S2
S3
S4
National Council of Real Estate Investment Fiduciaries

Return Index | Investment-Grade Apartment Properties | 12 Months Ending September 20151
metro area
19.36%
Dallas
12.76%
S6
Austin
12.53%
S7
Chicago
12.37%
National Average
12.02%
Phoenix
11.87%
S8
Washington Metro Area* | 2003 2018

10%
Long-Term Average = 4.2%
8%
6%
4%
2%
0%
-2%
12-month total return 1
Atlanta
S5
Annual Class A Apartment Rent Growth
Percent Effective Rent Growth
Return on Investment
S9
Houston
8.82%
S10
Baltimore
8.39%
Philadelphia
7.29%
Washington
4.29%
-4%
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18

NCREIF compiles returns based on its members' $70 billion apartment portfolio.
The index includes both current income and estimated capital appreciation returns.
Source: Delta Associates, based on trailing 12-month data in NCREIF's "Real Estate Performance Report: Third Quarter 2015."
Washington Investment Sales

With $2.54 billion of multifamily Class A building transaction volume in 26 trades for most of 2015,
sales volume for the year was nearly 50% higher than 2014, when $1.71 billion in sales transactions
closed. The average per unit price for 2015 sales was 9.7% higher than 2014 for low-rise units (at
$264,462), while high-rise prices were down 14.5% from 2014 (at $459,060).
It is our sense, and that of our 2015 Delta Associates Market Maker Survey participants, that apartment cap rates declined in 2015 due to record absorption and a (modestly) shrinking pipeline. With
Millennials delaying home ownership and increasing numbers of Baby Boomers retiring and downsizing, demographic forces should continue to mitigate the impact of a crowded pipeline.
S6 | 58
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
It is our sense, and that of our 2015

Delta Associates Market Maker Survey
participants, that apartment cap rates
declined in 2015 due to record
absorption and a (modestly)
shrinking pipeline.
After closing 15 multifamily land sales in 2014, totaling $220 million,

the pace of land sales slowed considerably in 2015, with at least nine
recorded multifamily land sales that can accommodate nearly 2,400
multifamily units and an aggregate value of $112.9 million.
For more information on investment sales trends in the Washington
area, please see Section Nine of this report.
A Word About Our Definition of Vacancy Rate

We sometimes hear from apartment developers and managers that their portfolio vacancy rate is 200 to 400 basis points
higher than the numbers we report, which places them under
unfair investor scrutiny.
When we conduct our quarterly surveys, we obtain information on units available to lease that is, physical vacancy.
Obtaining the information this way, of course, may produce
several important differences from vacancy as reported in
your financial statements. Simply stated, the difference can be
characterized as:
Deltas Definition: Available units to lease
Operating Statement Vacancy: Economic vacancy
Our definition (available units) may therefore be understated
compared to yours (economically vacant) by our exclusion
of units occupied by non-paying tenants (which we cannot
know), and of units not available for lease, such as employee
units and model apartments. We estimate that this adds about
100 to 150 basis points to your definition of vacancy, as compared with ours. Our vacancy rate may also be understated,
compared with yours, by our exclusion of what are economically vacant, on-notice units for which a lease to occupy in the
future has been signed (hence, they are not currently available
to lease). We estimate that this potentially adds another 150
to 200 basis points to your definition of vacancy, as compared
to ours.
S6 | 59

Condominium Market
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
2015 Highlights
Sales Volume: New unit sales volume (defined as net binding
contracts written with security deposits up) totaled 1,432
during 2015. This compares to 1,476 new unit sales in 2015.
MARKET CONDITIONS ARE BETTER, BUT PRODUCT SHORTAGE PERSISTS

Years of constrained supply have taken a toll on the new condo market, as 2015 ended with the
lowest annual sales total in more than a decade and the development pipeline tightened further.
However, we expect an uptick in sales activity in the first half of 2016 as several larger projects begin
selling. Meanwhile, prices continued upward all but two submarkets experienced price growth
over the year.
S3
S4
S5
S6
S7
S8
S9
Years of constrained supply have

taken a toll on the new condo market
as 2015 ended with the lowest annual
sales total in more than a decade
and the development pipeline
tightened further.
S10
National Context
The Washington metro area, the seventh-largest in population, is the fifth-largest condominium market in the nation, with approximately 127,000 units. Only the nations three largest cities (New York,
Los Angeles, and Chicago) and the popular second-home location of South Florida have larger
inventories of condominiums than the Washington metro area.
Sales Activity
For 2015, sales metro-wide are down 3% from 2014. However, sales are up 4% in the District and
up 18% in Suburban Maryland. See below for how the submarkets stack up compared to a year
ago. (It is important to keep in mind that product shortage has hampered sales volume in many
submarkets.)
Concessions: Metro-wide concessions average 0.6% of asking

price as of year-end 2015.
Pipeline: There are currently 3,245 unsold new condominium
units that are either actively marketing or under construction
(and yet to begin marketing) in the metro area. As a result,
there now is only 15.3 months of condominium inventory on
the market.
Sales pace: Projects introduced to the market during 2015
have sold at an average of 2.2 sales per month.
Largest Condominium Markets

Select Metro Areas | 2015
600
500
Thousands of Units
S2
S1
Prices: New unit prices increased by 3.3% metro-wide in 2015.

Condominium resale prices declined -0.3%.
400
300
200
127.2
100
NY
S Fla
Chi
LA Basin
Was
Bos
SF Bay
Tampa
Note: Estimated.
Source: U.S. Census, Delta Associates; February 2016.
S7 | 61
Central DC: down 23%

Mideast DC: up 1%
Upper NW DC: down 32%
New Condominium Sales Activity

800
Capitol East DC: up 46%

Arlington/Alexandria: down 58%
600
Loudoun/Prince William: up 15%

S1
S2
S3
S4
S5
S6
S7
Montgomery: up 33%
Prince Georges: down 30%
The Loudoun/Prince William counties submarket continues to lead the metro area in new condo
sales activity (with mostly 2-over-2 townhouse-style development), followed by Mideast DC. In Suburban Maryland, Montgomery County led in sales activity in 2015.
Resale activity in the 12-month period ending November 2015 was up slightly from 2014. Since
2013, resale transactions have been averaging 14,425 units annually, up significantly from the
period 2009 2012 when the annual average was 11,615 units. Since 2008, the condo share of all
residential resales increased from 20% to 24%.
Net Sales
Fairfax/Falls Church: down 10%

400
200
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010
2011
2012
2013
2014
2015
S8
S9
S10
S7 | 62
Sales Compared to Remaining Inventory
Effective New Condominium Sales Price Change
Fourth Quarter 2015
S1
S2
S3
S4
Q4 Sales/Remaining Inv.
Central DC
50 / 258
Mideast DC
49 / 448
Upper NW DC
8 / 51
Capitol East DC
27/ 544
Arlington/Alexandria
10 / 259
Fairfax/Falls Church
30 / 238
Loudoun/Prince William
469 / 673
Montgomery
79 / 720
Prince George's
35 / 54
8%
6%
4%
2%
0%
-2%
-4%
-6%
2005
S5
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
S6
Sales Compared to Remaining Inventory
S7
Fourth Quarter 2015
S8
Condo Submarket
S9
469
Mideast DC
248
Montgomery
176
157
Capitol East DC
137
102
S10
10%
Percent Change
Condo Submarket
# of Units Sold 1
Central DC
97
Prince George's
31
Upper NW DC
Washington Metro Total
15
1,432
Prices
The average effective price per square foot for same-store new condo sales in the metro area
rose by 3.3% in 2015. Leading the way in price growth over the year is Mideast DC with a 17.3% increase, followed by Central DC with an increase of 14.1%. The only submarkets in the metro area to
record a decline in prices are Montgomery County (down 4.7%) and Loudoun/Prince William (down
0.5%). Over the last 10 years, prices in the metro area have increased by 0.2% per year on average,
mainly due to sharp price drops in the outer suburbs of Northern Virginia during the market downturn and a lackluster recovery since then.
S7 | 63
$1,000
$800
$600
$400
S6
Upper NW DC
8 / 51
Capitol East DC
27/ 544
10 / 259
S8
30 / 238
S9
469 / 673
Montgomery
79 / 720
Prince George's
35 / 54
u/
Pr
es
rg
eo
Pr
Lo
p
Ca
$168
m
$291
/FC
$297
.G
Ea
st
nd
xa
le
l/A
DC
t
on
M
st
ea
$469
Ffx
$476
ria
$626
id
nt
ra
lD
DC
$713
Ar
49 / 448
Ce
50 / 258
Mideast DC
$884
DC
$1,500
$0
$200
Q4 Sales/Remaining Inv.
S5
S10
$1,200
rN
Condo Submarket
Central DC
S7
$1,400
pe
S4
2015
$1,600
Up
S3
New Condominium Price Change
Washington Metro Area | Fourth Quarter 2015
*Reflects prices of condo projects currently selling, so averages should not be compared
fom quarter to quarter since locations of projects change each quarter.
*Reflects prices of condominium projects currently selling, so averages should not be compared from
quarter to quarter since locations of projects change each quarter.
Resale Condo Sales Price Change

25%
20%
The regions highest effective prices per square foot are found in Upper NW DC, and the lowest
are in Loudoun/Prince William. The product currently selling in Upper NW DC is in luxury buildings,
while the majority of inventory on the market in Loudoun/Prince William is townhouse-style condo
developments. Prices for new condos in Central DC are higher than in most downtown areas in the
U.S. and similar to those in LA, but below other gateway cities such as New York and San Francisco.
Meanwhile, per-square-foot prices in Upper NW DC are currently on par with San Francisco.
As of November 2015, resale condo prices are down 0.3% metro-wide from a year earlier, while
single-family resale home prices rose by 1.3% during the same time period. Prices fell in several
submarkets, including Arlington, Alexandria, Prince William, and Montgomery.
15%
Percent Change
S2
New Condominium Prices Per SF*

Average Effective Contract Price Per SF
S1
The average effective price per

square foot for same-store new
condo sales in the metro area rose
by 3.3% in 2015.
10%
5%
0%
-5%
-10%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
S7 | 64
Concession rates decreased by 100 basis points metro-wide during 2015, from 1.6% to just 0.6%
of the average asking price. The only submarkets where concessions increased over the year were
Mideast DC (0.5% to 0.6%) and Capitol East DC (0.7% to 1.2%). They are lowest in the District and
Northern Virginia, both averaging at or below 0.5% of the average asking price. They are highest in
Loudoun/Prince William, which is currently at 1.5% of the average asking price.
Pipeline
S2
S3
S4
S5
S6
S7
S8
S9
S10
As the condo market has tightened, the pipeline has begun to grow. During 2015 the number of
units planned to begin sales within the next 36 months increased by more than 1,000 units to 4,288
units before attrition; 42% of those units will be located in the District. Of these units, we estimate
about 75% of the total will actually be built within the next three years. In addition, about 8,500 units
are in the longer-term condo pipeline and another 52,300 multifamily units that are in various stages
of planning may be built either as rental apartments or as condos.
The inventory-to-sales ratio (months of supply at current rates of sale) metro-wide is currently 15.3
months. Most of the District submarkets have the lowest months of inventory available for instance, Capitol East DC has only about five months worth; however, the months of inventory in this
submarket is expected to increase significantly in the next few months as some large-scale projects
begin sales. Montgomery currently has the highest inventory-to-sales ratio 40 months of inventory.
We have found over the years that a healthy ratio is between 24 and 30 months of supply in that
range, prices tend to move up gradually if the ratio of fresh product is above 65%. In contrast, the
rule of thumb in the resale market is that six months of supply is considered to be a healthy ratio.
The difference between the two corresponds to the 18 to 24 months it usually takes to build a new
condo project.
For most of 2015 the actively

marketing pipeline steadily rose,
but it fell by 15% in the last three
months of the year.
S1
The number of unsold units in projects currently marketing or under construction (and not yet marketing) is 3,245 units as of December 2015, similar to one year prior. For most of 2015 the actively
marketing pipeline steadily rose, but it fell by 15% in the last three months of the year. Currently, the
submarkets with the largest available inventory are Montgomery (720 units), followed by Loudoun/
Prince William (673 units) and Capitol East DC (544 units).
Concessions as a Percent of Average Asking Price by Substate Area

Fourth Quarter 2014 vs. Fourth Quarter 2015
% of Sales Price
Substate Area
Q4 2014
Q4 2015
0.7%
0.4%
0.5%
Northern Virginia
1.9%
Suburban Maryland
1.6%
0.8%
Washington Metro Average
1.6%
0.6%
Condominiums Actively Marketing or Under Construction

5,000
Sub MD
District
NoVA
3,729
4,000
Market Rate Units
Concessions
3,281
3,226
Dec. 2014
March 2015
3,834
3,245
3,000
2,000
1,000
0
June 2015
Sept. 2015
Dec. 2015
Months of Inventory by Sub-State Area

Fourth Quarter 2014 vs. Fourth Quarter 2015
Months of Inventory
Substate Area
Q4 2014
Q4 2015
9.5
7.2
Northern Virginia
22.1
15.8
Suburban Maryland
24.3
31.0
Washington Metro Average
18.3
15.3
S7 | 65
Months of Inventory
Months of New Construction Supply
Fourth Quarter 2015
S1
S2
Months of Inventory
Capitol East DC
5.1
Central DC
7.1
Mideast DC
7.8
13.8
Wash. Metro Average
15.3
18.0
Upper NW DC
19.2
Prince George's
24.0
S3
24.8
S4
Montgomery
40.0
S5
Note: Calculated by dividing actively marketing inventory by sales during the past 12 months.
60
50
Months of Supply
Condominium Submarket
S9
S10
20
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
Q1
Q2
Q3
Q4
2016
The supply-demand balance in the metro area will continue to favor developers in most areas,
with limited new condo unit supply and rising prices most notably in Northern Virginia. However,
resale listings and sales are on the rise. Despite this increase, we foresee new unit prices rising and
improved development opportunities throughout the metro area through 2017.
The supply-demand balance in the

metro area will continue to favor
developers, with limited new condominium unit supply and rising prices.
We foresee new unit prices rising
and improved development opportunities throughout the metro area
through 2017.
Months of Inventory of New Condominiums

Fourth Quarter 2015
Washington Metro Average: 15.3 Months of Inventory
Submarkets
40.0
13.8
Central DC
19.2
Mideast DC
7.8
7.1
S8
30
10
S6
S7
40
5.1
18.0
Upper Northwest DC
Capitol East DC
24.0
24.8
Montgomery
Prince Georges
Note: Calculated by dividing actively marketing inventory by sales during the past 12 months and
multiplying by 12.
Source: Delta Associates, December 2015.
S7 | 66
Condominium Demand and Supply Projections

Washington Metro Area | Fourth Quarter 2015 Fourth Quarter 2018
Demand
Net Sales
2,200/Year = 6,600
4,000
S1
S2
Market Rate Units
3,500
Supply1
3,000
Planned and may

deliver by 9/18:
3,216 units
2,500
2,000
Under Construction
and/or Marketing:
3,245 units2
1,500
1,000
Total = 6,461 units
500
S3
S4
The District
NoVA
Sub MD
1 Probable supply after

projected attrition.
2 Includes unsold units at
projects selling.
S5
S6
S7
S8
S9
Resale Condominium Active Listings Trend

7,000
S10
District
6,000
Number of Listings
Sub MD
5,000
NoVA
4,000
3,000
2,000
1,000
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: MRIS, Delta Associates; February 2016.
S7 | 67
Active resale listings at November 2015 were up to 3,388 units, an increase of 14% from November
2014. Despite the large percentage increase in active listings, there are only 2.7 months of resale
inventory on the market. Within the District, there is only 2.1 months of inventory.
Fourth Quarter 2015
Condominium Starts and Deliveries

The number of construction starts in 2015 was just 823 units, as several projects expected to start
during the year were delayed. About 55% of the units started were in the District, with another 34%
in Northern Virginia, and the remaining 11% in Suburban Maryland. In 2016, over 2,400 units are expected to start construction. Many of these in projects were delayed from 2015. About one-quarter
of these starts will be located in the Capitol Riverfront neighborhood in the District.
S2
S3
S4
In addition, there are at least 21 apartment projects currently under construction of a suitable size
that could be potential candidates for switching to condo. Most of these projects are located in
the District and Bethesda. There are also limited opportunities to convert newer Class A apartment
buildings of medium size, but most conversion activity so far in this cycle has come in the form of
older boutique buildings.
S5
Larger Condominium Projects That May Start Construction In 2016
S6
1,693
Northern Virginia
248
Suburban Maryland
276
Washington Metro Total
2,217
Condominium Unit Deliveries

Sub MD
S8
1745N
Central DC
68
2501 M Street
Central DC
59
The McIntyre
Mideast DC
77
50 Florida Avenue
Cap East DC
166
Yards Condo
Cap East DC
135
818 Potomac Ave SE
Cap East DC
55
4707 Columbia Pike
Arl/Alex
78
The Signet
Ffx/FC
103
The Enclave
Ffx/FC
80
Stone Ridge Phase 15B
District
No VA
10,000
Name of Project
S10
Units
12,000
S7
S9
Sub-State Area
Submarket
# of Units
Lou/PW
219
Crown
Mont
128
Pike & Rose Condos
Mont
104
Momentum | Shady Grove
Mont
99
Market Rate Units
S1
Apartment Units Under Construction that are Candidates for

Switching to Condos
8,000
Normalized Demand Range
6,000
4,000
2,000
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Since 2009, when the credit and housing crisis shut off the development pipeline, the number of
deliveries has consistently been below the normalized annual sales range of 2,300 to 3,300 units.
Deliveries in 2015 increased to 2,228 units, the highest annual total since 2009. However, in 2016,
only about 1,000 units are expected to deliver well below the forecasted level of demand.
S7 | 68
S1
S2
S3
S4
Sales Pace
Deliveries in 2015 increased to 2,228

units, the highest annual total since
2009. However, in 2016, only about
1,000 units are expected to deliver
well below the forecasted level of
demand.
S7
During 2015, 867 new units began selling in the metro area, about half of the level of 2014. Of all
new market entrants, 34% of units have been sold, compared to 28% during 2014. Projects that sold
out since 2014 have averaged 2.5 sales per month, while those that started selling during 2015 have
averaged 2.6 sales per month.
S8
Condominium Market Outlook
S5
S6
S9
S10
A shortage of new condo units persists in the market, as the number of actively marketing units is
now about 15% of what it was at the peak of the last cycle. Conversions are not likely to play a significant role in this cycle as they did in the last, especially in suburban jurisdictions. Unlike the previous
cycle when many apartment projects converted to condos or switched midway through construction to become condos to meet demand, the inventory of apartment product this time around is
ill-suited for conversion because of location or project scale most sponsors and capital sources do
not have the appetite to work through such large and extended sell-out programs. There are some
newer 80- to 150-unit Class A apartment buildings that could be candidates for conversion these
total 2,217 units in 21 projects under construction. Larger projects are not likely candidates due to
the amount of time needed to pre-sell at least half of the units before settlements can begin. Consequently, the eventual ramp-up of new condo supply will be built largely from scratch, supplemented
by smaller conversions of older apartment buildings (mostly inside the Beltway). It will take longer to
replenish the condo supply in this cycle since it takes more time for new construction or older building renovation/conversion compared to newer building conversions or pipeline switches.
We anticipate price increases in the mid-single digits over the next 24 to 36 months, with price
spikes in certain submarkets.
We estimate new unit sales will be 1,600 to 2,100 units in 2016 as more product is brought
to market.
S7 | 69

Retail Market
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
Washington Area Retail Outlook

RETAIL MARKET FUNDAMENTALS STRENGTHEN IN 2015
Retail continues to be a strong asset type, and the Washington area is among the strongest performing retail markets in the nation. During 2015, the vacancy rate declined and rents increased in
Northern Virginia and Suburban Maryland.
S2
S3
S4
S5
S6
S7
S8
S9
S10
Neighborhood and community shopping center effective rents rose by 2.9% in Northern Virginia
since year-end 2014, to $25.75/SF. In Suburban Maryland, effective rents in the same types of
centers rose by 1.6%, to $23.32/SF.
Investment sales of grocery-anchored centers was robust $719.5 million during 2015, which
represents the highest total dollar volume for a full calendar year since 2005.
The region has 917,000 SF of grocery-anchored development underway at 4th quarter 2015
insufficient to keep pace with demand.
The Washington metro area retail market is showing consistent, if modest, improvement. Tenants
seeking space are interested in newer, Class A space, and the rise of the District of Columbia as a
destination for living, working, and shopping represents a unique opportunity for retailers in the
region. We predict that the trend toward mixed-use projects in core submarkets with a more urban
feel will continue for the foreseeable future, although recent plans for new centers and renovations
of old ones in the outer suburbs indicate that developers expect lifestyle centers with a sense of
place to thrive throughout the region.
The region has 917,000 SF of groceryanchored development underway at

4th quarter 2015 insufficient to
keep pace with demand.
S1
Vacancy rates for neighborhood and community shopping centers in Northern Virginia and
Suburban Maryland are 5.5% and 7.9%, respectively, down 10 basis points since year-end 2014
in Northern Virginia and down 40 basis points in Suburban Maryland.
S8 | 71
National Context
Northern Virginia has one of the lowest neighborhood/community center vacancy rates, after San
Francisco, among large metro areas. The vacancy rate for all types of neighborhood and community centers in Northern Virginia and Suburban Maryland were 5.5% and 7.9% at September 2015,
respectively. This compares favorably to the national average of 10.1%.
Neighborhood/Community Center Vacancy

Select Metro Areas | Third Quarter 2015
16%
14%
Shopping center retail maintains a relatively low vacancy rate in the region because of:
High incomes
S1
Low pipeline of new development
S2
The average household income in the Washington metro area increased by 49% from 2000 to 2015,
well above the national growth rate of 32%, and it currently exceeds the national average by 61%.
By 2020 the Washington metro areas average household income is projected to increase another
12%, compared to an increase of 14% nationally. The elevated household incomes in the Washington
area yield greater discretionary spending and support demand for retail goods and space.
S4
S5
Steady population growth
S3
National Rate = 10.1%
12%
10.7%
11.2% 11.2%
11.7%
12.1% 12.4%
10%
7.9%
8%
5.5%
6%
4%
6.0%
6.6%
3.3%
2%
0%
SF
N. VA
LA
Bos
Sub MD
Phx
Den
Hou
DFW
Chi
Atl
S6
S8
S9
S10
Average Household Income

jurisdiction
2000 (Actual)
2015 (Actual)
2020 (PROJ.)
$80,600
$120,456
$135,285
U.S.
$56,600
$74,699
$84,910
Neighborhood/Community Center Space Per Capita

Washington Metro Area Suburbs | 4th Quarter 2015
17
Retail Market Conditions

The current inventory of existing neighborhood and community shopping centers in the Washington metro areas suburbs totals 73.7 million SF. Northern Virginia has 40.1 million SF of space in
these centers, and Suburban Maryland has 33.6 million SF. On a per capita basis, Northern Virginia
leads the way at 17.1 SF per capita in its neighborhood and community centers. Suburban Maryland
has 15.4 SF per capita in the same types of centers. For the Washington metro area as a whole, residents enjoy 16.3 SF per capita of neighborhood/community shopping center space.
There is 1.1 million SF of shopping center space under construction across all shopping center
types in Suburban Maryland and just under 900,000 SF under construction in Northern Virginia at
4th quarter 2015. Suburban Maryland also has 3.1 million SF of planned shopping center space defined as space in centers where plans are drafted, permits and financing have been applied for,
and ground breaking is all that remains to take place. This also tops Northern Virginia, which has 2.8
million SF of planned space. Suburban Maryland and Northern Virginia have 5.5 and 4.3 million SF,
respectively, of proposed space for which no permits or financing have been applied.
Metro Average: 16.3
18
Neighborhood/Community
Center SF/Capita
S7
17.1
16
15.4
15
14
13
12
11
10
Northern Virginia
Suburban Maryland
Source: REIS, Census Bureau, Delta Associates; February 2016.
S8 | 72
S1
S2
S3
S4
S5
S6
In Northern Virginia, neighborhood/community shopping center vacancy rates at 4th quarter 2015
are lowest in the Suburban Fairfax County submarket, at 3.9%, and highest in Arlington/Alexandria,
at 7.0%. In Suburban Maryland, vacancy rates are lowest in the Bethesda/Silver Spring submarket,
at 4.4%, and highest in South Prince Georges County, at 12.0%. Neighborhood/community center
vacancy rates in Suburban Maryland were 34% higher than in Northern Virginia at their respective
cyclical lows in 2007, and the difference between the two substate areas remains pronounced.
As of 4th quarter 2015, vacancy rates in Suburban Maryland were 43% higher than those in
Northern Virginia.
Retail Pipeline
Washington Metro Area Suburbs | All Shopping Center Types | 4th Quarter 2015
6
Northern Virginia
Suburban Maryland
Millions of Square Feet
Vacancy rates for Northern Virginia and Suburban Maryland at December 2015 are 5.5% and 7.9%,
respectively, down 10 basis points in Northern Virginia and down 40 basis points in Suburban Maryland from December 2014. While vacancy rates in neighborhood and community centers remain
elevated relative to their pre-recession averages across the metro area, they have been declining
slowly since 2012.
4
3
2
1
Effective rents in neighborhood and community shopping centers have been climbing slowly since
2010, and this pattern continued in 2015, with effective rents rising 2.9% in Northern Virginia and
1.6% in Suburban Maryland. Average effective rents at December 2015 are highest in Northern
Virginia, at $25.75 per SF. In Suburban Maryland, average effective rents are $23.32 per SF.
0
Under Construction
Planned
Proposed
S7
Washington Metro Area Suburbs | Neighborhood/Community Centers | 1999 2015

10%
S10
Northern Virginia
Shopping Center Vacancy Rate
9%
Suburban Maryland
8%
7%
6%
5%
4%
3%
2%
15
14
20
13
20
12
20
11
20
10
20
20
08
09
20
07
20
06
20
05
20
04
20
03
20
02
20
00
01
20
19
99
1%
20
S9
Vacancy Rates
20
S8
S8 | 73
PHOTO
Effective Rents
Washington Metro Area Suburbs | Neighborhood/Community Centers | 1999 2015
$30
Northern Virginia
Suburban Maryland
$24
$22
S6
15
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
20
04
05
20
03
20
20
19
S5
02
$16
20
S4
20
$18
99
S3
01
$20
00
S2
$26
20
S1
Effective Rent Per SF
$28
S7
S8
S9
S10
Grocery-Anchored Shopping Center Scale

Washington Metro Area | 4th Quarter 2015
24.3
2.3
Total = 59.0 MSF
in 326 Centers
Northern VA
Suburban MD
The District
32.4
Note: Estimate; in millions of SF.
S8 | 74
Year-End 2015 Grocery-Anchored Shopping Center Survey

Delta Associates conducts an annual year-end survey of more than 300 Washington area groceryanchored shopping centers and tabulates vacancy and rent data. The adjacent charts summarize the
results of our 2015 survey.
Of the total retail inventory in the Washington metro area, 59.0 million SF is in 326 grocery-anchored
shopping centers, up from 57.3 million SF in 320 centers one year earlier. New construction in 2015,
especially in the District of Columbia, increased retail inventory 2.2% from 2014. For comparison
to prior years, aggregate statistics presented below are derived from same-center comparisons
between the 2014 and 2015 survey respondents.
S2
S3
S4
S5
S6
S7
S8
S9
S10
Rental rates at grocery-anchored centers increased 2.9% in 2015, after rising 2.3% in 2014. Metrowide average in-line tenant rents were $35.22/SF at December 2015, compared to $34.24/SF at
December 2014. Suburban Maryland rents were $35.18/SF, up 2.9% from 2014. Northern Virginia
rents were $34.96/SF, up 3.3% from 2014. Within Northern Virginia, grocery-anchored shopping
center rents are highest in Arlington County, at $52.25/SF, and lowest in Prince William County,
at $28.37/SF. In Suburban Maryland, rents are higher in Montgomery County, at $43.91/SF, than
in Prince Georges County, where grocery-anchored shopping center rents were $26.38/SF at
December 2015.
Core submarkets remain the most desirable in the metro area, as evidenced by their area-leading
rents of $47.34/SF, up 2.6% over the year. The inner and outer rings also experienced strong rent
growth, at 2.3% and 3.8%, respectively.
Core submarkets remain the most

desirable in the metro area, as evidenced by their area-leading rents.
Grocery-Anchored Shopping Centers | Washington Metro Area

jurisdiction
2015
2014
Core
5.4%
4.2%
Inner Ring
4.9%
6.4%
Outer Ring
3.8%
5.0%
Washington Metro
4.4%
5.5%
Core = DC, Arlington, Alexandria

Inner Ring = Fairfax, Montgomery, Prince Georges
Outer Ring = Loudoun, Prince William
Asking Rents
Grocery-Anchored Shopping Centers | Washington Metro Area

jurisdiction
2015
YR % CHANGE
Core
$47.34
2.6%
Inner Ring
$36.49
2.3%
Outer Ring
$33.41
3.8%
Washington Metro
$35.22
2.9%
Core = DC, Arlington, Alexandria

Inner Ring = Fairfax, Montgomery, Prince Georges
Outer Ring = Loudoun, Prince William
S1
The metro-wide vacancy rate for grocery-anchored shopping centers edged down to 4.4% at
December 2015, from 5.5% at December 2014. The vacancy rate in Suburban Maryland dropped to
5.0% at December 2015, from 6.0% one year ago. Northern Virginia vacancy was 4.0% at year-end
2015, down from 5.2% one year ago. District of Columbia vacancy dropped to 2.6% at year-end
2015, down from 4.4% one year prior. Vacancy rates in the inner ring declined 150 basis points, and
outer ring vacancy fell 120 basis points, while the core area experienced a 120 basis point increase
during 2015.
Vacancy Rates
Grocery-anchored shopping center asking rents fluctuate dramatically across jurisdictions, but
certain anchor tenants allow centers to command consistently higher rents. Centers with a high-end
grocery anchor, defined in this survey as Fresh Market, Harris Teeter, MOMs Organic Market, Trader
Joes, Wegmans, or Whole Foods, receive an average non-anchor rent premium of 25.4% across the
S8 | 75
In Northern Virginia, centers with high-end grocery anchors had average non-anchor asking rents
of $39.78/SF, a 20.1% premium over centers with all other grocery anchors at December 2015.
Average rents at similar high-end centers in Suburban Maryland were $44.92/SF, a 32.2% premium
over other centers. In the District of Columbia, where most high-end grocers have no auxiliary retail
space, high-end anchor centers only command a premium of 3.4%.
S1
New Development
S2
There are seven notable grocery-anchored shopping centers, totaling 575,000 SF, under construction
in the metro area at December 2015, and many more are in the planning stages.
S4
S5
S6
S7
S8

$50.00
In October 2015, Walmart opened its new store at Fort Totten Square. At 120,000 SF, it is the
largest Walmart in the District of Columbia and includes 50,000 SF of grocery space. The
mixed-use project also has 345 rental units and four other retail storefronts.
In December 2015, Aldi opened its first location in Alexandria, completing renovations to a
24,000 SF space at Seminary Plaza.
MOMs Organic Market opened two new locations in the last quarter of 2015 as part of the
mixed-use projects at Verde Pointe in Arlington and the Hechts Warehouse in the District.
S9
High-End Grocers
All Other Grocers
$45.00
$40.00
$35.00
$30.00
$25.00
$20.00
Northern Virginia
Suburban Maryland
District
High-End Grocers include Fresh Market, Harris Teeter, MOMs Organic Market, Trader Joes, Wegmans, and
Whole Foods.
Grocery-Anchored Shopping Center Sales

Washington Metro Area Suburbs | 2004 2015
S10
Notable Grocery-Anchored Shopping Centers
$600
Under Construction | Washington Metro Area | December 2015

Shopping Center
JURISDICTION
RBA
Regency Center Rt. 28
Fairfax
180,000
Wegmans
Dunn Loring Metro
Fairfax
125,000
Harris Teeter
Apollo H Street
District
75,000
Whole Foods
301 West Broad
Falls Church
60,000
Harris Teeter
Bowie
50,000
Harris Teeter
Bethesda
50,000
Harris Teeter
District
35,000
Whole Foods
Bowie Marketplace
8300 Wisconsin
800 New Jersey Ave. SE
Total:
Source: Washington Business Journal, Washington Post, Delta Associates; February 2016.
575,000
Northern Virginia
Suburban Maryland
$500
ANCHOR
Sales in Millions
S3
In-Line Asking Rent by Type of Grocery Anchor
Average Asking Rent Per SF
Washington metro area over grocery-anchored shopping centers with a more traditional grocery
anchor. This premium, while impressive, likely overstates the degree to which high-end grocers influence shopping center rents. High-end grocers choose their locations carefully. They tend to select
centers where rents would be above the metro average regardless of anchor, and they tend to sign
leases in newer centers.
$400
$300
$200
$100
$0
2004 2005* 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total: $342 M $796 M $401 M $429 M $85 M $79 M $178 M $454 M $476 M $644 M $309 M $719 M
* Includes large portfolio sale by CalPERS.

Note: Excludes properties under contract.
Source: Real Capital Analytics, graphic by Delta Associates; February 2016.
S8 | 76
The dollar volume of investment sales of grocery-anchored shopping centers in 2015 totaled $719.5
million ($375/SF), more than double the 2014 total of $323 million ($353/SF). Grocery-anchored
center sales in 2015 represents the highest total dollar volume for a full calendar year since 2005.
All signs point to grocery-anchored centers continuing to be a popular investment in 2016. In our
year-end 2015 Market Maker Survey, grocery-anchored shopping centers scored the highest of all
property types on the investment-worthiness index.
Retail Market Outlook:
S2
S3
S4
S5
S6
S7
S8
S9
S10
Grocery-Anchored Shopping Centers | Washington Metro Area | 2006 2015

8.0
Investment Worthiness Line*
7.0
6.9
6.0
5.0
4.0
3.0
2.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
* A score below 5.0 is considered to have more interested sellers than interested buyers.
Source: Delta Associates Market Maker Survey; February 2016.
Retail real estate in the region avoided disaster during the recession and lackluster recovery
remarkable, considering the dual pressures of slow job and wage growth and booming online
merchandising. Now that the demand side of the retail sales equation has improved, we expect
improvements in retail real estate to ramp up through 2016.
Retail real estate in the region avoided

disaster during the recession and
lackluster recovery remarkable,
considering the dual pressures of
slow job and wage growth and
booming online merchandising.
S1
As 2016 begins, the Washington metro areas economy is performing better than it has since 2008,
and the retail real estate market is showing consistent, though modest, improvement. Among neighborhood/community shopping centers, vacancy rates continue to decline, and rents have been
rising steadily since 2010. Tenants seeking space are interested in newer, better quality space, and
the rise of the District of Columbia as a destination for living, working, and shopping represents a
unique opportunity for retailers in the region. We predict that the trend toward mixed-use projects
in core, urban submarkets will continue for the foreseeable future. Still, recent plans for new centers
and renovations of old ones in the outer suburbs indicate that owners and developers expect
better-located and better-tenanted lifestyle centers to thrive.
Investment Worthiness Index
Investment Worthiness Index
Investment Sales
S8 | 77
S9 | Capital Markets and

Investment Trends
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10

RECORD TRANSACTION VOLUME AND PRICING IN 2015; EASING AHEAD
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
2015 was a year of unprecedented sales volume and pricing for CRE assets both locally and nationally. Institutional investors flocked to commercial property markets in light of volatility in other equity
investment classes, uncertainty in international securities markets, and depressed bond yields.
Healthy economic growth in the U.S. during 2015 was instrumental in encouraging foreign investors
to invest capital in U.S. real estate assets. Another factor that spurred CRE investment in 2015 was
the long-anticipated interest rate hike by the Fed that finally transpired in December.
Looking ahead, CRE assets will remain an attractive option for risk-averse institutional portfolios.
Property price growth is likely to ease as interest rates tick upwards. Cap rates, which continued to
fall through 2015, likely have hit bottom and will remain stable or slightly increase as the year goes
on, and income growth is expected to outpace appreciation for most asset classes.
Here are some major themes observed in the investment sales market during 2015:
The boom continues in Washington. It was a banner year for the investment sales market in the
Washington metro area. A strong job market, record-setting absorption, sustained rent growth
and low vacancy rates drove speculation on the multifamily side of the market. Confidence
remained high in future prospects for office assets market, despite current weak conditions. In
addition to rapidly growing trading volume, prices for office properties also escalated considerably, with multiple sales in central Washington breaking the $1,000/SF barrier. Institutional
investors accounted for a large share of transactions, attracted by the regions strong economic
fundamentals and demographics. Foreign investors also continued to invest heavily into Washington real estate.
Escalating volatility in financial markets enhances the appeal of CRE to institutional investors.
After years of steady growth during the national economic recovery, the U.S. stock market
experienced a period of correction in August 2015. While the market quickly recovered in the
subsequent weeks, 2016 began with another major sell-off. Consequently, institutional investors
have been allocating larger shares of their portfolios toward real estate. Results from the 2015
Institutional Real Estate Allocations Monitor survey, conducted by Cornell University and Hodes
Weill & Associates, LP, indicate that average target allocation by institutional investors to real
estate stood at 9.56%, up 26 basis points from 2015. Also, according to the survey, institutional
investors are increasingly focusing on value-add investments as opposed to core investments.
Spreads are growing between cap rates for newer office product in core submarkets and
older properties in suburban submarkets. Investor demand for Class A office properties in the
Districts CBD and East End led capitalization rates downward, with many properties trading at a
sub-4.5% cap rate. Class A sales in other District submarkets and inner-suburb submarkets such
as Rosslyn and Bethesda closed at record per-SF prices and cap rates under 6%. Meanwhile,
prices and cap rates remained stagnant for office product in traditional suburban office parks
where rents have been flat and vacancy rates have been on the rise.
S9 | 79
S6
S7
S8
Lets examine the investment market for commercial real estate in 2015 starting with the big picture
and then zeroing in on Washington. What does the markets performance tell us about 2016?
S9
Nationally, Sales Volume and Pricing Continued to Climb in 2015
S10
Investors continued to flock to CRE assets in 2015 as they took advantage of a favorable lending environment with historically low interest rates, despite concerns about declining yields and a possible
market bubble. The office and multifamily sectors were the main drivers of activity, but hotels and
industrial sectors saw marked growth as well. U.S. office sales volume totaled approximately $142.3
billion during 2015, up from the 2014 total of $125.7 billion. Overall, 2015 office sales volume was
more than six times higher than it was at the bottom of the market in 2009.
64% of foreign investors expect to

increase their investment in U.S. real
estate in 2016.
$250
$200
$150
$/SF
$150
$100
$100
$50
$50
15
20
13
14
20
12
20
11
20
20
09
10
20
20
07
08
20
06
20
05
20
20
20
04
$0
03
$0
02
$/SF
$200
20
S5
$300
Volume
01
S4
Looking ahead, CRE assets will

remain an attractive option for
risk-averse institutional portfolios.
$250
20
S3
20
S2
S1
National Investment Sales of Office Buildings
Total Volume in Billions
REIT growth slows. After several years of outperforming the broader equity market by a
significant margin, REITs delivered total returns of just 2.83% compared to 27.15% in 2014.
Compared to the 2015 S&P 500 return of 1.4%, U.S. REITs still outperformed the market, but by
a much narrower margin. The tepid growth was uneven across sectors, with self-storage and
apartment REITs posting the strongest performance and health care and hotel REITs exhibiting
the poorest performance. REIT growth was largely held back by uncertainty surrounding the
Feds interest rate hike. Looking ahead, REITs will likely outperform the equity market in 2016
as the U.S. economy expands and demand grows. The impact of the recent rate hike, as well as
those of future increases, are not as significant as supposed. The extension of the federal EB-5
program will also help returns, especially since foreign CRE investment is high.
Most Active Capital Sources
Investments in U.S. Commercial Real Estate | 2015
Private
Institutional/Equity Fund
REIT/Public
Foreign
Unknown/Other
Note: Excludes portfolio sales and properties under contract; through September 2015.
S9 | 80
S2
S3
S4
S5
S6
S7
S8
S9
S10
Investors are also concerned with the level of risk they must assume when choosing between investments. Periods of market volatility can hamper returns across all asset classes and can spell trouble
for even the best-diversified portfolios. Increased market volatility in 2015 drove down yields in both
domestic and global securities markets, while returns on U.S. real estate investments rose. Over the
long term, CRE continues to provide better risk-adjusted returns than stocks and bonds.
At the national level, private equity was the largest source of capital for sales across all product
types, accounting for 38% of total CRE investment, up about 8% from 2014. Foreign sources led
investment growth with an impressive 150% increase over 2014 levels. Institutional investors appetite for CRE increased, as evidenced by a 36% increase in 2015. Publicly-traded REITs were the only
major capital source to exhibit a decline in investment, with acquisitions dropping off about 2%.
The share of investment activity from foreign sources doubled to 19.4% in 2015 from 9.8% in 2014.
Institutions and funds sourced 27.6% of capital, up from 25.5% one year ago, while publicly-listed
REITs sourced 18.0%, down from 17.8% one year ago. Finally, the percentage of total capital invested by private equity sources declined to 33.3% in 2015 from 39.0% in 2014.
Institutions already big players in commercial real estate investment are allocating even more to
CRE. From 2014 to 2015 the target for real estate increased globally, reaching 9.6% on average
across institutional portfolios. The target allocation for Asian institutions rose to 11.8% from 10.9%,
while the target allocation for Europe, the Middle East, and Africa (EMEA) declined 120 bps to 8.8%.
Notably, institutions in all regions have negative current allocation margins (i.e. their portfolios are
under-invested in real estate compared to targets).
Washington Metro Office Returns: Weak Short-Term, Strong Long-Term
By Region | 2014 vs. 2015
8%
.9
%
11
.
2015
.0
10
8.
9.
8%
9.
0%
4%
6%
9.
9.
10%
4%
12%
2014
10
14%
Percent of Portfolio Targeted for

Real Estate Investments
S1
Market diversity is another core strength of the nations real estate market with a variety of products in both gateway and secondary cities alike. Investors in U.S. markets can choose from a host
of assets that fit their risk/return objectives, from predictable returns in core markets to potentially
higher-yielding investments in secondary markets. Economic and geopolitical instability overseas
cements U.S. real estates position as a leading target for equity and debt participants. When comparing returns in stocks, bonds, and commercial real estate, it is CRE that stands out over the longterm, with an 8.02% annualized total return over the 10 years ending September 2015.
Target Allocation for Real Estate
8%
6%
4%
2%
0%
Global
The Americas
EMEA
Asia Pacific
Source: 2015 Institutional Real Estate Allocation Monitor, Delta Associates; February 2016.
Institutional Net Operating Income (NOI)

Selected Metro Areas | 2003 2015
Washington Metro
$25
New York
U.S.
Los Angeles
Chicago
$20
$15
$/SF
For foreign investors, U.S. commercial real estate continues to be an attractive proposition for capital
despite concerns over impending interest rate increases, because of the relatively favorable longterm risk-adjusted returns the asset class offers. According to an annual survey conducted by the
Association of Foreign Investors in Real Estate (AFIRE), 64% of foreign investors expect to increase
their investment in U.S. real estate in 2016. Another 31% say they expect to maintain or reinvest their
investments, with no major decreases planned. The U.S. remains a leader for attracting global investment in commercial real estate, with sound fundamentals and robust economic growth.
$10
$5
$0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Note: Through September 2015.

Source: Real Capital Analytics, Delta Associates; February 2016.
As national commercial real estate assets produced strong returns, the Washington metro area
remained among the nations top investment markets. Its 1-year performance declined, however,
compared to other cities due to factors including: price spikes, muted rent growth, and concern
over the Federal governments ongoing efforts to reduce its footprint. Institutional Net Operating
Income (NOI) rose a tepid 1.3% year-over-year for the 12 months ending in September 2014,
compared to a 3.5% rise at the national level.
S9 | 81
S2
S3
S4
S5
S6
S7
S8
S9
S10
In spite of declining returns, sales volume in the Washington area in 2015 rose to $8.7 billion, up
from $7.5 billion in 2014, the third consecutive year of increases. Investors acquiring Washington
assets today are primarily focused on a longer-term horizon and the strong fundamentals of the region. The regions office investment sales market has held up remarkably well given the instability of
the Federal government and the regions subpar economic performance between 2012 and 2014.
With the regional economy back on a growth trajectory, returns and investment sales volume in the
region should both be back benefit on firm footing.
Amidst a Flurry of Foreign Investment Activity in U.S., Washington Improves

its Position as a Top U.S. Investment Market
As foreign investors continue to place capital in the U.S., 7 U.S. markets rank among the top 10 in
global investor market transaction volume according to a 2015 DTZ Research report. New York led
the ranking, ahead of London by a $20 billion margin. Washington, D.C. was ranked 8th in the world
and 5th in the United States for overall investment sales volume. The Washington regions long-term
economic stability, strong demographics, a diversified economy, and its role as a world capital make
it an attractive choice for foreign investors seeking opportunities in the U.S.
The Washington office and multifamily markets also ranked among the top 10 globally in transaction volume. In terms of office investment sales, the Washington metro area ranked 9th worldwide
and 6th in the United States. Similarly, the regions multifamily residential investment sales volume
placed 9th internationally and 7th domestically.
Selected Metro Areas | 12 Months Ending September 2015

20%
10-Year
3-Year
1-Year
15%
Total Return
S1
We expect enduring investor

confidence in the regions ability
to produce solid results for longterm real estate returns.
Total Returns for Office Assets
10%
5%
0%
-5%
NY
Hou
SF
LA
Den
Was
U.S.
Bos
Dal
Phx
Chi
Atl
Source: NCREIF, Delta Associates; February 2016.
Total Investment Returns
Core Commercial Real Estate | Washington Metro vs. U.S.

12 Months Ending September 2015
18%
Washington
16%
US
14%
Total Return %
Office investment returns in the Washington area remain below national averages. 1-year returns for
Washington for the 12 months ending September 2015 averaged just 6.79%, ranking last among
major metro areas and well below the national average of 13.05%. More positively, the annualized
10-year total return of 7.23% for the Washington metro area was only slightly behind the national
average of 7.79%, underscoring the regions longer-term strength. We expect enduring investor
confidence in the regions ability to produce solid results for long-term real estate returns.
12%
10%
8%
6%
4%
2%
0%
Retail
Industrial
Apartment
Office
Source: NCREIF, Delta Associates; February 2016.
The Washington area also scored well in AFIREs survey of the top investment markets worldwide for
2016. The city climbed one spot since the previous survey, placing 4th in the United States, behind
New York, Los Angeles, and San Francisco.
S9 | 82
S1
Office investors were optimistic in 2015, as regional job growth rebounded strongly and the office
market finally showed signs of recovery. Office investment volume rose 16% in 2015, to $8.7 billion,
compared to $7.5 billion in 2014. Notably, office investment sales volume in the Washington metro
area is at its highest level in nearly 10 years.
S2
S3
S4
S5
S6
S7
S8
S9
Comparative Investment Sales Volume: Office Buildings

Selected Metro Areas | 2006 2015
$25
Chicago
Continuing the pattern of recent years, buyers preferred Washington investment targets in 2015
were leased-up office assets or well-located multifamily product most acquisitions were made with
plans to hold these well-performing assets for the long term. Total volume for all major product
types was $21.3 billion in 2015, up nearly 50% from $14.6 billion in 2014. All CRE sectors saw material gains, but multifamily sales posted the greatest increase, climbing to $8.5 billion in 2015 from
$4.1 billion in 2014. Class B buildings in less desirable locations attracted interest for value-add and
renovation plays.
Top U.S. Cities Among Foreign Real Estate Investors in 2016

U.S. rank
$10
$5
$0
New York
Los Angeles
San Francisco
Washington, D.C.
Seattle/Boston (tie)
Washington
$15
market
Los Angeles
$20
2006
2007
2008
2009
2010
2011
2012
2013
2015
Note: Excludes whole-company transactions.

Investment Sales
Source: AFIRE, Delta Associates; February 2016.
$35
S10
Flex/Industrial
Retail
$30
market
New York
Los Angeles
San Francisco
Chicago
Washington, D.C.
Dallas
Atlanta
Miami
Boston
10
Houston
Multifamily
Top Ten U.S. Investment Volume Rankings in 2015

U.S. rank
2014
Office
$25
$20
$15
$10
$5
$0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Note: Includes portfolio sales and whole-company transactions

Source: DTZ Research, Delta Associates; February 2016.
S9 | 83
Industrial product has seen market fundamentals improve and speculative construction return due
to a lack of available space and increased demand for retail goods, particularly online purchases.
Flex/industrial investment sales totaled $1.3 billion during 2015, compared to $1 billion in 2014.
Retail investment sales totaled $2.8 billion during 2015, compared to $2 billion during 2014. Given
the sturdy performance of grocery-anchored retail and flex/industrial product, we expect to see
these two sectors continue to attract investment capital in 2016.
S2
S3
S4
S5
S6
S7
S8
S9
S10
We expect the Washington area will

retain its position among the premier
long-term investment markets in
the nation.
S1
We expect that the Washington area will retain its position among the premier long-term investment
markets in the nation, even though returns from other major markets have surpassed Washingtons
in recent years. Washingtons still-high pricing and elevated vacancy rate are weakening investors
returns in the short term, though sales volume has remained strong. Investment sales activity is
likely to plateau along with the broader U.S. market, as the current level of sales/price growth is
not sustainable. However, the regions competitive economic advantages will give it a leg up on
its peers around the country.
Washington CRE Assets Gained Value, Cap Rates Declined Further in 2015
Class A and trophy office prices in the Washington metro area continued to rise in 2015, despite
concerns over near-term property performance challenges and potential overvaluation. Sales prices
averaged $430/SF in the Washington metro in 2015, representing the highest average per-SF price
since before the recession. This uptick in per-SF pricing has been influenced by the sales of multiple
trophy assets that have broken the $1,000/SF barrier. The most notable of these was Jamestown LPs
acquisition of two adjacent buildings at 51 Louisiana Avenue and 300 New Jersey Avenue NW for
$1,083/SF.
The District of Columbia accounted for the largest share of Washington metro area office sales during 2015, at 40%, but its share was down from 50% in 2014. Northern Virginia accounted for 24% of
total sales and Suburban Maryland 8%. The remaining sales resulted from partial-interest and whole
portfolio transactions. Notably, Brookfield Property Partners sold an eight-property portfolio in the
District and Maryland to an Australian institution for $662 million at a 4.8% cap rate. We expect the
District of Columbia to remain the leader in sales volume throughout this cycle as investors are still
targeting core downtown assets.
S9 | 84
S1
In the Washington area, average cap rates for all major asset classes declined during 2015. The
greatest drop was for Industrial/Distribution (down 80 basis points) and grocery anchored shopping
centers (down 48 basis points). Cap rates continued to hover near historical lows amidst a low interest rate environment and heavy competition among investors.
Class A Garden and High-Rise Apartment Average Sales Price

$500,000
Class A Garden
Class A High-Rise
$400,000
Sales Price Per Unit
Apartment pricing increased for garden product in 2015, while the average sales price for highrise product fell. In 2014, the region posted over $1.7 billion of multifamily Class A building sales
(five low-rise properties and 11 mid- or high-rise properties). In 2015, the metro area saw over $2.5
billion of multifamily Class A buildings trade hands (14 low-rise properties and 12 mid-rise or high
rise properties). The 2015 average per-unit price was 9.7% higher than in 2014 for low-rise units (at
$264,462), while high-rise prices fell 14.6% from 2014, at $392,288 per unit. The average price for
high-rise units has dropped off at a 0.3% annualized rate over the past five years.
$300,000
$200,000
$100,000
S2
Washington Area Product Type
S3
S4
$0
Basis-Point Change in Cap Rate 10/13-10/14
Apartments
-22
Office
-1
S5
Industrial/Distribution
+7
S6
Grocery Anchored Shopping Center
+16
S7
Source: Annual survey by Delta Associates, conducted October 2015, of the regions leading commercial real estate players.
9%
For the first time since 2010, replacement cost for existing apartments exceeds sales price. Here are
the figures for a Class A high-rise apartment projects:
Average sales price per unit in 2015:
$392,288
Replacement cost in 2015 1/ $398,000
2010
2011
2014
2015
8.5%
8.4%
8%
7.9%
7.2%
7%
7.2%
7.2%
7.0%
6.8%
6.6% 6.6%
6.4%
6.7%
7.2%
7.1%
6.8%
6.4% 6.4%
6.3%
6.1%
6.0%
6%
$323,000/unit development cost plus $75,000/unit land cost

5.8%5.8%
5.7%
5.5% 5.5%
Office
Flex/Industrial
5%
Apartments
5.8%
5.3%
GroceryAnchored SC
20
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
1
20 4
15
20
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
1
20 4
15
20
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
1
20 4
15
20
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
1
20 4
15
Average sales price per SF in 2015:

$639
Replacement cost in 2015 1/ $643
2013
8.9%
1/
For downtown office product, replacement cost also exceeds the sale price, although not by much:
2012
Cap rates by property type show that all types in the Washington region experienced a decline in
cap rates over the course of 2015, as shown in the accompanying table.
Sales Price vs. Replacement Cost
2009
Survey of Year-End Cap Rates
Average Cap Rate All Classes
S10
2008
S8
S9
2007
Source: Delta Associates' Market Maker Survey; February 2016.
$493/SF development cost plus $150/SF land cost

1/
Historically low demand for new office space explains the narrow spread between office price and
cost. For apartments, the inversion of replacement cost and sales price is a partly a function of the
recent abundance of new product being delivered.
S9 | 85
Investment Sales Outlook: The Increasing Aappeal of Commercial Real Estate

Cap Rates: Cap rates declined in 2015, but have likely hit bottom. Federal interest rate hikes likely
will contribute marginally to higher cap rates. In the Washington metro area, multifamily and office
investments, face their own market dynamics. Record apartment absorption has mostly offset
historically-high deliveries, averting significant occupancy and rent erosion. Office product in the
region has remained in high demand by investors, even in the face of high vacancy rates. Now that
vacancy has begun to decline and GSA has resumed leasing activity, the market appeal of the DC
office market should improve even further. We expect the 12-month trailing average cap rate for the
DC metro area will stabilize around 6% in 2016 before beginning to increase again. Trophy assets,
however, likely will continue to trade at cap rates in the mid-4% to mid-5% range.
S2
S3
S4
S5
S6
S7
S8
S9
S10
Prices: Nationally, we expect modest price growth for the first half of 2016, before stabilization later
in the year as the Fed continues to increase interest rates. Demand from institutional and overseas
capital sources will continue to place upward pressure on prices, but asset performance will be an
increasingly important factor in valuations in the year ahead. We expect inflation to be greatest in
secondary cities as core markets begin to overheat and investors hunt for yield. In the Washington
region, price inflation will likely level off at some point during 2016 as the current level of growth
is unsustainable, particularly given the standing of the regions office market and the ever-present
threat of oversupply in the multifamily market. We do not anticipate a substantial reset in prices,
though, as the regions steadily improving economy and attractiveness to foreign investors keep
buyer interest high. As is the case nationally, income growth will weigh heavily in determining prices.
Demand from institutional and overseas capital sources will continue to

place upward pressure on prices,
but asset performance will be an
increasingly important factor in
valuations in the year ahead.
S1
Investment sales activity for office product will continue to intensify

in 2016 across a wide variety of markets, driven mainly by foreign
capital. Investors will be increasingly attracted to Class A product in
secondary cities and to Class B assets in gateway cities as they search
for good deals. Tenant expansion, in line with the growing economy,
will also help spur demand, and income performance will be increasingly important. Transaction volume in the residential multifamily sector will be sustained by strong income fundamentals and single-family
supply constraints, particularly in coastal markets.
The Washington region will again see heavy transaction activity in both
the multifamily and office sectors. The office market is becoming
increasing bifurcated separating the haves and have-nots. Buildings with no near-term expirations in superior submarkets are a rare
commodity in this market, and investors will pay top dollar for such
assets. Investors will continue to seek Class B office product in attractive, Metro-accessible locations with renovation or conversion to other
uses in mind. Apartments will still be in favor, even with investors
wary of the oncoming new supply, as demographic trends point to
continued strong absorption.
Investors both domestic and foreign will continue to look to Washington CRE due to its solid track record, prospective employment
growth, and strong core industries. Critical to success will be recognizing the mismatch between existing product and evolving tenant
requirements, whether for office or apartment investment. Identifying unique properties that can satisfy a modern office tenant or an
apartment renter will distinguish the savvy investor from the rest of
the field. The most successful local investors have already purchased
or developed product that is unique, amenity-rich, and transit-oriented. Continued success will depend on unlocking the potential of
underutilized sites in the most attractive locations and/or in emerging
submarkets.
Volume: Transaction volume for CRE assets will continue to be strong in the year ahead as increasing real estate allocations in institutional portfolios offset rising interest rates and a tighter lending
environment. The market has expected higher interest rates for quite a while, and small incremental
increases are unlikely to trigger shocks. Marginally higher interest rates will likely have a positive
effect in the short term as they signal renewed confidence in the national economy.
S9 | 86
S10 | 2016 TrendSetter

Award Recipients
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
2016 TrendSetter Award Recipients
2016 TrendSetters
Each year, Transwestern and its consulting affiliate, Delta Associates, honor an individual, or individuals, who have made a noteworthy
contribution to the commercial real estate industry as a whole, and to the Washington metropolitan area in particular.
This year our TrendSetter honorees are James J. Abdo, President & CEO of Abdo Development; and Deborah Ratner Salzberg, President
of Forest City Washington, LLC.
S1
S2
S3
James J. Abdo
President & CEO
Abdo Development
Deborah Ratner Salzberg

President
Forest City Washington, LLC
S4
S5
S6
S7
S8
S9
S10
Over the past twenty years, Abdo Development has built its reputation as a pioneering, innovative developer of high end residential, commercial and retail projects.
Concentrating its activities in emerging neighborhoods around the urban core of
Washington, DC and Northern Virginia, Abdo is particularly well regarded for its
emphasis on historical preservation, bringing distressed, noteworthy structures
back to life without sacrificing their authenticity.
Since joining Forest City in 1985, Deborah Ratner Salzberg has been instrumental in
securing and progressing major mixed-use development projects for the company
in the Washington metropolitan area. Among the most prominent of these are
Waterfront Station in southwest DC, The Yards in the Capitol Riverfront district and
Ballston Quarter in Arlington, VA.
As Founder, President and CEO, Jim Abdo has been at the forefront of this effort to
revitalize buildings and neighborhoods often bypassed by others. By focusing on
adaptive reuse in all projects, Abdo has proven adept at preserving the past while
building modern, new communities.
All of these massive, groundbreaking projects feature the many elements that have
come to define Forest Citys success: transformation of underutilized urban areas;
adaptive reuse of historic structures, creative use of public-private partnerships;
innovative architectural designs; and the creation of vibrant, thriving neighborhoods
where individuals live, work, shop and play.
In addition to serving on the Boards of a host of business and charitable foundations, Jim has received numerous awards for his responsible approach to urban
development. For his pioneering vision and resolute commitment to revitalizing
neighborhoods, we are very pleased to honor Jim Abdo as this years TrendSetter
of the Year.
Beyond her myriad professional accomplishments, Deborah has taken an active role
in countless community, charitable and business organizations both in the Washington, DC region and nationwide. For her distinguished leadership and exemplary
record of service, we are very pleased to honor Deborah Ratner Salzberg as this
years TrendSetter of the Year.
S10 | 88
Past TrendSetter Award Recipients
S1
S2
S3
Mark D. Lerner
Mitchell N. Schear
George Carras
Doug Firstenberg
Michael Stevens
Robert J. Murphy
2015 Private Company

TrendSetter of the Year
Principal
Lerner Enterprises
2015 Public Company

President
Vornado/Charles E. Smith
2014 Private Sector

Founding Principal
StonebridgeCarras
2014 Private Sector

Founding Principal
StonebridgeCarras
2014 Public Sector

President
Capitol Riverfront Business
Improvement District
2013 Private Sector

Managing Principal
MRP Realty
William B. Aslup III
George F. McKenzie
Gerald L. Gordon, Ph.D.
Doug Donatelli
Elizabeth Price
Thomas S. Bozzuto
2013 Private Sector

Senior Managing Director
Hines
2012 Private Sector

President and CEO
Washington Real Estate
Investment Trust
2012 Public Sector

President and CEO
Fairfax County Economic
Development Authority
2011 Private Sector

Chairman and CEO
First Potomac Realty Trust
2011 Public Sector

President
NoMa Business
Improvement District
2010 Private Sector

Chief Executive Officer
The Bozzuto Group
James E. Bennett
W. Christopher Smith, Jr.
Donald Wood
Oliver T. Carr, III
Benjamin Jacobs
Michael Glosserman
2010 Public Sector

President & CEO
Metropolitan Washington Airports
Authority
2009 Private Sector

CEO
William C. Smith & Co.
2009 Public Sector

President & CEO
Federal Realty Investment Trust
2008 TrendSetter of the Year

President & CEO
Carr Properties

Managing Partner
The JBG Companies

Managing Partner
The JBG Companies
S4
S5
S6
S7
S8
S9
S10
S10 | 89
Past TrendSetter Award Recipients
S1
S2
S3
S4
Andrew Florance
Milton Peterson
F. Joseph Moravec
John E. (Chip) Akridge
Congressman Tom Davis
Bryant F. Foulger
2007 Public Company

Founder, Director,
President & CEO
CoStar Group, Inc.

Chairman
The Peterson Companies
2005 Public Sector

Commissioner
GSA Public Buildings Service
2005 Private Sector

Chairman
Akridge Real Estate Services
2004 Public Sector

11th District of Virginia
U.S. House of Representatives
2004 Private Sector

Principal and Vice President
Foulger-Pratt Companies
Clayton F. Foulger
Douglas M. Duncan
R. William Hard
Anthony A. Williams
Robert Gladstone
Thomas M. Garbutt
2004 Private Sector

Principal and Vice President
Foulger-Pratt Companies
2003 Public Sector

County Executive
Montgomery County
2003 Private Sector

Executive Vice President and
Principal-In-Charge, LCOR
2002 Public Sector

Mayor
2002 Private Sector

Chairman
Quadrangle Development
2001 Institutional
Managing Director
TIAA-CREF
Michael J. Darby
Jeffrey T. Neal
Ray DArdenne
Daniel T. McCaffery
Robert E. Burke
Raymond A. Ritchey
2001 Entrepreneurial
Principal
Monument Realty, LLC
2001 Entrepreneurial
Principal
Monument Realty, LLC

Chief Operating Officer
Lend Lease Real
Estate Investments

President
CCR McCaffery
Developments

Executive Vice President,
Operations
Boston Properties

Executive Vice President,
Head of the Washington, D.C.
Office & National Director of
Acquisitions and Development
Boston Properties
S5
S6
S7
S8
S9
S10
S10 | 90
Delta Associates thanks all of our 2015 Market Maker Survey participants, among whom are the following:
S1
1788 Holdings
Crimson Partners
Johns Hopkins University
Rentals Gone Wild
AHC Inc.
Davis Construction
LaSalle Investment Management
Ridgeline Property Group
Aimco
DFS Group
LCOR
Saul Centers
Avison Young
Ditto Residential
Lowe Enterprises
Standard Properties
Bank of Montreal
The Donohoe Companies
M&T Bank
StonebridgeCarras, LLC
Berkadia
DRI Development Services
McCaffery Interests
TF Cornerstone Inc
Bernstein Management Corporation
Eastdil Secured
McEnearney Associates
The Bozzuto Group
Blake Real Estate
First Capital Realty
MetLife
The Cornell Group
Brookfield Properties
Fore Property Company
Montgomery County Planning Department
The Donaldson Group
Buvermo Properties
Forge Company
Morgan Ventures
The Hanover Company
Cafferty Commercial Real Estate Services
Gimbert Associates LLC
MRP Realty
The Penrose Group
CBRE
Gosnell Properties
New Market Real Estate Group
Trammell Crow Company
Charles R. Hooff, Inc.
Hord | Coplan | Macht
NGKF
TSC Realty
Chevy Chase Land Company
Insight Property Group, LLC
Paramount Group, Inc.
Walker & Dunlop
CityInterests
Jefferson Apartment Group
Perkins Eastman
Washington Fine Properties, LLC
Clarion Partners
JM Zell Partners Ltd.
PMRG
West, Lane & Schlager
Clark Enterprises, Inc.
John B. Levy & Co.
Rappaport
ZOM
Clemente Development Company
John Hancock
Reed Smith
S2
S3
S4
S5
S6
S7
S8
S9
S10
S10 | 91
vision can make extraordinary

properties a reality.
PNC REAL ESTATE | Successful commercial real estate owners, developers and investors can envision the properties of the future
even before the first sketch is made. PNC Real Estate shares that vision. As a top five originator,* we offer comprehensive banking
insights, solutions and the expertise to put them to work. Whether you need construction, bridge or permanent financing; public equity
or debt solutions; treasury management; risk mitigation; or loan syndications, know that we can help bring your vision to life.
To learn more, visit pnc.com/realestate.
REAL ESTATE BANKING
AGENCY FINANCE
TAX CREDIT CAPITAL
MIDLAND LOAN SERVICES
*Top 5 in originations among banks, MBA 2014

PNC, PNC Bank and Midland Loan Services are registered marks of The PNC Financial Services Group, Inc. (PNC).
Treasury management and lending products and services, and investment and wealth management and fiduciary services, are provided by PNC Bank, National Association (PNC Bank), a wholly owned subsidiary of PNC and Member
FDIC. Investment banking and capital markets activities are conducted by PNC through its subsidiaries PNC Bank, PNC Capital Markets LLC, Harris Williams LLC, Harris Williams & Co. Ltd. and Solebury Capital LLC. Services such as public
finance investment banking services, securities underwriting, and securities sales and trading are provided by PNC Capital Markets LLC. PNC Capital Markets LLC, Harris Williams LLC and Solebury Capital LLC are registered broker-dealers
and members of FINRA and SIPC, and Harris Williams & Co. Ltd. is authorized and regulated by Financial Services Authority (FRN No. 540892). PNC Bank and certain of its affiliates, including PNC TC, LLC, do business as PNC Real Estate.
Through its Tax Credit Capital segment, PNC Real Estate provides lending services, equity investments and equity investment services relating to low income housing tax credit (LIHTC) and preservation investments. PNC TC, LLC, an SEC
registered investment advisor wholly-owned by PNC Bank, provides investment advisory services to funds sponsored by PNC Real Estate for LIHTC and preservation investments. Registration with the SEC does not imply a certain level of skill
or training. This material does not constitute an offer to sell or a solicitation of an offer to buy any investment product.
Lending products and services, as well as certain other banking products and services, require credit approval.
2016 The PNC Financial Services Group, Inc. All rights reserved.
CIB RE REB PDF 1215-0102-212801
Building a legacy
through real estate.
Congratulations to the TrendLines 2016 TrendSetters:
Deborah Ratner Salzberg of Forest City Enterprises and
Jim Abdo of Abdo Development!
Baker Tilly is a proud sponsor of

Transwestern TrendLines. We serve as
Valued Business Advisors to the real estate community
through clear insight, candid advice, and tailored solutions.
Connect with us: bakertilly.com
2016 Baker Tilly Virchow Krause, LLP.

Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International.
Partners in Excellence
Transwestern is the Mid-Atlantic Regions preeminent full-service
commercial real estate firm.
Delta Associates, an affiliate, is a national provider of industry
information, market analysis, and feasibility consulting for
commercial real estate.
S1
S2
Locations
S3
S4
S5
S6
S7
S8
S9
S10
Atlanta
Northern Virginia
Austin
Oklahoma City
Baltimore
Orange County
Bethesda
Orlando
Suburban Maryland
6700 Rockledge Drive
Suite 500A
Bethesda, Maryland 20817
301.571.0900
Boston
Phoenix
Chicago
Salt Lake City
Dallas
San Antonio
Denver
San Diego
Northern Virginia
8614 Westwood Center Drive
Suite 800
Vienna, Virginia 22182
703.821.0040
Detroit
San Francisco
Fort Lauderdale
San Jose/Silicon Valley
Fort Worth
Seattle
Greenwich
St. Louis
Houston
Walnut Creek
Los Angeles
Washington, D.C.
Mid-Atlantic Headquarters
1717 K Street, NW
Suite 1000
Washington, DC 20006
202.775.7000
1717 K Street, NW
Suite 1010
202.778.3100
www.DeltaAssociates.com
Baltimore/Washington Corridor
7160 Columbia Gateway Drive
Suite 210
Columbia, Maryland 21046
443.285.0700
National Headquarters
1900 West Loop South
Suite 1300
Houston, Texas 77027
713.270.7700
www.transwestern.com
4350 North Fairfax Drive

Suite 750
Arlington, VA 22203
Phone 571.858.9440
www.dridevelopment.com
Miami
Milwaukee
Minneapolis
New Jersey
New Orleans
New York
S10 | 94
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10
TRANSWESTERN
1717 K Street, NW
Suite 1000
202.775.7000
www.transwestern.com
PNC
800 17th Street, NW
3rd Floor
202.835.4513
www.pnc.com/realestate
BAKER TILLY
8219 Leesburg Pike
Suite 800
Vienna, VA 22182
703.923.8300
www.bakertilly.com
DELTA ASSOCIATES
1717 K Street, NW
Suite 1010
202.778.3100
www.DeltaAssociates.com

2016 Washington TrendLines Report - FINAL PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2016 Washington TrendLines Report - FINAL PDF

Uploaded by

Copyright:

Available Formats

2016

Trends in Washington Commercial Real Estate

A Collaborative Publication of Delta Associates and Transwestern.

We are pleased to share this 19th annual edition of

major efforts emerged in 2015 that will help guide the

Over the years, we have been fortunate to work with the

To our valued clients, colleagues, and business associates:

Dear TrendLines Recipient,

Baker Tilly is proud to continue our partnership and support of TrendLines as

Todd Stokes, Managing Partner DC Metro Area

The National Economy

The Washington Area Economy

The Washington Area Office Market

The Washington/Baltimore Regional Flex/Industrial Market

The Washington Area Apartment Market

The Washington Area Condominium Market

The Washington Area Retail Market

Capital Markets and Investment Trends

2016 TrendSetter Award Recipients

Acknowledgments: The editor, David Weisel, CRE, wishes to

1. THE FEDERAL GOVERNMENT IS AT A CROSSROADS. The influence of the Federal government

Megatrend #1: Federal Government at a

Still Important, But Not As Dominant, THE Federal Government

Washington Metro Area | FY1980 2015

Washington Metro Area | 1950 2015*

Share of Gross Regional Product By Source

GSA Leasing Trends: Downsizing

Approx. 40% of expiring GSA leases will be downsized and moved to

Megatrend #2: Housing Market Mismatch

Demand for Housing: Type of Housing

Not Enough Housing to Meet Demand, and Not Always the

Washington Metro Area

Net change: 155K

New Building Permits for Privately Owned Residential Units

As with the rest of the U.S., the

Source: Census Bureau, Delta Associates; February 2016.

Demand for Housing: Washington Has One of Highest Cost Burdens

Share of Renters Making $30,000-$44,999

Largest Housing Markets | United States

Baby Boomers: Postponing Retirement and Aging in Place

Labor Force Participation Rate

65+ Labor Force Participation Rate

Millennials Still Plan to Buy

Percentage Who plan to Buy a Home

Megatrend #3: The Sharing Economy and Real

Sharing and the Hotel Industry

Examples of Sharing Economy Companies

Love Home Swap

Rent the Runway

Airbnb does not own any hotels, but

Sharing and the Office Real Estate Industry

Megatrend #4: Resilience: Commercial Real

Catastrophe Costs by Type

In Billions of 2014 Dollars

Hurricanes/Tropical Storms $161.2

Source: Munich Re, Delta Associates, February 2016.

Resilient Building Design Strategies

Siting and shading to reduce heat gain

Power center above floodplain

Super-insulated building envelopes

Landscape features: berms, wetlands,

Impact resistant glass