NORTHERN VIRGINIA 2Q11

Overview
First quarter GDP estimates were revised upwards, but at 1.9%, the economy is growing much slower than economists predicted at the beginning of the year. For 2011, GDP growth is expected to come in at just under 3.0%, nowhere near what could be considered an expansion, but rather slow growth mode. Although the employment picture has been somewhat of a monthly roller coaster ride (just 54,000 jobs added in May, following 232,000 jobs added in April), over 2.1 million jobs have been created over the past fifteen months. The Washington Metro area has performed relatively well on several fronts: the unemployment rate, which is the lowest of any large metro area at 5.4%; and signs of stabilization in the housing market. While the latter is far from exhibiting strong growth, it has been holding its own, with increases in sales prices and number of sales in recent months. The unemployment rate in Northern Virginia was just 4.0% in April, with Arlington County having the lowest rate of 3.4%. Employment growth has been strong in the state as whole, with 2.8% growth in private sector jobs since the beginning of the year. 23,050-sf lease at Reston Town Center, a relocation from 1775 Wiehle Avenue. Orbital Sciences Corporation demonstrated its commitment to Loudoun County by extending its 337,000-sf lease in Dulles for seven years. The System Planning Corporation renewed its 106,966- sf lease at One Virginia Square in Arlington. Absorption through mid-year was negative 170,738 sf, which was a slight improvement from last quarter. A year ago at this time, absorption was negative 203,924 sf. Leasing improved during the latter half of the year and absorption ended on a positive note. There are several large deals which have either recently closed (including TARGUSinfo and NeoSystems at 1861 International Drive) or are still in the works, which will boost leasing activity and ultimately absorption during the third and fourth quarters. The overall vacancy rate inched down to 15.0% from 15.2% last quarter. At 14.5%, the class A vacancy rate was at its lowest point since the third quarter of 2009 as the flight to quality continued. Several tenants such as CBRE, QinetiQ North America, and Burdette Smith took occupancy of their class A space in 2011, helping to push down vacant space. Direct asking rents increased by about 1.5% from last quarter, while class A space saw a slightly larger jump of 2.1%. Three submarkets posted higher than average gains: Tysons Corner at 2.2%, Rosslyn at 3.4%, and Springfield/Annandale/Bailey's, which increased by over 15% due to a 50,000-sf block of space at Kingstowne Town Center in Alexandria priced at $39 per square foot (psf). Over 1.5 msf is under construction in Northern Virginia, most of which is in the Rosslyn-Ballston Corridor. At 5.6%, the class A vacancy rate in the RB Corridor more than recovered from last quarter's increase and is at its lowest point in more than three years. So while it's not surprising that three of the four projects are speculative, none of them have yet to secure a tenant. The next

A Marked Decline in Activity

Following an already slow start to the year, the second quarter showed no signs of a turnaround. Year-to-date new leases totaled just 1.2 million square feet (msf), less than half of last year's total at this time. The top three leases were signed in submarkets outside the Beltway. Paetec Communications leased 62,000 sf at 1764 Old Meadow Lane in Tysons Corner, 50,000 sf of which it will convert into a data center. Also in Tysons, Dixon Hughes Goodman, LLP inked a 49,181-sf deal at 1410 Spring Hill Road. The move and expansion of the accounting firm to another building in the Tysons Dulles Plaza office park was a result of a merger between Dixon Hughes and Goodman & Company, LLP. The law firm of DLA Piper Rudnick Gray Cary US, LLP signed a

Stats on the Go
2Q10 2Q11 Y-o-Y 12 month Change Forecast

Class A Direct Available Space vs. Rental Rate

Available Space Rent

Overall Rental vs. Vacancy Rates

Rent Vacancy

13 Overall Vacancy Direct Asking Rents YTD Leasing Activity (sf) 15.7% 15.0% -0.7 pp 12 11 $30.51 $30.90 1.3% msf 10 9 8 3,051,798 1,242,641 -59.3% 7 6 2007 2008 2009 2010 2Q11

$36.00 $35.00 $34.00 $33.00 $32.00 $31.00 $30.00 psf/yr

$35.00 $33.00 $31.00 $29.00 $27.00 $25.00 2008 2009 2010 2011F 2012F

16.0%

14.0%

12.0%

10.0%

NORTHERN VIRGINIA OFFICE REPORT 2Q11

project to deliver in Northern Virginia, towards the end of the year, will be Metro Park VI in Springfield. To date, this 325,419-sf property has only signed one tenant, the Tauri Group, for about 72,000 sf, although they recently decided to sublease the space. Beltway. While vacancy rates remain higher than the closer-in markets (over 18% in Tysons and west), activity has picked up, particularly in Tysons and Reston/Herndon, where four leases over 10,000 sf closed during the quarter. In addition to those transactions previously mentioned, Hanover Insurance Group leased 11,218 sf at 12100 Sunset Hills Road. Tysons Corner continues to command the highest class A rents outside the Beltway. An average of $39.27 psf puts them back to prerecessionary levels. Another healthy market indicator was absorption, which was positive and totaled about 190,000 sf.

Investment Sales Pick Up

Seven office property sales closed during the second quarter, with several buyers familiar to the market increasing their holdings. The largest dollar value transaction was First Potomac Realty Trust's purchase of One Fair Oaks Plaza in Fairfax for $60.25 million, or $281 psf. The 214,214-sf property is fully leased to CACI. The Regents of the University of California purchased Dulles Station West Phase I, also fully leased, from Washington Real Estate Investment Trust for $58 million, about $322 psf. PS Business Parks, a California-based REIT purchased another Tysons Corner property. The Warren Building, at 8000 Westpark Drive, sold for $27.1 million, a 35% increase in price over just one year. Activity in all sectors of the capital markets is expected to remain strong for the rest of the year. While stabilized office product will continue to be attractive and command premiums, many buyers are using more aggressive underwriting for tenant lease-up and rollover in order to compete on suburban assets.

Absorption

Leasing Activity

6.0 4.0

msf

2.0 0.0

(2.0) 2007 2008 2009 2010 2Q11

Outlook Inside the Beltway

A number of new leases were signed inside the Beltway during the second quarter, although they were mainly smaller deals under 5,000 sf. The largest transaction was closed in Ballston as Metro Offices leased approximately 20,000 sf at 4601 North Fairfax Drive. The overall vacancy rate in Ballston is just 4.1%, the lowest its been in over a decade. Class A asking rental rates remain the highest in Northern Virginia within the Beltway, with Rosslyn rates topping $50 psf, on average, and Ballston closer to the mid-$40s. While overall absorption was positive during the second quarter, it was not strong enough to completely erase the declines in occupancy which took place during the first quarter, including the large block of space vacated at 1320 North Courthouse Road. Through mid-year, absorption was negative 360,000 sf, of which 300,000 sf was from the aforementioned property.
3.0
Absorption Leasing Activity

Two of the hottest topics in Northern Virginia are centered around transportation developments. In May, the House of Representatives approved legislation that could delay the move of 6,400 defense workers to the Mark Center in Alexandria, due to concerns over traffic congestion. The move is part of the Base Realignment and Closure (BRAC) Act, and was originally scheduled for completion in September of this year. If approved by the Senate, the move will be delayed for approximately one year, which will not be long enough to implement some of the proposed roadway changes. The House bill also calls for limiting the number of parking spots to just 1,000 in order to encourage employees to use public transportation. On the other side of Fairfax County, Phase I of the Metrorail extension is 40% complete, and is scheduled to open in 2013. Four stops will be added in Tysons Corner and one in Reston. Discussions of development activity focused around these new Metro stations are starting to percolate. Ground-breaking at 1775 Tysons Boulevard, a 472,000-sf office property, is expected this summer. The expansion of the MITRE Corporations campus, a 340,000-sf building has been approved by the Fairfax County Board of Supervisors. Additionally, The Georgelas Group and Greystar are close to reaching a deal on the development of a 404unit apartment building near the Tysons West Metro station, although the project has yet to gain zoning approval. The RB Corridor is often touted as a model for Transit Oriented Development. As the vision for Tysons Corner starts to take hold along the same vein, the markets outside the Beltway will become more and more attractive to tenants looking for better access via public transportation, as well as the ability to offer a live/work/play environment to their employees.

2.0

1.0 msf 0.0 (1.0) 2007 2008 2009 2010 2Q11

Outside the Beltway

Thus far in 2011, we are witnessing a reversal of the trend in which the markets outside the Beltway lag behind those within the

Cushman & Wakefield of Virginia, Inc. 1600 Tysons Boulevard, Suite 400, McLean, VA 22102 (703) 448-1200

www.cushmanwakefield.com

* The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2011 Cushman & Wakefield, Inc. All rights reserved.

NORTHERN VIRGINIA OFFICE REPORT 2Q11

Market/Submarket Statistics
Market/Submarke t Rosslyn Arlington Metro Corridor Ballston Crystal City/Pentagon City Arlington/Non-Metro Arlington County Old T own I-395 Corridor Huntington/Eisenhower City of Alexandria Springfield/Annandale/Baileys Merrifield/Route 50 Fairfax/Oakton/Vienna T ysons Corner/McLean Reston/Herndon Route 28 South/Chantilly Fairfax County Loudoun County Northe rn Virginia Total Inventory 8,245,705 5,297,420 5,830,294 11,956,380 1,203,921 32,533,720 8,346,971 3,139,624 2,573,709 14,060,304 6,509,379 6,781,681 9,061,637 22,102,986 24,915,478 9,166,852 78,538,013 4,984,333 130,116,370 O ve rall Dire ct Vacancy Vacancy Rate Rate 7.9% 6.8% 13.2% 11.1% 4.1% 3.4% 7.5% 7.1% 2.4% 2.1% 7.7% 6.8% 9.7% 8.4% 22.4% 21.5% 17.0% 17.0% 13.9% 12.9% 11.5% 10.6% 16.1% 13.2% 17.2% 15.0% 18.6% 16.9% 18.4% 16.7% 18.3% 17.1% 17.5% 15.8% 24.8% 24.0% 15.0% 13.6% YTD YTD Leasing Under C onstruction Activity Construction Comple tions 200,680 524,605 0 64,291 99,930 0 38,503 628,676 0 61,861 0 0 0 0 0 365,335 1,253,211 0 41,848 0 0 0 0 0 10,643 0 0 52,491 0 0 64,565 325,419 94,280 197,323 0 0 47,928 0 0 169,225 0 0 219,169 0 0 13,266 0 0 711,476 325,419 94,280 113,339 0 0 1,242,641 1,578,630 94,280 YTD Dire ct YTD O ve rall Absorption Absorption (197,859) (171,146) (253,953) (244,709) (12,399) (23,207) 35,481 28,908 (1,822) (5,970) (430,552) (416,124) (10,118) (85,202) 101,360 98,860 42,750 42,330 133,992 55,988 116,112 117,559 43,054 6,994 153,698 118,751 33,910 64,919 (146,202) (143,204) 7,227 (9,573) 207,799 155,446 38,396 33,952 (50,365) (170,738) O verall Wtd. Avg. All C lasses Gross Rental Rate $42.43 $41.64 $37.74 $38.61 $30.02 $40.12 $34.05 $33.29 $31.78 $33.38 $27.57 $29.01 $26.18 $30.67 $28.19 $27.66 $28.73 $25.08 $30.43 Direct Wtd. Avg. Class A Gross Rental Rate $50.88 $44.19 $39.74 $41.74 $34.50 $43.36 $36.72 $35.11 $39.71 $36.13 $36.47 $33.61 $28.71 $39.27 $30.85 $29.38 $32.46 $26.46 $33.63

Market Highlights
SIGNIFICANT 2Q 11 LEASE TRANSACTIO NS
BUILDING
21819-21839 A tlantic Boulevard 3601 Wilson Boulevard 1764 O ld M eadow Ln 1410 Sp ring H ill Road 11911 Freedom D rive

SUBM A RKET
Loudoun County A rlington M etro Corridor T y sons Corner/M cLean T y sons Corner/M cLean Reston/H erndon

TENA NT
O rbital Sciences Corp oration* Sy stem Planning Corp oration* Paetec Communications, Inc. D ixon H ughes G oodman LLP D LA Pip er Rudnick G ray Cary U S LLP

SQUA RE FEET
337,000 106,966 62,000 49,181 23,050

BUILDING CLA SS
B A B A A

*Renew al or Extension - not included in Leasing A ctivity Statistics

SIGNIFICANT 2Q 11 SALE TRANSACTIO NS

BUILDING
4114 Legato Road 2300 D ulles Station Boulevard 8000 Westp ark D rive 2050 Ballenger Avenue 700 S. Washington Street

SUBM A RKET
Fairfax/O akton/Vienna Reston/H erndon T y sons Corner/ M cLean H untington/ Eisenhow er O ld T ow n

BUYER
First Potomac Realty T rust Regents of the U niversity of CA PS Business Parks Catholic Charities U SA A SB Cap ital M anagement

SQUA RE FEET
214,214 180,000 140,454 67,093 59,652

PURCHA SE PRICE
$60,250,000 $58,000,000 $27,100,000 $24,696,000 $12,125,000

SIGNIFICANT 2Q 11 CO NSTRUCTIO N CO M PLETIO NS

BUILDING
N /A

SUBM A RKET
N /A

M A JOR TENA NT
N /A

SQUA RE FEET COM PLETION DA TE

N /A N/A

SIGNIFICANT PRO JECTS UNDER CO NSTRUCTIO N

BUILDING
1812 N orth M oore Street 675 N orth Randolp h Street M etro Park VI 800 N orth G lebe Road 1776 Wilson Boulevard

M A JOR TENA NT
N /A G SA -D A RPA T auri G roup N /A N /A

SUBM A RKET
Rossly n Ballston Sp ringfield/A nnandale/Bailey s Ballston A rlington M etro Center

SQUA RE FEET COM PLETION DA TE

524,605 355,530 325,419 273,146 99,930 3Q 13 1Q 12 4Q 11 1Q 12 2Q 12

Cushman & Wakefield of Virginia, Inc. 1600 Tysons Boulevard, Suite 400, McLean, VA 22102 (703) 448-1200

www.cushmanwakefield.com

* The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2011 Cushman & Wakefield, Inc. All rights reserved.