Employment Trends

Industrial Research
Metro United States
6%

Year-over-Year Change
3%

Market Report 0%

-3%
Second Half 2018

Washington, D.C., Metro Area-6%

08 09 10 11 12 13 14 15 16 17 18*

Strong Demand From Industrial Tenants and Investors

Drives Gains in Rents, Sale Prices, and Initial Returns Industrial Supply and Demand
Completions Absorption Vacancy

Less construction drops vacancy, boosts rents. The logistical importance of Dulles 6 16%

Square Feet (millions)

International Airport draws substantial new industrial development to the area in 2018.
4 12%

Vacancy Rate
Approximately 1.17 million square feet of space is arriving near the airport or north of it
along Route 28. That is about equal to what was delivered to those areas over the past 2 8%
three years combined. Yet, positive net absorption of square feet will exceed new addi-
tions metrowide for the ninth consecutive year, pushing the average annual vacancy rate 0 4%
down for another year. Limited inventory in the District keeps vacancy under 3 percent
-2 0%
while pockets of suburban Virginia including Fauquier and Frederick counties are even 08 09 10 11 12 13 14 15 16 17 18*
tighter. The addition of 407,000 square feet of warehouse space to the latter county this
year may raise that level somewhat. As tenants search for unclaimed space, asking rents
continue to rise, increasing the most in Fairfax County, Virginia. Asking Rent Trends
Metro United States
Properties along I-270 and I-95 see uptick in trading. Declining vacancy, rising 10%

Year-over-Year Change
rents, and fewer completions maintain strong investor interest in the Washington, D.C.,
metro area and Maryland in particular. Transaction activity in the state increased along 5%

the I-270 Corridor in the 12 months prior to July as properties changed hands at sale
0%
prices just under the market average of $165 per square foot. Over the same time frame
the average cap rate in the metro rose 30 basis points to 7.6 percent, with more high- -5%
yield assets trading in northern Virginia. Buyers prioritizing initial returns turned toward
Fredericksburg, Virginia. Here, assets situated near I-95 were acquired with cap rates -10%
08 09 10 11 12 13 14 15 16 17 18*
above 8 percent and at prices below $100 per square foot. The majority of trades in-
volved class C assets, with some first-year returns greater than 10 percent. Post-2000-
built Class A industrial space also traded at above-average yields in this area, which is a Sales Trends
major causeway between Richmond and the District. Sales Price Growth
Average Price per Unit (000s)

$220 40%

Year-over-Year Growth
$165 20%

2018 Market Forecast $110 0%

Employment Employers will hire around 55,000 additional personnel this
up 1.7% year, about 12,500 more jobs than were created in 2017. $55 -20%

$0 -40%
Construction The pace of development slows in 2018 following two years
08 09 10 11 12 13 14 15 16 17 18**
2.38 million sq. ft. when completions surpassed 3 million square feet. The
344,000-square-foot multibuilding Northwoods expansion * Forecast ** Trailing 12 months through 2Q
highlights a number of deliveries coming to the Dulles Corridor. Sources: Marcus & Millichap Research Services;
Bureau of Labor Statistics; CoStar Group, Inc.; Real Capital Analytics

Vacancy Net absorption of 3.4 million square feet this year drops the Washington, D.C., Office
down 60 bps vacancy rate to 5.3 percent after a 40-basis-point drop in 2017.
Matthew Drane Regional Manager
7200 Wisconsin Ave., Suite 1101
Rent Low vacancy amid fewer completions pushes the average ask- Bethesda, MD 20814
up 4.1% ing rent up to $8.94 per square foot in 2018. (202) 510-2689 | matthew.drane@marcusmillichap.com

Investment Prices for District industrial assets can extend above $1,000 per For information on national industrial trends, contact:
square foot, with some investors redirecting or demolishing the John Chang Senior Vice President | Research Services
existing industrial asset for alternative commercial uses. Tel: (602) 707-9700 | john.chang@marcusmillichap.com

Metro-level employment, vacancy and asking rents are year-end figures and are based on the most up-to-date information available. Asking rent is based on the full service marketed rental rate. Average prices and cap
rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater
unless otherwise noted. Forecasts for employment and office data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be
made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific
investment advice and should not be considered as investment advice.

© Marcus & Millichap 2018 | www.marcusmillichap.com