MARKETBEAT

INDUSTRIAL SNAPSHOT
NORTHERN VIRGINIA
A Cushman & Wakefield Research Publication

Q4 2011

ECONOMIC OVERVIEW
The economy of Virginia seems to be following the national trend of slow recovery. The unemployment rate dropped in 2011, down to 4.2% from 5.3% at the same time last year. Roughly 13,000 jobs were added to Virginias work force throughout the year. The biggest gains were in the Education & Health Services as well as the Professional & Business Services sector, increasing 1.44 % and 1.42%, respectfully, since last year. Manufacturing also rose slightly, up 0.7% since last year.

OUTLOOK
In Northern Virginia, several upcoming changes will serve to boost the economy as well and cause considerable improvements in the Industrial sector. The BRAC initiative will finalize its move of several Department of Defense tenants outside the Beltway. Fairfax County alone stands to gain 20,000 jobs as a result. Large tenants such as the FBI and the National Geospatial Intelligence Agency (NGA) will attract new government contractor activity in the Route 28 and Springfield regions especially. Additionally, the Dulles Metro extension is a significant improvement in the regions infrastructure that will likely lead to a boost in construction and leasing activity. Despite a relatively slow year, and a potentially difficult 2012, the Northern Virginia Industrial market seems poised for a bright longterm future. STATS ON THE GO
4Q10 Overall Vacancy Direct Asking Rents (psf/yr) YTD Leasing Activity (sf) 15.1% $9.91 1,461,218 4Q11 14.4% $9.98 1,298,703 Y-O-Y CHANGE -0.7pp 0.7% -11.1% 12 MONTH FORECAST

INDICATORS POINT TO SLOW BUT STEADY MARKET

The industrial markets in Northern Virginia remain slow, but indicators continue to improve slowly. Overall vacancy continued its downward trend, falling 0.7 percentage points throughout 2011, ending the fourth quarter at 14.4%. Asking rental rates climbed slightly throughout the year. At the end of the fourth quarter, the overall direct net asking rental rate was $9.98 per square foot (psf), a slight rise of $0.07 psf since the end of 2010. There were several bright spots throughout the region during the year that helped boost the health of the overall market. The Flex sector specifically showed significant improvement throughout 2011. The overall vacancy rate for the Flex market dropped 1.9 percentage points from last year down to 16.0%. Additionally, asking rental rates ticked up slightly throughout the year, up $0.16 psf from 2010. Leasing activity for flex buildings also rose in 2011. With a total of 439,210 sf leased, this was a 2.8% increase from last year.

UNDER CONSTRUCTION VS. COMPLETIONS 2 1.5

msf

OVERALL LEASING ACTIVITY SLOWS

Despite an increase in flex building leasing activity, overall leasing activity was generally slower than 2010. Total leasing activity steadily declined throughout the year, with the fourth quarter having the lowest square feet leased at 243,968 sf. Total 2011 leasing activity ended at 1,298,703 sf, an 11.1% decline from total 2010 figures. The largest deal of the year the State Departments prelease of 212,500 sf at 10470 Furnace Road, a project that has yet to break ground. 2011 only saw two other new deals over 100,000 sf. Amazon, Inc. took 137,015 sf at Dulles Summit Court and Chantilly BioPharma leased 129,552 sf in two buildings on Concorde Parkway. Despite the slower leasing, absorption remained significantly positive this year. A marked change from the previous year, 2011 saw a total overall absorption of 563,426 sf. This was led by a strong performance in the flex market at 368,238 sf. With the shortage of new leasing activity, yet positive absorption, the signs point to a market that still favors tenants. 2011 was also marked by the sale of WRITs industrial portfolio. The entire portfolio was approximately 3.1 million square feet (msf) and was purchased in three phases for approximately $330 million by a joint venture between Area Property Partners and Adler Realty Services. Of the 56 buildings that made up the portfolio, Northern Virginia held 40, totaling almost 2.1 msf.

0.5 0 2007 2008 2009 2010 2011 YTD

UNDER CONSTRUCTION COMPLETIONS

OVERALL RENTAL VS. OVERALL VACANCY RATES

$12.00 $10.00 18.0% 16.0% 14.0% 12.0% 10.0% 8.0%

psf/yr

$8.00 $6.00 $4.00 $2.00

2007

2008

2009

2010

4Q11

OVERALL NET RENTAL RATE

OVERALL VACANCY RATE

NORTHERN VIRGINIA
SUBMARKET INVENTORY OVERALL VACANCY RATE 13.1% 14.9% 13.7% 15.0% 15.0% 17.8% 17.8% 14.4% YTD LEASING ACTIVITY YTD USER SALES ACTIVITY 0 0 0 0 0 0 0 0 UNDER CONSTRUCTION YTD CONSTRUCTION COMPLETIONS 0 0 0 227,938 227,938 124,800 124,800 352,738 YTD DIRECT YTD OVERALL NET ABSORPTION NET ABSORPTION HT N/A N/A N/A N/A N/A N/A N/A N/A MF N/A N/A N/A N/A N/A N/A N/A DIRECT WEIGHTED AVERAGE NET RENTAL RATE OS W/D $14.21 $8.98 $11.81 $13.18 $9.68 $9.68 $11.50 $11.50 $8.06 $8.73 $8.22 $8.22 $7.95 $7.95 $8.52

Springfield/ I-95 Rt. 28 South FAIRFAX COUNTY Rt. 28 North LOUDOUN COUNTY Manassas PRINCE WILLIAM COUNTY TOTALS**

17,913,088 9,510,380 27,423,468 14,585,270 14,585,270 3,098,934 3,098,934 45,107,672

327,386 319,977 647,363 438,840 438,840 0 0 1,086,203

0 0 0 350,447 350,447 0 0 350,447

(36,025) 240,188 204,163 260,436 260,436 95,599 95,599 560,198

16,096 282,776 298,872 168,955 168,955 95,599 95,599 563,426

N/A $11.67

* RENTAL RATES REFLECT ASKING $PSF/YEAR

HT= HIGH TECH

MF = MANUFACTURING OS = OFFICE SERVICE W/D = WAREHOUSE/DISTRIBUTION

MARKET HIGHLIGHTS
SIGNIFICANT 2011 LEASE TRANSACTIONS 10470 Furnace Rd (proposed) 22630 Dulles Summit Ct 3701 & 3725 Concorde Parkway 3900 Stonecroft Blvd* 10400 Furnace Road 8211 Terminal Road 45065 Old Ox Road* SIGNIFICANT 2011 SALE TRANSACTIONS WRIT Portfolio 7215 Lockport Place 114 Powers Court SIGNIFICANT 2011 CONSTRUCTION COMPLETIONS 22640 Davis Drive 10231 Harry J. Parrish Drive 23550 Pebble Run Place SIGNIFICANT PROJECTS UNDER CONSTRUCTION 45200 Prologis Plz- Building 7 45190 Prologis Plz- Building 6 Dulles Summit Ct- Building C Dulles Summit Ct- Building E SUBMARKET Springfield/I-95 Rt. 28 North Rt. 28 South Rt. 28 South Springfield/ I-95 Springfield/ I-95 Rt. 28 North SUBMARKET N/A Springfield/ I-95 Rt. 28 North SUBMARKET Rt. 28 North Manassas Rt. 28 North SUBMARKET Rt. 28 North Rt. 28 North Rt. 28 North Rt. 28 North TENANT/BUYER GSA- State Department Amazon, Inc Chantilly Bio-Pharma GTSI GSA DRS Incorporated Sears Logistical Services BUYER Area Property Partners & Adler Realty Services GKE, LLC 114 Powers Court, LLC MAJOR TENANT Rockwell Collins American Tire Distributers N/A MAJOR TENANT N/A N/A N/A N/A PROPERTY TYPE Warehouse/Distribution Warehouse/Distribution Flex Warehouse/Distribution Flex Flex Warehouse/Distribution PURCHASE PRICE $232,468,212 $3,325,000 $2,475,000 COMPLETION DATE 4Q11 2Q11 4Q11 COMPLETION DATE 2Q12 2Q12 1Q12 1Q12 SQUARE FEET 212,500 137,015 129,552 96,119 54,000 45,000 41,994 SQUARE FEET 2,059,063 28,000 38,400 SQUARE FEET 178,178 124,800 49,760 SQUARE FEET 82,466 88,731 103,405 75,845

* RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS

Cushman & Wakefield of Virginia, Inc. 1600 Tysons Boulevard, Suite 400 McLean, VA 22102 www.cushmanwakefield.com/knowledge

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