MARKETBEAT

OFFICE SNAPSHOT
BALTIMORE, MD
A Cushman & Wakefield Research Publication

Q3 2012

ECONOMIC OVERVIEW
The economy failed to gain considerable traction in the third quarter of 2012 as political uncertainties, such as the fiscal cliff, and the lack of security in the labor market continued to hinder job growth and consumer spending. Employment levels, therefore, slowly improved as a total of 96,000 jobs were created in August 2012, according to the Bureau of Labor Statistics (BLS). The professional and technical services and healthcare sectors accounted for 46.0% of the jobs created during the month. In August 2012, the U.S. unemployment rate and the preliminary Maryland unemployment rate stood at 8.1% and 7.1%, respectively.

OUTLOOK
Over the next two quarters, three construction projects, which include 650 McHenry Road, are expected to deliver in Harford and Anne Arundel Counties. Prelease activity remains weak in Harford County and therefore, a slight rise in vacancy rates are expected upon the construction completions of 650 McHenry Road and 6190 Guardian Gateway. However, significant tenant occupancies in the Fort Meade District and Howard County South submarkets by the KEYW Holding Corp. at 7740 Milestone and U.S. Army Corps of Engineers at 9055 Sterling Drive will soften the expected rise in vacancies. STATS ON THE GO
Q3 2011 Overall Vacancy Direct Asking Rents (psf/yr) YTD Leasing Activity (sf) 14.6% $24.18 1,770,883 Q3 2012 15.0% $23.53 1,668,248 Y-O-Y 12 MONTH CHANGE FORECAST 0.4pp -2.7% -5.8%

GOVERNMENT-RELATED ACTIVITIY IN THE MARKET

In the third quarter of 2012, government-related demand, oriented to boost national security and cyber security efforts, drove class-A activity in the Fort Meade District and Howard County South submarkets. The class A year-to-date overall net absorption was positive at 447,934 square feet (sf) due to the following notable third quarter tenant occupancies: SAIC, Inc.s 60,000-sf occupancy at 8193 Dorsey Run Road and Lockheed Martins 52,692-sf occupancy at 410 National Business Parkway. By year-end 2012, the KEYW Holding Corp. is expected to occupy the last 60,128 sf at 7740 Milestone Parkway and bring the buildings occupancy rate to 100.0%. Year-to-date leasing activity in class A product totaled 1.5 million square feet (msf) in the third quarter of 2012. The U.S. Army Corps of Engineers executed the two largest new lease transactions of the quarter in the Howard County South submarket: the 153,500-sf lease at 9055 Sterling Drive and the 86,000-sf prelease at 7205 Riverwood Drive. Other significant government-related new lease transactions included Tenable Network Securitys 65,975-sf lease at 7021 Columbia Gateway. Two new construction projects, at 420 National Business Parkway and 7205 Riverwood Drive, broke ground during the quarter and are expected to capture anticipated governmentrelated demand in the Fort Meade District and Howard County South submarkets.

DIRECT RENTAL VS. VACANCY RATES

$25.00 $24.25 psf/yr $23.50 $22.75 $22.00 2008 2009 2010 2011 Q3 12 20.0% 17.0% 14.0% 11.0% 8.0%

DIRECT GROSS RENTAL RATE

DIRECT VACANCY RATE

LEASING ACTIVITY
3.0 2.3 msf 1.5
1.7 2.4 2.9 2.4 1.7

SALES ACTIVITY
Year-to-date sales activity totaled 1.8 msf in the third quarter of 2012. Greenfield Partners, LLP purchased the largest portfolio sale of the third quarter when it purchased notable buildings, such as 11311 McCormick Road and 10150 York Road, from Corporate Office Properties Trust (COPT) at $114.00 per square foot (psf). Other significant sales transactions in the quarter included: Sky Management Services LLCs purchase of 20 South Charles Street and Zumot Real Estate Management, Inc.s purchase of 839 Elkridge Landing Road.
Cushman & Wakefield of Maryland, Inc. 500 East Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

0.8 0.0

2008

2009

2010

2011

2012 YTD

LEASING ACTIVITY

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 paula.munger@cushwake.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. 2012 Cushman & Wakefield, Inc. All rights reserved.

BALTIMORE, MD
SUBMARKET INVENTORY OVERALL VACANCY RATE 18.4% 18.0% 10.3% DIRECT VACANCY RATE 16.4% 17.9% 10.0% YTD LEASING ACTIVITY 182,186 2,550 43,182 UNDER CONSTRUCTION 0 538,000 0 YTD CONSTRUCTION COMPLETIONS 0 0 0 YTD DIRECT NET ABSORPTION 18,950 (236,025) 175,284 YTD OVERALL OVERALL WTD. AVG NET ALL CLASSES GROSS ABSORPTION RENTAL RATE* (152,536) (238,977) 182,306 $ 20.95 $ 20.41 $ 30.08 DIRECT WTD. AVG CLASS A GROSS RENTAL RATE* $ 23.15 $ 25.25 $ 35.46

Baltimore CBD Baltimore City North/West Baltimore City South

13,381,776 4,325,210 4,496,353

Baltimore City
Howard County North Howard County South Downtown Columbia

22,203,339
1,811,712 7,755,538 2,078,844

16.7%
7.3% 15.9% 15.8%

15.4%
6.5% 14.8% 15.7%

227,918
103,197 501,489 179,806

538,000
0 86,000 0

0
68,779 105,000 0

(41,791) (209,207)
78,061 (9,635) 24,868 68,273 (64,180) 22,556

$ 21.93
$ 24.22 $ 26.24 $ 23.20

$ 25.42
$ 24.99 $ 28.07 $ 24.27

Howard County
Fort Meade District BWI District Anne Arundel County East Anne Arundel County South/Annapolis

11,646,094
4,550,926 3,616,543 755,512 2,308,268

14.6%
9.6% 17.0% 8.6% 9.3%

13.7%
9.3% 16.7% 8.6% 8.5%

784,492
204,336 41,028 5,100 43,248

86,000
140,000 87,830 0 0

173,779
0 0 0 0

93,294
200,994 (4,198) 3,369 (66,313)

26,649
197,903 (8,581) 3,369 (79,171)

$ 25.42
$ 29.84 $ 23.58 $ 20.59 $ 25.33

$ 26.93
$ 31.84 $ 25.32 $ 23.07 $ 30.03

Anne Arundel County

Baltimore County East Baltimore County North Owings Mills/Reisterstown Baltimore County West

11,231,249
868,351 9,680,069 4,422,650 3,055,760

11.9%
12.9% 13.1% 16.8% 12.8%

11.5%
12.5% 12.8% 16.8% 12.7%

293,712
763 215,630 39,723 69,263

227,830
0 0 0 0

0
0 131,360 0 0

133,852
23,792 161,587 32,482 15,515

113,520
22,631 181,580 32,482 14,513

$ 25.90
$ 21.02 $ 22.03 $ 21.32 $ 20.05

$ 28.67
$ 23.75 $ 23.92 $ 21.45 $ 23.50

Baltimore County
Harford

18,026,830
1,471,322

13.9%
32.3%

13.8%
29.5%

325,379
36,747

0
170,200

131,360
154,605

233,376
55,097

251,206
30,037

$ 21.47
$ 31.50

$ 23.01
$ 31.97

Harford County Non-CBD TOTALS

1,471,322 51,197,058

32.3% 14.2%

29.5% 13.7%

36,747 1,486,062

170,200 1,022,030

154,605 459,744 459,744

55,097 454,878 473,828

30,037 364,741 212,205

$ 31.50 $ 24.43 $ 23.52

$ 31.97 $ 27.29 $ 26.23

64,578,834 15.0% 14.3% 1,668,248 1,022,030

* RENTAL RATES REFLECT ASKING $PSF/YEAR

MARKET HIGHLIGHTS
Significant Q3 2012 Lease Transactions
9055 Sterling Drive 7205 Riverwood Dr 7021 Columbia Gateway Dr SUBMARKET Howard County South Howard County South Howard County South SUBMARKET TENANT U.S. Army Corps of Engineers U.S. Army Corps of Engineers Tenable Network Security BUYER BUILDING CLASS A A A PURCHASE PRICE / $PSF SQUARE FEET 153,500 86,000 65,975 BUILDING SQUARE FEET

Significant Q3 2012 Sale Transactions

11311 McCormick Rd, 10150 York Rd, 200 International Circle, 226 Schilling Circle, 201 International Circle, 7240 Parkway Drive, 8031 Corporate Drive, 9160 Guilford Rd and 9700 Patuxent Woods Drive (Part of the COPT Portfolio Sale of 24 Bldgs)

Howard County South, BWI District, Baltimore County Greenfield Partners, LLP East and Baltimore County North SUBMARKET Baltimore County North Howard County North SUBMARKET Harford County MAJOR TENANT EA Engineering, Science & Technology XLHealth, Inc. MAJOR TENANT N/A

$103,372,350**/ $114** COMPLETION DATE Q3 2012 Q3 2012 COMPLETION DATE Q4 2012

906,775**

Significant Q3 2012 Construction Completions

225 Schilling Circle 6514 Meadowridge Road

BUILDING SQUARE FEET 131,360 68,779 BUILDING SQUARE FEET 95,200

Significant Projects Under Construction

650 McHenry Road

* RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS

**$PRICE, $PSF OR SF NOTED REFLECT VALUES OF PROPERTIES IN OFFICE INVENTORY

Cushman & Wakefield of Maryland, Inc. 500 East Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 paula.munger@cushwake.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. 2012 Cushman & Wakefield, Inc. All rights reserved.