DC RISING MAGAZINE by LORI SOKOL

DC Rising A publication of Sokol Media, Inc.

Covering D.C./Maryland/Virginia

PARAMOUNT GROUP

Green from the Ground Up

1899 Pennsylvania Avenue

Congratulations Paramount Group

on your success in creating Eco-Friendly Buildings!

Sokol Media, LLC

Publisher’s Page W

elcome to DC Rising magazine, sister publication to NY Residential and South Florida Residential magazines.

FOUNDER & PUBLISHER Lori M. Sokol ART DIRECTOR Kerstin Vogdes Diehn

While DC Rising will be similar to these two other publications by reaching real estate developers, building owners and managers, architects, engineers, real estate attorneys and leading real estate brokers in the region it serves, it will be different since it will provide coverage of BOTH the Residential and Commercial real estate arenas.

PUBLISHING CONSULTANT James Janson CONTRIBUTING WRITER Faith Hope Consolo

Launching with a circulation of 10,000, DC Rising will be sent individually to each recipient, and will also be distributed at leading industry events throughout the year. With a scheduled launch in October 2015 featuring the NoMa Business Improvement District as its Cover Story, we are looking forward to continually providing the DC region with cutting-edge news, trends and analysis about the latest deals, the most notable projects, and the people who are making it all happen.

COPYWRITER/ RESEARCH ASSISTANT Jason H. Greenberg WEB DESIGN Design Disegno

Upcoming bi-monthly issues will also feature columns from industry experts in a variety of real estate arenas including development, construction, sustainability, architecture, engineering, and the law. Please contact me at the email address below if you would like to submit content on any of the above topics.

ACCOUNTING Citrin Cooperman PRINTING AmericasPrinter

We hope you enjoy reading our publication, and look forward to your participation and feedback on an industry that is clearly ‘on the rise.’

Sokol Media, LLC 75 West End Avenue, #P15F New York, NY 10023 Ph: 973-769-7012 www.sokolmediaonline.com

Lori Sokol, Ph.D. Founder & Publisher Please address all comments and questions to lori@sokolmediaonline.com

Copyright by Sokol Media, LLC. No part of the publication may be reproduced or transmitted in any form or by any means without prior written consent from the publisher. The publisher reserves the right to accept or reject any advertising or editorial materials. Advertisers and/or their agents assume the responsibility for all content of published advertisements and assume responsibility for any claims against the published based upon the advertisement. Editorial contributors assume any claims against the publisher based on the published work. No part of this publication may be reproduced in any form or by any electronic ormechanical means, including information storage and retrieval systems without permission in writing from the publisher. All items submitted to Sokol Media, LLC. become the sole property of Sokol Media, LLC. Editorial content may not necessarily reflect the views of the publisher. All correspondence and inquiries should be addressed to: Sokol Media, LLC., 75 West End Avenue, #P15F, New York, NY 10023.

Contents 1

PUBLISHER’S PAGE

Welcome to DC Rising

INDUSTRY NEWS The Mandarin Oriental’s Empress Lounge Steps Outdoors, while the East End Welcomes Farmers Restaurant

COVER STORY The Paramount Group has made its Entire Portfolio Green, from DC to NYC

SPECIAL FEATURE DC Market Snapshot, 2nd Quarter, 2015 from the Office to Multi-Family

CALENDAR Upcoming Industry Events in 2015

SPECIAL FEATURE The Industrial Market Shrugs Off Economic Slowdown (1st Qtr., 2015) according to Colliers www.sokolmediaonline.com • 1

INDUSTRY NEWS

MANDARIN ORIENTAL, WASHINGTON DC OFFERS NEW OUTDOOR EXPERIENCE AT EMPRESS LOUNGE In celebration of the new terrace opening, Empress Lounge offers a taste of Napa Valley wines at outdoor pairing event MANDARIN ORIENTAL, Washington DC has completed a full renovation of the terrace at Empress Lounge to now offer additional seating, fire pits, exclusive menu options and much more. To celebrate the opening of the new garden oasis, Empress Lounge presentsA Perfect Pairing, an evening event with Duckhorn Vineyards, Napa Valley Premier Wines on April 30 from 5:30 to 7:30 p.m. A Perfect Pairing will take place on the lounge’s newly renovated outdoor terrace, where guests will indulge in a selection of Duckhorn’s wines each paired with the perfect dish from Mandarin Oriental, Washington DC’s recently appointed Executive Chef, Adam Tanner. Guests also will be able to mingle with Scott Finaly, the East Coast Director of Operations for Duckhorn, while enjoying lively musical entertainment in the hotel’s beautiful garden overlooking the Tidal Basin. Tickets are USD 35* per person and also include a special take-home gift from Duckhorn Vineyards.

Empress Lounge will continue A Perfect Pairing events every other Thursday throughout the summer with different partners each time. To enjoy alfresco intimacy in a refined atmosphere, Empress Lounge’s terrace transformation allows for additional seating in comfortable couches and chairs, features large fire pits, and offers a new terrace menu with seasonal, outdoor favorites including a S’mores & Bubbles pairing, Grilled Peaches & Goat Cheese and the lounge’s signature Peach Sangria. The terrace is open 2 p.m. to 12 a.m. daily. For additional information or to make reservations for A Perfect Pairing, guests may call +1 (202) 787 6140. A credit card is required at time of booking but no charges will be made until the day of the event. Cancellation within 48 hours of the event will result in a fee for the full ticket amount.

FARMERS RESTAURANT GROUP SIGNS 12,000 SF LEASE AT 600 MASSACHUSETTS AVENUE IN WASHINGTON, DC DTZ, a global leader in commercial real estate services, today announced that Farmers Restaurant Group has leased 12,000 square feet of space at 600 Massachusetts Avenue, NW Washington, DC for its newest restaurant, Farmers & Distillers. The new concept restaurant will join others in the portfolio including Founding Farmers and Farmers Fishers Bakers. John Asadoorian of Asadoorian Retail Solutions represented the building’s co-owners, Gould Property Company and Oxford Properties Group, in the transaction. Farmers & Distillers will feature a concourse level and ground floor with a total of 300 seats. 600 Massachusetts Avenue is a 400,000 square foot building in the East End submarket of Washington, DC and features nearby restaurants, hotels, convenient public transportation, shopping, sports venues and museums. The building is dedicated to environmentally friendly practices and is designed to achieve LEED Platinum with the U.S. Green Building Council. The building will feature Class-A office space, a two-story glass atrium in the

2 • www.sokolmediaonline.com

lobby with stone flooring, and a four-story atrium from the second floor ascending to the fifth floor. The primary roof will incorporate green spaces with planters and heavy vegetation, and offer views of the Capitol and the Washington Monument. For more information please visit www.600massachusettsavenue.com. “We are delighted to welcome Farmers & Distillers to 600 Mass Ave, which will be a great contribution to our building and neighborhood,” said Kingdon Gould,III of Gould Property Company. “We are looking forward to a very longterm relationship with this fantastic restaurant group.” Vice Chairman Phillip S. Thomas, Jr., Managing Director Kerri Mulligan Salih and Associate Callie Clemons of DTZ provide Project Office Leasing services in representation of the building’s co-owners, Gould Property Company and Oxford Properties Group. 600 Mass has 127,000 SF of space currently available with other pre-leases in the works. The building delivers third quarter 2016 with the restaurant opening that fall.

INDUSTRY NEWS

MCKELVY TO BECOME PRESIDENT AND CEO OF GILBANE BUILDING COMPANY GILBANE BUILDING COMPANY, a global and award-winning leader in construction and facilitiesrelated services, announced that Michael McKelvy will assume the position of President and Chief Executive Officer effective January 1, 2016. McKelvy currently serves as President and Chief Operating Officer. He will succeed present Chairman and Chief Executive Officer Thomas F. Gilbane, Jr., who will remain as Chairman of Gilbane Building Company and the Chairman and Chief Executive Officer of Gilbane, Inc., a holding company with two principal subsidiaries, Gilbane Building Company and Gilbane Development Company. MikeMcKelvy_QuoteMr. McKelvy joined Gilbane in 2014 following a 26year career with CH2M Hill. As President and CEO of Gilbane Building Company, Mike will assume responsibility for directing the organization’s growth while ensuring profitable operations and maintaining Gilbane’s unique culture and commitment to its clients. McKelvy commented, “I am honored and excited to lead the Gilbane team. The commitment of everyone in this company to integrity, client service and above all safety is what makes our organization special. Our 2,600 employees are the foundation of our success. I look forward to continuing to work with Tom, the Board and the management team to achieve future goals and write the next chapter in our 142-year history.” A Registered Architect in 16 U.S. states, McKelvy holds a Bachelor of Science Degree in Environmental Design from Oklahoma University, a Bachelor of Architecture Degree from Louisiana Tech University and has completed advanced executive management programs at the University of Chicago’s Booth School of

Management and Stanford University. Thomas Gilbane, Jr. joined Gilbane full-time in 1970. He was appointed Vice President/Regional Manager in 1976, Executive Vice President and Chief Operations Officer in 1983, President and Chief Operating Officer in 1997, and Chairman and Chief Executive Officer in 2004. In 2008, Mr. Gilbane became President and Chief Executive Officer of Gilbane, Inc. and Chairman and Chief Executive Officer in 2010. During his 45 years of service to Gilbane, Tom has been a driving force in the Company’s expansion both domestically and overseas. The current geographic footprint of Gilbane now includes more than 50 U.S. and international offices and an operating volume of approximately $4 billion. Under his leadership, Gilbane implemented a “one company” operating philosophy that maximizes the organization’s resources and expertise on projects and business pursuits. As Chairman of Gilbane Build-

ing Company and the Chairman and CEO of Gilbane, Inc., Tom will continue to set the strategy and goals for the parent entity working in collaboration with the Board of Directors and the executive leadership teams of both organizations—Gilbane Building Company and Gilbane Development Company. Mr. Gilbane was recently elected Chairman of the Construction Industry Round Table Board. Additionally, he is Chairman of the ACE Mentor Program of America, a member of the National Academy of Construction and a Babson College Trustee. “Mike truly understands who we are as a Company and is a perfect fit to lead our organization going forward,” said Gilbane. “I am excited about the possibilities that lie ahead for our company and its people, and look forward to working with Mike and the leadership team as we stay committed to delivering outstanding service to our clients and continually growing as a private, family-owned business.”

www.sokolmediaonline.com • 3

PARAMOUNT GROUP Green

from the

“I don’t know of any other firm that has made the decision to make its entire portfolio LEED certified,” says Ralph DiRuggiero, SVP of Property Management for Paramount Group, Inc. (PGI), “And we got it done in only 18 months.” Paramount’s ability to do so much, and so quickly, is a true testament to the firm’s long-admired reputation as a market leader in sustainability. Recognized extensively for reducing its portfolio’s energy usage by 14.8% since 2007, PGI can also now lay claim to a total reduction in greenhouse gas emissions of more than 13,000 metric tons of CO2 per annum. And this has been primarily accomplished by remaining at the forefront of utilizing innovative technologies such as real-time energy monitoring, and by participating in an automated demand response program. PGI’s achievements in sustainability are not surprising given the firm’s success in so many other arenas. A real estate investment and management firm with expertise in acquisition, finance, disposition, property management, leasing, and construction, PGI is one of the largest privately-owned real estate companies headquartered in New York City. For several decades and through numerous market cycles, PGI has continuously provided first class properties, services, and amenities to its tenants, as evidenced in the company’s current 14.25 million-square-foot portfolio of trophy office buildings in New York, Washington, DC and San Francisco (presently valued in excess of $11 billion). But one of the things the firm is most proud of is, that in just a few short years, most of their portfolio has received an Energy Star label, while

712 Fifth Avenue 4 • www.sokolmediaonline.com

Caption

60 Wall Street 31 West 52nd Street

> www.sokolmediaonline.com â&#x20AC;˘ 5

increasing its portfolio-wide Energy Star rating from 69 to 79 (a 15% increase). “This sizeable increase exemplifies our company’s unparalleled focus, drive and know-how,” Ralph says. More specifically, PGI has accomplished the following outstanding initiatives: • It has received the Energy Star’s Leaders Designation, and is one of only 22 real estate companies to receive this, while also receiving a Top Performer Designation in 2013. • PGI currently has applied for 8 Energy Star Designations for 2013, 745 Fifth Avenue and has achieved 12 LEED Certifications with the remainder of the portfolio either under review or finalizing their performance periods. • PGI’s current ES rating portfoliowide is 79. Note: Due to new ES guidelines regarding data centers electric usage, the rating might drop but their energy reductions will not. • In the first 5 months of 2013, PGI’s portfolio-wide recycling rate was 75.2%. • Its sustainability Website is ready to be launched. • Real-time steam monitoring is up and running at all NY properties. (Does not apply to DC or OMP, Chiller monitoring.) New chiller control panels at 1301 and 1633 are up and running, which has reduced steam consumption by over 25% in comparison to its five-year average. • Real-time energy monitoring platform is now online for NYC properties 1899 Penn, and Liberty Place. Waterview and 425 are awaiting utility tie-ins. • Retro commissioning for NYC properties has been completed. (This will also satisfy NYC LL87 requirements for 10 years.) The implementation of energy saving projects is also ongoing. • 440 9th Avenue will start burning number 4 oil, which will increase our ES score at the property. • During 2012, PGI reduced its portfolio-wide electric consumption by over 9 million KWHRs, which translates into a savings of over $2.8 million compared to the forecasted budget. • PGI’s Auto Demand Response pilot program test started in mid July. • PGI started an LED lighting retrofit at OMP, and is awaiting new rebate requirements for the NYC market. These retrofits have less than a 1.5 year payback. • PGI has implemented a 1st Phase Green construction guideline, and continues to explore Green Lease language.

6 • www.sokolmediaonline.com

NYC BENEFITS But perhaps the best way to illustrate PGI’s success in reducing a building’s energy consumption is to look at some of the sustainability initiatives incorporated into the buildings themselves. In their NYC portfolio, 900 Third has reached another milestone by being one of only a handful of properties in the NYC area to achieve recertification status under the latest version of LEED for Existing Buildings. The building was Certified under version 2.2 in 2011 and after implementing energy saving projects and following the LEED guidelines, reapplied for certification and was awarded GOLD certification under LEED version 3.0. The building, which has achieved an Energy Star Rating of 84, features a light-filled floor plate of approximately 18,000 square feet, and digital temperature control systems and HVAC service on an individual floor-by-floor basis, which is tenant controlled. At 1325 Avenue of Americas, which was awarded LEED Silver and an Energy Star Rating of 80, the building underwent a VFD installation, complete lighting retrofit, BMS upgrade, urinal upgrades, and the implementation of state-of-the-art HVAC and Class “E” Life Safety Systems. Similarly, at 712 Fifth Avenue, the building earned an Energy Star Rating of 80 and Silver LEED status, while also undergoing a VFD installation and complete lighting retrofit. Further, at 31 West 52nd Street, PGI enabled this building to achieve an Energy Star Rating of 88, and was awarded Silver LEED Status upon installation of a new chiller monitoring package. No stranger to first-class office space, PGI successfully retrofitted 440 Ninth Avenue, which stands prominently on the southeast corner of 35th Street and Ninth Avenue graced by a buff-colored brick and terra cotta exterior. Tenants can now benefit from an office-controlled HVAC system, a lighting retrofit, and upgrades to its boiler, all enabling it to attain an Energy Star Rating of 79. Another first-class office space, standing at 1301 Avenue of the Americas and designed by world-renowned architectural firm Skidmore, Owings & Merrill, achieved an Energy Star Rating of 76 as a result of PGI’s VFD installation and complete lighting retrofit, while at 1633 Broadway, PGI’s retrofitting of a VFD installation, lighting retrofit, and BMS upgrade enabled it to achieve an Energy Star Rating of 70.

CURRENT ENERGY STAR RATING

ELIGIBILITY FOR ENERGY STAR

900 Third Avenue

Application for 2013 Award in process

Attempting recertification for Gold status

1325 Avenue of the Americas

Application for 2013 Award in process

VFD installation, Completed lighting retrofit, BMS upgrade, urinal upgrades

Liberty Place

Application for 2013 Award in process

We are in the process of reviewing additional Energy saving measures

1899 Penn. Avenue

Received 2012 Rating

Lighting retrofit, commissioning of building systems

425 I Street

Application for 2013 Award in process

Awarded Gold for Core and Shell Awarded Silver for Commercial interiors

PROPERTY

LEED STATUS

PROJECTS

Waterview

Received 2012 Award

Lighting retrofit resulting in a 12.5% energy reduction on all garage levels, estimated savings $10,000 p.a., composting program, enrolled in the Green Games for Arlington County, VA.

One Market Plaza

Received 2012 Award

VFD installation on chillers, low flow plumbing fixtures completed in Spear Tower, occupancy sensors for stairways, relamping of lobby lighting.

712 Fifth Avenue

Received 2013 Award

VFD installation, lighting retrofit

31 West 52nd Street

Application for 2013 Award in process

New chiller monitoring package installed

745 Fifth Avenue

Lighting retrofits, BMS upgrade

2099 Penn. Avenue

Received 2012 Award

N/A

We will attempt LEED status during construction

440 Ninth Avenue

Received 2013 Award

Getting ready for filing

Lighting retrofit, boiler upgrades scheduled for 2013

1301 Avenue of the Americas

Application for 2013 Award in process

VFD installation, lighting retrofit

1633 Broadway

VFD installation, lighting retrofit, BMS upgrade

Caption

www.sokolmediaonline.com â&#x20AC;˘ 7

< 900 Third Avenue 1325 Avenue of the Americas

8 â&#x20AC;˘ www.sokolmediaonline.com

CNBB

440 Ninth Avenue

425 Eye Street

WASHINGTON, DC

1301 Sixth Avenue

PGI’s success in enabling buildings to lower their carbon footprint is not unique to New York City, however. Its footprint is also clearly evidenced in Washington, DC, where PGI enabled Liberty Plaza to achieve LEED Silver status and an Energy Star Rating of 79. Similarly, PGI made it possible for 1899 Pennsylvania Avenue NW to achieve LEED Silver Status and an Energy Star Rating of 80 by providing a lighting retrofit and the commissioning of building systems; while at 425 Eye Street, PGI’s energy-reducing implementation enabled it to achieve LEED Gold for its core and shell, and LEED Silver for its commercial interiors. Uniquely positioned on the banks of the Potomac River in Arlington, Virginia, Waterview, a 24-story, 634,000 sq. ft. trophy-class office tower has also benefitted from PGI’s sustainability efforts having had its energy reduction on all garage levels reduced by 12.5% through PGU’s lighting retrofit, which is estimated to have saved the building $10,000. www.sokolmediaonline.com • 9

< One Market Plaza Waterview >

< 1633 Broadway 2099 Pennsylvania Avenue

> Liberty Place 1899 Pennsylvania Avenue

SAN FRANCISCO Still, PGI’s success in reducing a building’s carbon footprint is not limited to the East Coast. In San Francisco, One Market Plaza, comprised of two landmark office towers totaling over 1.6 million sq. ft. of Class-A office and retail space, benefitted from PGI’s VFD installation on the building’s chillers, low flow plumbing fixtures completed in the Spear Tower, occupancy sensors for stairways, and the re-lamping of the lobby lighting. All of these implementations enabled the building to earn LEED Gold Status and an Energy Star Rating of 80. “As one of only 22 companies in the U.S. designated as an Energy Star leader, we owe a lot of our success to the coordination of our entire sustainability team,” Ralph says. “We are dedicated to delivering on our commitment to our buildings, as well to our investors. Everything we do is done with total company commitment. Management Matters.” And it shows, from building to building, from east to west. 10 • www.sokolmediaonline.com

STI_Green Matters Magazine_fin.pdf 1 8/27/2013 10:04:52 AM

WASHINGTON, DC

Office Market Snapshot Second Quarter • 2015

Economy

WASHINGTON, DC OFFICE

Economic Indicators Q2 14

Q2 15

DC Metro Employment

3.11M

3.17M

DC Metro Unemployment

5.0%

4.6%

U.S. Unemployment

6.1%

5.3%

Q2 14

Q2 15

Overall Vacancy

11.2%

11.0%

Net Absorption

(321K)

275K

12-Month Forecast

Market Indicators

Under Construction Average Asking Rent

1.5M

3.1M

$50.35

$50.12

12-Month Forecast

Market Overview

Net Absorption/Asking Rent 4Q TRAILING AVERAGE 4

$51

$50

2 $49 1 $48

0 -1

2010

2011

2012

2013

Net Absorption, MSF

2014

2015

$47

Asking Rent, $ PSF

Overall Vacancy 12%

11%

Historical Average = 10.7%

10%

2010

2011

12 • www.sokolmediaonline.com

2012

2013

It is clear that after a lackluster year in 2014, the Washington, DC Metropolitan Region’s economy has returned to above average conditions. The DC Metro continues to register one of the lowest unemployment rates among major metros in the United States—4.6%. Since May of 2014, the region has added 59,000 nonfarm payroll jobs, 15,400 of them in the office-using sectors of Professional and Business Services, Information, Financial Activities, and Federal Government. This is quite impressive considering about 35,000 net new jobs are added in a typical year and in 2014, the region lost approximately 12,000 office-using jobs. In the District of Columbia (DC), the unemployment rate dropped 40 basis points from 7.7% in January 2015 to 7.3% in May of this year while nonfarm job growth is up over 13,000 jobs compared to a year ago. The Federal Government, which accounts for over 25% of nonfarm payrolls in DC, has continued to stabilize after four years of contraction, adding 1,400 jobs from May 2014 to May 2015 while Professional and Business Services employment is up nearly 5,000 jobs.

2014

2015

After a modest start to the year, the District of Columbia experienced strong positive demand in the second quarter of 2015, driven by the two core downtown submarkets: the Central Business District (CBD) and East End. In fact, these two submarkets captured 69% of the demand across Washington DC during the quarter. The CBD boasted the strongest demand with 125,400 sf of positive absorption, while the East End registered 64,300 sf. The divergence of the East End and CBD that began in the first quarter of the year seemed to take a halt during the second quarter. The majority of deals signed—both new deals and relocations—were for space in the same submarkets where tenants’ leases were previously. After three straight quarters of rising vacancy, the District of Columbia’s vacancy rate ticked downward 30 basis points to 11.0%. Vacancy in the CBD dropped below 10% for the first time since the end of 2008. Leasing activity in the second quarter was dominated by larger deals in new construction or renovated buildings. Kirkland & Ellis signed a prelease for 186,000 sf at 1301 Pennsylvania Avenue, NW in the East End. As is the case with several other large law firms, Kirkland & Ellis will downsize by more than 60,000 sf upon delivery of the Pennsylvania Avenue building in 2018. Another large lease in new construction was that signed by Bracewell Giuliani at 2001 M Street, NW – currently undergoing a complete renovation. Following on the heels of its successful renovation of 799 9th Street which delivered in 2014 leased to two major law firms, Brookfield’s 2001 M Street, NW, has seen the most interest among all other major renovations throughout the District of Columbia. It is expected to deliver in 2016. Office buildings that are currently under construction are over 60% leased in the District of Columbia. GSA activity was relatively light throughout the first half of the year, but is expected to pick up in the near future. A staggering 13 million square feet of federal leases are set to expire through 2019 in the District of Columbia and owners that can deliver large blocks of space that fit federal lease requirements are set to benefit. This activity could only have modest impacts on the overall vacancy rate in the District as most large prospectus level leases in the queue at this time are targeting space efficiencies in the 10 – 20% range with one for the Department of Education targeting a 42% space reduction.

WASHINGTON, DC

Office Market Snapshot Second Quarter • 2015

VACANCY AVAILABILITY CURRENT RATE RATE ABSORPTION

YTD ABSORPTION

TOTAL BLDG

INVENTORY

SUBLET VACANT

TOTAL VACANT

CBD

250

38,500,760

266,496

3,793,243

9.9%

14.2%

125,445

344,970

541,023

$50.67

East End

203

39,812,897

333,515

4,561,593

11.5%

20.6%

64,365

(231,657)

932,371

$54.36

UNDER CON- AVERAGE STRUCTION ASKING RENT

SUBMARKET

West End/Georgetown

5,921,127

25,905

706,882

11.9%

15.7%

3,214

28,680

$47.82

Capitol Hill

4,642,579

10,866

434,936

9.4%

16.2%

43,527

68,110

966,917

$56.88

NoMa

10,289,374

30,999

1,427,571

13.9%

15.6%

41,964

(1,215)

200,000

$48.20

Southwest

13,382,559

36,638

1,310,956

9.8%

16.3%

(9,499)

45,002

553,879

$44.84

Capitol Riverfront/Southeast

3,736,758

10,800

405,213

10.8%

16.0%

44,514

57,396

$41.94

Uptown

6,564,289

62,886

922,343

14.1%

19.0%

(38,397)

(61,157)

$40.78

738

122,850,343

778,105

13,562,737

11.0%

17.0%

275,133

250,129

3,194,190

$50.12

WASHINGTON, DC MARKET TOTALS TOTAL preliminary

Key Lease Transactions 2Q 2015 PROPERTY

TENANT

TRANSACTION TYPE

SUBMARKET

1301 Pennsylvania Avenue, NW

186,000

Kirkland & Ellis

Prelease

East End

1111 19th Street, NW

70,482

Undisclosed Tenant

New

CBD

1299 Pennsylvania Avenue, NW

56,500

APCO

New

East End

2001 M Street, NW

55,000

Bracewell Giuliani

New

CBD

2450 N Street, NW

43,100

Cogent Communications

New

West End

1001 G Street, NW

42,844

Quadrangle Development Corp.

Renewal

East End

955 L'Enfant Plaza, SW

34,000

Veracity Engineering

New

Southwest

900 G Street, NW

33,216

American Legacy Foundation

New

East End

Key Sales Transactions 2Q 2015 PROPERTY

SELLER/BUYER

PRICE

SUBMARKET

1101 K Street, NW

291,500

Rockefeller JV Mitsubishi / UBS Realty

$260,000,000

East End

1325 and 1341 G Street, NW

431,600

TIER REIT / Westbrook Partners

$200,000,000

East End

1750 K Street, NW

165,800

Sumitomo Corporation / Mirae Asset Global Management

$115,000,000

CBD

645 H Street, NE

84,700

Jair Lynch / Intercontinental Real Estate

$51,400,000

Capitol Hill

1140 19th Street, NW

71,100

AREP / Rockrose

$40,500,000

CBD

About DTZ DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The company’s core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facility services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the company’s culture of excellence, client advocacy, integrity and collaboration.

Joseph Wood Research Analyst 2101 L Street, NW Suite 700 Washington, DC 20037 Tel: +1 202 266 1317 Fax: +1 202 223 2989 Email: joseph.wood@dtz.com

DTZ announced an agreement to merge with Cushman & Wakefield in a May 11 press release. The new company, which will operate under the Cushman & Wakefield brand, will have revenues over $5.5 billion, over 43,000 employees and will manage more than 4 billion square feet globally on behalf of institutional, corporate and private clients. The agreement is subject to customary closing conditions and is expected to close before the end of 2015. For further information, visit: www.

The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

dtz.com or follow us on Twitter @DTZ.

www.dtz.com | 2

www.sokolmediaonline.com • 13

WASHINGTON, DC

Multi-Family Snapshot First Quarter • 2015

Market Tracker *Arrows = Current Qtr Trend

Vacancy

Net Absorption

Completions

Asking Rent

4.8%

2,032 Units

1,134 Units

$1,615

Record Absorption of DC Metro Multi-Family Continues in First Quarter 2015

DC METRO MULTI-FAMILY

Economic Indicators 1Q 2015

1Q 2014

3.141 M

3.095 M

4.7%

5.5%

6.074M

6.019 M

MF Permits Issued

1,899

3,832

MF Starts

2,690

2,834

Average Home Sale Price

$585,440

$559,431

Average Days On Market

Employment Unemployment Rate Population

Average Rate (30 Year FRM)

3.77%

4.34%

10 Year Treasury Yield

1.97%

2.76%

Freddie Mac, U.S. Department of the Treasury

7% 6%

12,000

10,000

8,000

6,000

4,000

2,000 0

Vacancy Rate

Units (Thousands)

Absorption, Completions & Vacancy 14,000

2008

2009

2010

New Deliveries

2011

2012

2013

Net Absorption

2014 1Q 2015

A historically large amount of supply has come on line over the last 18 months and vacancy has fluctuated during that timeframe. But with healthy demand, overall vacancy decreased from the previous quarter by 1.1 percentage points falling to 4.8% by the end of the first quarter of 2015. Average asking rates are $7.00 above their first quarter 2014-average at $1,615 per unit. While new Class A deliveries coming to market have driven average asking rents steadily upward for the past two years, the onslaught of new product will intensify competition and may cause rents to flatten out or even decrease slightly later this year. Concessions have continued to increase as the spread between asking rents and effective rents rose to $21.00. In some new projects concessions are rumored to be approaching three months free rent–a staggering share of what would be a typical renter’s annual gross income. 1,134 units delivered in the DC metro region during the first quarter. After adding 4,079 units in 2014, Northern Virginia added another 711 units during the first quarter, leading all other jurisdictions in completions. The District accounted for 371 completions and Suburban Maryland accounted for the remaining 52 completions. The DC metro currently has 20,834 units under construction. There are concerns about overbuilding but with home ownership across the region declining and 15.7% of the population in the prime renter demographic cohort–25 to 34 years old –the DC metro region is well- positioned to absorb the large amount of supply coming on line.

Source: BLS, U.S. Census Bureau, Moody’s Analytics, MRIS,

16,000

After posting a record level of multi-family absorption in 2014, the Washington, D.C. metropolitan region (DC Metro) continued to perform well in the first quarter of 2015 recording absorption of 2,302 units. All three jurisdictions—the District of Columbia, Northern Virginia, and Suburban Maryland—registered positive absorption and only five individual submarkets returned units during the quarter. Contrary to recent trends, the two suburban markets captured more demand than the District. Northern Virginia led the region with 1,025 units absorbed. New product remained in high demand as the two submarkets that produced the highest absorption totals in Northern Virginia –Reston/Herndon and Old Town/ Virginia Highlands–saw deliveries. But it was Suburban Maryland’s Southern Prince George’s County that absorbed the largest number of units during the first quarter of the year. The submarket that returned four units to the market during the previous year absorbed a massive 410 units. Although it trailed its suburban neighbors, the District also posted strong demand, absorbing 379 units. Helping drive that demand was the increasingly popular Columbia Heights/Logan Circle/Shaw area which saw 157 units taken off the market.

Vacancy Rate

Sales activity was robust during the first quarter of 2015 with 31 properties trading for a total of $1.4 billion. The District led the region with $673.4 million in transaction volume. The District was also home to the largest transaction of the quarter: the 541-unit Trilogy NoMa apartments in NoMa traded to a joint venture between CBRE Global Investors and The JBG Companies for $210 million or $388,170 per unit. Northern Virginia was second in total sales volume with $673. 4 million from nine transactions and Suburban Maryland trailed both with $288 million also from nine transactions.

Source: DTZ Research, CoStar

Outlook

Asking Rents $1,900

•

Traditionally the region has supplied between 6,000 and 8,000 multi-family units per year. However, George Mason University’s Center for Regional Analysis suggests that in light of a sharp drop in the supply of single-family units delivering to the market and the growing percentage of renters to total occupancy in the region, upwards of 12,000 multifamily units will be required annually moving forward.

•

The first quarter of 2015 saw a foreign buyer take down a large multi-family transaction in the District. Foreign groups have largely remained on the sidelines in the DC Metro multi-family market, but it is apparent that these groups are becoming increasingly comfortable with this asset class.

•

Both asking and effective rents have continued to increase at an average rate of between 1% and 2% per year. While the influx of supply may slow this increase temporarily, rental growth is expected to remain strong in the region’s transit-oriented, mixed-use developments.

$1,800

Per Unit

$1,700 $1,600 $1,500 $1,400 $1,300 $1,200

2008

2009

2010 DC

2011 NoVA

Source: DTZ Research, CoStar

2012

2013

2014

Q1 2015

Suburban MD

www.dtz.com | 1

14 • www.sokolmediaonline.com

DTZ Multi-Family Market Snapshot DC Metro • First Quarter • 2015 INVENTORY*

VACANCY RATE

QUARTERLY NET ABSORPTION

YTD NET

AVERAGE

ABSORPTION

ASKING RENT

EFFECTIVE RENT

Anacostia/ Southeast

21,570

4.8%

(11)

$1,065

$1,056

Brightwood/ Fort Totten/ Lower Northeast

17,968

6.8%

$1,374

$1,354

1,441

Capitol Hill/ H Street/ NoMa

9,425

10.4%

$2,048

$2,047

106

1,948

Columbia Heights/ Logan Circle/ Shaw

25,484

5.2%

157

$1,832

$1,804

120

766

Connecticut Ave/ Georgetown/ Wisconsin Ave

22,223

6.1%

$2,001

$1,978

145

675

Downtown/ Penn Quarter/ Chinatown

6,299

3.9%

(4)

$2,414

$2,384

Dupont Circle/ Kalorama/ Adams Morgan

10,927

6.4%

(2)

$2,012

$1,976

230

SUBMARKET

UNDER

COMPLETIONS

CONSTRUCTION

133

Foggy Bottom/ GWU West End

9,049

5.7%

$2,512

$1,976

164

Southwest- Navy Yard

1,082

4.8%

$1,920

$1,911

2,480

DISTRICT OF COLUMBIA TOTALS

124,027

5.9%

379

$1,719

$1,700

371

7,837

Crystal City/ Pentagon City

13,429

3.9%

$2,045

$1,988

915

+XQWLQJWRQ )UDQFRQLD 6SULQJ¿HOG

18,849

4.0%

$1,511

$1,505

360

Landmark

18,696

3.6%

$1,505

$1,459

331

Old Town/ Virginia Highlands

12,195

11.5%

175

$1,842

$1,777

270

1,988

Reston/ Herndon

15,495

5.5%

379

$1,736

$1,718

358

448

Rosslyn Ballston Corridor

26,463

7.2%

218

$2,142

$2,099

1,035

South Arlington/ Columbia Pike

12,809

3.5%

$1,590

$1,576

Tysons Corner

9,015

7.7%

$1,869

$1,847

2,044 7,121

NORTHERN VIRGINIA TOTALS

126,951

6.2%

1,025

$1,779

$1,753

711

Bethesda/ Chevy Chase

10,659

5.6%

(27)

$2,179

$2,155

739

Gaithersburg/ Germantown

21,770

5.0%

$1,465

$1,452

1,722

Northern Prince George's County

53,982

3.9%

(53)

$1,372

$1,356

1,082 1,245

Rockville

15,528

3.7%

160

$1,752

$1,703

Silver Spring

31,434

5.1%

121

$1,564

$1,545

149

Southern Prince George's County

43,123

3.2%

410

$1,248

$1,232

939

SUBURBAN MARYLAND TOTALS

176,496

4.2%

628

$1,453

$1,438

5,876

DC METRO TOTALS

427,474

4.8%

2,032

$1,615

$1,594

1,134

20,834

Sources: DTZ Research, CoStar *All figures are multi-family units, except vacancy rate and rental rates.

Key Sales Transactions 1Q 2015 PROPERTY

UNITS SELLER /BUYER

PRICE

PRICE/UNIT

Trilogy NoMa- 151 Q Street, NE, Washington, DC

541

Mill Creek Resi JV Berkshire Property Advisors / CBRE Global Investors JV JBG

$210,000,000

$338,170

The Avenue- 2221 Eye Street, NW, Washington, DC

335

Boston Properties / WAFRA

$196,000,000

$585,075

Gramercy at Metropolitan Park- 550 14th Street, S, Washington, DC

399

Clarion Partners / Ralph Dweck

$190,000,000

$476,190

Aventine Silver Spring- 13615 Colgate Way, Silver Spring, MD

432

Blackstone / Investcorp

$85,000,000

$196,759

Sky House West- 1151 4th Street, SW, Washington, DC

264

Urban Atlantic JV JBG / Bernstein Companies

$80,000,000

$303,030

Meridian at Bowie- 3631 Elder Oaks Boulevard, Bowie, MD

348

%URRN¿HOG )ULHGNLQ 5HDOW\ *URXS

$71,750,000

$206,178

Sources: DTZ Research, Real Capital Analytics, CoStar

About DTZ DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The company’s core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facilities services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the company’s culture of excellence, client advocacy, integrity and collaboration. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.

CJ Hardy Research Analyst Tel: +1 202 266 1179 Fax: +1 202 223 2989 Email: cj.hardy@dtz.com

Nathan Edwards Vice President, Research Tel: +1 202 266 1189 Fax: +1 202 223 2989 Email: nathan.edwards@dtz.com 2101 L Street, NW Suite 700 Washington, DC 20037

www.dtz.com | 2

www.sokolmediaonline.com • 15

Calendar of Events

August–November 2015 AUGUST

OCTOBER

August 6th

October 5th–9th

11:00 a.m.. – 12:00 p.m. ULI Institute for Sustainability Building for Resilience: Strategies to Prepare for Extreme Events Complimentary Members-only Webinar Visit http://uli.org/research/centers-initiatives/center-sustainability/

2015 Fall Meeting Moscone Center, San Francisco, CA About Connect with the world of real estate at the 2015 ULI Fall Meeting, to be held October 5–8 at the Moscone Center in San Francisco. Join your peers for candid discussions with thought leaders on the most important topics and trends in real estate. Get boardlevel strategies for your business. Engage in candid conversations with peers. Build valuable professional relationships with partners and clients. Find out how to capitalize on new trends. Take behindthe-scenes tours in a dynamic city. For further information, visit http://fall.uli.org/

August 11th 1:30 – 3:30 p.m. Urban Land Institute Pro forma Modeling with Excel: Construction Draws and Rent Roll Live Online David Mulvihill, Vice President, Professional Development Contact phone: 202-624-7122 Email: dmulvihill@uli.org

August 13th 7:30 a.m. The DC Mid-Year Multi-Family Update The Mayflower Hotel 1127 Connecticut Avenue, NW Washington, DC 20036

August 21st CREW DC Lunch-arounds are back! Visit www.crewdc.org for further information

SEPTEMBER September 30th 11:00 a.m. – 12:00 p.m. ULI Real Estate Consensus Forecast, Fall 2015 Complimentary Members-only Webinar Organizer: Center for Capital Markets and Real Estate Website: http://uli.org/research/centers-initiatives/center-for-capital-markets/

October 15th Save the date for CREW DC’s Annual Awards Celebration! Visit www.crewdc.org for further information

NOVEMBER Nov. 18th–20th Greenbuild Conference and Expo Greenbuild is the world’s largest conference and expo dedicated to green building. The green building community gathers to share ideals and mutual passion at Greenbuild, sparking a contagious buzz throughout the week. Expo Hours 10:00 am - 6:00 pm | Wednesday, November 18, 2015 10:00 am - 6:00 pm | Thursday, November 19, 2015 Expo Only Hours - 10:00 am - 1:30 am Conference Hours 1:30 pm - 2:30 pm / 3:00 pm - 4:00 pm | Wednesday, November 18, 2015 1:30 pm - 2:30 pm / 3:00 pm - 4:00 pm / 4:30 pm - 5:30 pm | Thursday, November 19, 2015 8:00 am - 9:00 am / 9:30 am - 10:30 am | Friday, November 20, 2015 Plenaries Opening Plenary 8:00 am - 10:00 am | Wednesday, November 18, 2015 Closing Plenary 11:00 am - 1:00 pm | Friday, November 20, 2015 Location Washington Convention Center 801 Mt. Vernon Pl NW Washington, D.C. 20001

www.sokolmediaonline.com • 16

North American Research & Forecast Report

INDUSTRIAL MARKET OUTLOOK Q1 2015

Industrial Market Shrugs Off Economic Slowdown to Post Strong Quarter Pete Culliney Director of Research | Global

Thomas Galvin Regional Research Analyst | Research Services

Key Takeaways > The North American industrial vacancy rate declined by 15 basis points (bps) to 6.7% in Q1 2015. In the U.S., the vacancy rate fell for the 21st straight quarter, down 15 bps to 7.0%. In Canada, the vacancy rate decreased by 10 bps to 3.8%. > Net absorption in North America was strong once again in Q1, totaling 63.1 million square feet (MSF), among the highest levels of quarterly absorption post-recession. U.S. absorption in the quarter was 58.6 MSF, up 21.4% year-over-year.

> Led by a handful of large portfolio sales, including Blackstone’s $8.1 billion sale of its IndCor Properties unit to the Government of Singapore, North American transaction volume hit a record high of $17.5 billion in Q1 2015. The bulk of the volume, $17.2 billion, came from the U.S. while volume in Canada was $329.1 million.

Market Indicators Relative to prior period

U.S. Q1 2015

> Healthy occupier demand and the need for modern industrial space led to an upswing in construction in both the U.S. and Canada. 52.0 MSF was added to the industrial base in the first quarter, comprising 49.7 MSF in the U.S. and 2.3 MSF in Canada. In many markets, a growing supply is needed given the rate of expansion in the economy, pent-up industrial demand and tightening market conditions.

VACANCY

> The positive absorption and tightening market conditions in several key markets are pushing up industrial rents. The average U.S. asking rent for warehouse buildings rose to $5.16/SF NNN in Q1, up 2.2% quarter-over-quarter. Currently, average asking rents are 13.9% higher than the market bottom reached in Q3 2011.

* Projected, relative to prior period ** Warehouse rents

> Some markets are seeing outsized increases in asking rents. For example, the average asking rent for warehouse space in Q1 was up significantly year-over-year in the following markets: Oakland (25.6%), San Jose – Silicon Valley (24.6%), Denver (19.2%) and Detroit (16.9%). Bulk asking rents were up year-over-year in Waterloo Region, Ontario (24.3%); Miami (23.6%), Denver (18.5%) and Nashville (16.0%). Markets where flex/service asking rents were up year-over-year in Q1 include: San Francisco Peninsula (43.3%), Miami (20.7%), Ottawa (17.6%), Chicago (16.1%), San Diego (15.6%) and Cincinnati (15.5%). > The results of Colliers’ North American Q1 survey were decidedly optimistic, particularly in the U.S. More than three times as many markets said they expected tenants in their markets to expand as opposed to contract in the upcoming quarter. The U.S. results were even more buoyant, as 39.1% expected to see expansion while only 10.1% expected contraction in Q2. Along those lines, 66.7% of U.S. respondents forecast declining vacancy rates and 59.4% forecast rent increases, as opposed to 8.7% that see vacancy rates increasing and zero percent that forecast rents to decline. 17 • www.sokolmediaonline.com

U.S. Q2 2015*

CANADA Q1 2015

CANADA Q2 2015*

NET ABSORPTION CONSTRUCTION RENTAL RATE**

Summary Statistics, Q1 2015 North America Industrial Market

NORTH AMERICA

U.S.

CANADA

7.0%

3.8%

6.7%

-15

-10

-15

Absorption

58.6

4.5

63.1

New Supply

49.7

2.3

52.0

147.9

18.4

166.3

$5.16

$8.10

$5.61

2.2%

2.5%

2.2%

Vacancy Rate Change from Q4 2014 (Basis Points)

(Million Square Feet) (Million Square Feet)

Under Construction (Million Square Feet)

ASKING RENTS (USD/CAD) PER SQUARE FOOT PER YEAR

Average Warehouse/ Distribution Center Change from Q4 2014

MIDWEST WEST

CANADA Absorption Per Market (SF) q4 '14 - q1 '15

WEST

-530,000 Absorption Per Market (SF) q4 '14 - q1 '15

-530,000

Occupied Sq. Ft. Vacant Sq. Ft.

4.5 billion

-5,300,000

2.25 billion 450 mil.

2,650,000

SOUTH

450 mil.

Sq. Ft. By Region -2,650,000

5,300,000

530,000

2.25 billion

2,650,000 530,000

SOUTH

4.5 billion

5,300,000

NORTHEAST

MIDWEST

Sq. Ft. By Region

Occupied Sq. Ft. Vacant Sq. Ft.

-2,650,000 -5,300,000

U.S. Industrial Economic Indicators GDP

North American Industrial Vacancy, Inventory & Absorption Q1 2015 | NA

The North American industrial market continues to exhibit strong performance, as economic indicators and property market fundamentals remain positive. Despite the lower-than-expected first-quarter GDP numbers, the U.S. economy is forecast to grow by nearly 3% for the year and produce another 2 million jobs. Expanding sectors include automobile sales, retail sales and housing construction, which are all strong drivers of industrial demand. The manufacturing sector is experiencing positive growth, and metrics such as the Purchasing Managers Index (PMI), new orders and production are into their third year of solid improvement. New supply, while growing relative to absorption, is not likely to pose a threat of overbuilding as industrial demand is keeping pace.

Industrial Economic Indicators The biggest boost to the industrial market has been the broad improvement in the overall economy, led by robust job growth, a rebound in auto sales and new housing construction. Real GDP contracted at an annual rate of -0.7% in Q1 due to the unusually harsh winter, the energy industry slowdown and the West Coast port strike. A likely scenario is a repeat of 2014, when Q1 GDP was below-trend and the economy shifted into a higher gear in the following quarters. Job growth remains positive: The economy created 2.6 million jobs in 2014, and 2015 is expected to be the fourth straight year with more than 2 million jobs created. Household formations topped 2 million in 2014, one of the highest numbers since the turn of the century. Overall job growth, combined with the increased household formations by the millennial 20 to 34-year-old age cohort, is leading this surge in new household formation. Each additional household is a driver of industrial demand as related products such as furniture and other household items are warehoused and distributed through the supply chain. Moody’s Analytics estimates that 1.1 million new housing units will be built in 2015, with 1 million new jobs being created annually through 2017. Meanwhile, auto sales have climbed

Q1 2015

-0.7% (second estimate)

Q4 2014

2.2%, down from 5.0% in Q3 2014

ISM:

Apr-15 PMI® 51.5, down 4.1 pctg. pts. from May-14

RAIL TIME INDICATORS: AAR.ORG - YTD THROUGH APRIL-15

Rail Carload Traffic

- 1.4% YOY

Intermodal Traffic

+ 1.6% YOY

to a seasonally adjusted annual rate (SAAR) of 17 million, the highest level since the last peak. This also creates demand for warehouses in the Midwest and in coastal port regions. The ISM’s April 2015 manufacturing report indicates positive movement going forward. Although there were some weaknesses in metrics such as supplier deliveries and inventories, other parts of the index, such as new orders, production, imports and exports, were are all growing, leading to an improving manufacturing environment. Other ports such as Prince Rupert in British Columbia, as well as air freight cargo, saw an uptick in activity during this time as businesses diversified their supply chain to avert this crisis. According to the American Association of Railroads, railcar traffic was down 1.4% during the first four months of 2015 compared with the year-earlier period, restrained by weakness in commodities shipments. However, rail traffic will likely accelerate in line with stronger economic growth during the remainder of 2015. Also, intermodal traffic growth continued to increase, up 1.6% year-overyear during the first four months of 2015, despite supply chain disruptions caused by the U.S. West Coast port strike in Q1 2015.

Vacancy Driven by robust absorption in the top U.S. markets, the North American vacancy rate fell by 15 bps to 6.7% in Q1. The U.S. vacancy rate fell 15 bps to 7.0%, and the Canadian vacancy rate dropped 10 bps to 3.8%. Vacancy rates declined in each U.S. region, most notably in the West, where the rate dropped 30 bps to 5.1%. The Northeast, Midwest and South each saw roughly a 10-bps decline in the vacancy rate. There is a wide disparity in rates among the regions, with the West

North American Research & Forecast Report | Q1 2015 | Industrial Market Outlook | Colliers International www.sokolmediaonline.com • 18

39.1%

U.S. Industrial Market

80% 10.0%

Q1 2013 to Q1 2015 80.0

60.0

12.0 8.3

8.8 8.7

40.0

10.0

7.9 8.1

7.5

8.0

7.0

7.7

7.2

6.0 4.0

20.0

2.0

0.0

Q1 Q2 2013

Absorption MSF

25.0%

4.3%

14.0

Vacancy %

a Ca n

U.S. INDUSTRIAL MARKET Q1 2013 - Q1 2015

remaining the lowest at 5.1%, trailed by the Midwest (6.8%), South (7.9%) and NortheastHolding (8.8%).Steady Western markets among the Contract Expand that ranked N/A lowest vacancy rates include Los Angeles (1.9%), Honolulu (2.0%), San Francisco Peninsula (2.5%), Orange County (3.3%), Denver (4.0%), Seattle/Puget Sound (4.4%) and Los Angeles – Inland Empire (4.5%). New Jersey markets were among the best performers in the first quarter with Northern New Jersey’s vacancy rate dropping by 90 bps to 7.1% and Central New Jersey falling 50 bps to 7.6%. Other markets with sharp drops in vacancy rates include Little Rock, Ark. (-90 bps), Cincinnati, Las Vegas and San Diego (-70 bps); Tampa, Sacramento and Provide a three-month forecast for vacancy Boiselevels (-60(relative bps) andtoSan Francisco Peninsula and San Jose-Silicon current quarter): Valley (-50 bps). On the other end of the spectrum, markets with the 1.2% largest increases include Indianapolis (701.4% bps), Hartford (60 bps) and 100% 10.0% 17.4% Louisville (50 bps). 15.4% 8.7% 11.1% Canada’s larger markets generally saw declining vacancy rates in the 39.1% 23.2% first quarter, led by Vancouver (-40 bps) and Montreal and Toronto (-20 27.2% 38.5% 60% bps). Meanwhile, vacancies rose in Ottawa (80 bps), Calgary (40 bps) and Edmonton 78.3% (30 bps). 50.0% 60.9%

Q1 Q2 2014

Completions MSF

Q1 2015

0.0

Vacancy %

Note: Latest data as of Q1 2015 Source: Colliers International

40%

ption MSF

a ad Ca n

-2.0

Contracting

-1.5

Too Low

Faster

1.5 14.0

Decreasing

Slower

0.0 12.0 10.0 4.0 8.0 1.5 6.0 4.0 2.0

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Growing

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0.0 Q1 Currently U/C Q1-15 Absorption 2015 **** - Q4 data displayed. These markets report semi-annually. Completions MSF Vacancy % Q1 Q2 2014

20%

100%

10.0%

Billions

100%

Bottoming

Increasing

No Clear Direction

Peaking

26.1%

7.7%

7.4% ***8.7% - Q3-14 data 3.7% 25.0% 30.4% displayed. 4.3%

300%

34.6% $60

31.9%

200%

50.0%

53.8% 60.9%

20% 70.0%

80%

Declining

13.0%

40%

$20

60%

Provide a three month forecast for rents (relative to current quarter):

60%

$40

40%

N/A

80% 20.0%

$60

5.8%

65.2%

% of reporting markets Source: Colliers International

5.8% U.S. 10.1% 13.0%

8.0

100% 65.2% 0%

38.5% 38.5%

-100%

54.3%

59.4%

Ca n

$40 $20 $-

25.0%

3 North American Research & Forecast Report Rolling | Q1 4-Qtr 2015Deal| Volume IndustrialYear Market Outlook over Year Change| Colliers International 19 • www.sokolmediaonline.com ABSORPTION, UNDER CONSTRUCTION (SF) Up Same Down N/A | SELECT MARKETS | Q1 2015 No

Billions

23 6.0

2007

*Number of months moving in current direction Source: ISM

Slower 4.0 From Growing

Edmonton, AB Manufacturing Sector

Slowing 2.0

41.7%

54 52.5SK 7.2 Saskatoon,

OVERALL ECONOMY Ottawa, ON

0.0

33.3%

Millions

7.7

-0.4

Canada 8.3% 16.7%

U. S.

8.1 Imports

From Contracting Unchanged

16.0% 61.7%CONSTRUCTION 4.9% ABSORPTION, UNDER (SF) | SELECT MARKETS | Q1 2015

es t

Victoria, BC**** 51.5 47.5 7.5 7.0 Winnipeg, MB****

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Calgary, AB 49.5 49.5 Regina, SK

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8.3

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U. S.

es t

50.5

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1.7

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50.1

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48.3

53.8

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51.8

TREND* (MONTHS)

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0.0

RATE OF CHANGE

would characterize current industrial rents How How would youyou characterize current in yourrents market? industrial in your market?

New Orders Up Production

51.5

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51.5

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10.0%

U. S. U .S .

8.3% 8.7% 8.6% 8.6% 4.9% 5.8% 8.3% 4.3% 8.3% 8.7% 4.9% 7.7% % 8.6% 8.6% 10.0% Provide a three month forecast for rents N.A. 9.9% 16.0% 61.7% 4.9% 34.6% U.S. 10.1% 13.0% 5.8% 65.2% 30.0% 13.0% 8.3% N.A. 9.9% 16.0% 61.7% 4.9% Provide a three month forecast for rents (relative21.7% to current quarter): 39.1% 2.5% 46.2% 46.2% % 30.0% (relative56.5% to current quarter):34.6% 2.5% 21.7% 0% 40% 60% 80% 100% 39.1% 39.1% 20% 46.2% 46.2% 4.3% Excluding renewals, theleases leases signed this did 45.7% 66.7% 100% Absorption 7.4% 56.5%7.7% Excluding renewals, of of the signed this quarter, % 8.7% Canada 8.3% 50.0% 16.7% 33.3% hold steady 41.7% 10.0% 4.3% 39.1%13.0% Increasing N/A Bottoming 100% 7.4% quarter, did most tenants expand, 3.7% Canada most tenants Expand, Hold Steady or Contract? 16.7% 33.3% 41.7% 8.3% 45.7% 8.7% 66.7% 7.7% 10.0% 39.1% 42.0% 46.2% 25.0% 13.0% 3.7% Net absorption was strong30.4% in Declining Q1 at 63.1 MSF,Nobroken out into % 50.0% Peaking or contract? Clear Direction 80% 20.0% 26.1% 39.1% 25.0% 30.4% 80% 5.8% MSF20.0% in the U.S. and 4.5 MSF in Canada. We expect positive 34.6% 16.7% 42.0% 46.2% 58.6 11.1% 31.9% 10.0% 10.1% 5.8% % 26.1%26.1% 34.6% 60%absorption U.S.10.0% to continue this year in the vast majority of markets. 7.7% 100% 31.9% 10.1% 13.0% 4.3% 8.3% 65.2% 8.7% 26.1% 8.6% 8.6% 5.8% 16.7% U.S. 10.1% 13.0% 13.0% 11.1% 50.0% 5.8% 65.2% 10.0%60% 10.1% U.S. INDUSTRIAL MARKET Q1 2013 - Q1 2015 8.3% In fact, of the 81 markets 53.8% in North America, we forecast negative 50.0% 80% U.S.40% INDUSTRIAL MARKET Q1 Calgary. 2013 - Q1 2015 53.8% 34.6% 30.0% absorption in only one: . INDUSTRIAL MARKET Q1 2013 - Q1 2015 60.9% 65.2% 0% Q1 2013 20% 40% 60% 80% 100% U.S. INDUSTRIAL MARKET - Q1 2015 40% 0% 20% 21.7% 40% 60% 80% 100% 39.1% 60.9% 65.2% 54.3% 46.2% 46.2% Contract Holding Steady Expand N/A 60% 56.5% 14.0 20%U.S. 38.5%concentrated 59.4% 70.0% Increasin N/A 54.3% Bottoming Q1 absorption 38.5% was in a handful of markets, such 80.0 39.1% Increasing N/A Bottoming 0 Contract 14.0 20% 38.5% 38.5% 59.4% 70.0% Holding Steady Expand N/A 45.7% Peaking 66.7% as Los Angeles – Inland Empire, which saw14.0 absorption of 5.3 MSF, 80.0 25.0% 40% Declining No Clear Direction 14.0 12.0 50.0% Peaking Declining No Clear Direction 0% 25.0% 12.0 followed by Houston (3.8 MSF), Atlanta (3.7 MSF), Northern New 60.0 39.1% 12.0 0% 42.0% 46.2% 10.0 12.0 20% 8.3 0 Jersey (3.5 MSF), Los Angeles (3.5 MSF) and Dallas-Ft. Worth (3.060.0 8.8 7.9 26.1% 10.0 7.5 10.0forecast for rents 8.3 Provide a three month 8.8 16.7% 7.0 10.1% 8.0 10.0 11.1% 8.7 8.3 10.0% 7.9 MSF). Top Canadian markets for absorption were Vancouver (1.8 8.3 8.8 0% 7.9 8.1 7.9 7.5 40.0 (relative to current quarter): 8.0 7.0 7.7 7.5 Up Same Down N/A 7.5 8.7 7.2 7.0 8.0 6.0 Toronto (1.7 MSF). 7.0 8.0 8.7 Excluding renewals, of the leases signed 8.1 0 8.7 MSF) and Up Down N/A 7.7 8.1 this quarter, did 7.2 8.1 7.7 Same 40.0 7.2 6.0 7.7 7.2 6.0 6.0 4.3% most tenants Expand, Hold Steady or Contract? 4.0 100% 7.7% 20.0 7.4% 8.7% 10.0% 4.0 13.0% 3.7% 4.0 Under Construction (SF) 4.0 2.0 N/A 0Provide a three-monthAbsorption, Contract Holding Steady Expand forecast for vacancy 25.0% 20.0 30.4% 80% 20.0% 2.0 Selectquarter): U.S. Markets | Q1 2015 Millions 2.0 4.3% levels (relative to current 0.034.6% 100% 7.7% 0.0 8.3% 8.7%2.0 rovide a three-month forecast for vacancy 26.1% 8.6% 8.6% 31.9% Millions Q1 Q2 Q3 10.0% Q4 Q1 13.0% Q2 Q3 Q4 Q1 0vels (relative to current quarter): 0.0 15.00.0 20.0 8.3% 0.0 5.0 10.0 60% 0.0 0.0 2013 2014 2015 1.2% 1.4% 80% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 50.0% Provide a three month forecast 0.0 Q4 5.0Q153.8% 10.0 15.0 20.0 Q1 Q2 Q3 Q4 Q1 month Q2 forecast Q3 Q4 Q1 for rents Provide athree three for rents Provide a30.0% month forecast for2015 rents 34.6% Los Angeles17.4% - Inland Empire, 2013 2015 1310.0% 2014CA2014 1.4% 2015 1.2% 21.7% 15.4% 8.7% 2013 2014 11.1% (relative to current quarter): 39.1% 40% (relative tocurrent current quarter): 46.2% 46.2% Los Angeles - Inland Empire, CA Absorption MSF Completions MSF Vacancy % 60.9% 65.2% (relative to quarter): 60% 25.0% Houston, TX 56.5% 10.0% 10.0% 17.4% 15.4% Completions 4.3% 8.7% 54.3% 11.1% 39.1% Absorption MSF MSF Vacancy % Houston, TX Absorption MSF Completions MSF Vacancy % Absorption MSF Completions MSF Vacancy % 39.1% Atlanta, GA 45.7% 66.7% 25.0% 38.5% 20% 70.0% 38.5% 59.4% 4.3% 4.3% 40% 100% 50.0% 10.0% 7.4 23.2% 100% 7.4% 4.3% 7.7% 8.7% 7.7% 8.7% Atlanta, GA 10.0% 27.2% 10.0% New Jersey38.5% - Northern 39.1% 13.0% 13.0%39.1% 25.0% 3.7% 3.7% 42.0% 0% 23.2% New Jersey - Northern 20% 46.2% 30.4% 30.4% 25.0% 25.0% 80% 20.0% 26.1% 80% 20.0% 27.2% Los38.5% Angeles, CA Provide a three-month forecast for vacancy 16.7% 11.1%34.6% 34. Los Angeles, 78.3% 50.0% 60.9% CA 10.0% 10.1% Dallas-Ft. Worth, TX 0% levels (relative 26.1% to26.1% current quarter):31.9% 31.9% 60% 60% Dallas-Ft. Worth, TX 78.3% 50.0% 60.9% New Jersey - Central Up Same Down N/A 50.0% 50.0% 53.8% 53.8% 1.2% 1.4% New Jersey - Central 80.0% 100% 40% Chicago, IL 46.2% 66.7% 60.5% 40% 10.0% 60.9% 65.2% 60.9% 65.2% 17.4% 15.4% 8.7% Chicago, IL 11.1% Indianapolis, IN 80.0% 46.2% 66.7% Contract Holding Steady Expand N/A 54.3% 54.3 25.0% 25.0% 60.5% 10.0% Indianapolis, IN 4.3% 38.5% 80% 70.0% 20% 38.5% 38.5% 20% 70.0% 38.5% 59.4% 59.4% Savannah, GA 39.1% 25.0% Millions 23.2% 25.0% 25.0% Savannah, GA 27.2% 38.5% 0% 0% 60% 0.0 5.0 10.0 15.0 20.0 Currently U/C Q1-15 Absorption ABSORPTION, UNDER CONSTRUCTION (SF) Empire, CA Currently U/C Q1-15 Absorption Up Same Los Angeles Down - InlandN/A 78.3% 50.0% 60.9% | SELECT MARKETS | Q1 2015 ABSORPTION, UNDER CONSTRUCTION (SF) ABSORPTION, UNDERHouston, CONSTRUCTION (SF) 40%ABSORPTION, UNDER CONSTRUCTION (SF) TX Up Same Down N/A Same N/A Up Same Down | SELECT MARKETS | Q1N/A 2015 | SELECT MARKETS |Atlanta, Q1 2015 | SELECT Up MARKETS | Q1 2015Down GA 80.0% 46.2% 66.7% 60.5% 20% New Jersey - Northern Absorption, Under Construction (SF) Millions 25.0% Los Angeles, Select Canada Markets | Q1 2015CA Provide three month forecast for vacancy Provide a athree-month forecast for vacancy Millions8.0 -2.0 Dallas-Ft. 0.0 Worth, 2.0 4.0 6.0 0% levels (relative to current quarter): Millions Million (relative to current quarter): TX 300% Vancouver, BC 300%New 0.0 -2.0 2.0 4.0 6.0 8.0 Jersey - Central 0.0 5.0 10.0 15.0 20.0 1.2% 1.4% 200% ON 0.0 5.0 10.0 15.0 20 Toronto, 100% Vancouver, BC 10.0% Chicago, IL 200% 17.4% CA Los Angeles - Inland Empire, 15.4% 8.7% 11.1% Los Angeles Empire, CA Down Montréal, 100% ONQC Toronto, Up - InlandSame N/A25.0% Indianapolis, IN TX 100% 4.3% Houston, 80% 10.0% Houston, Waterloo Region, ON TX Montréal, 0% QC 39.1% Savannah, GA Atlanta, GA 23.2% Calgary,ON AB 0% Atlanta, GA Waterloo Region, 27.2% 38.5% -100% New Jersey Northern 60% Regina, SK New Jersey - Northern 2015 AB -100% 2012 2013 2014 Calgary, Currently U/C Q1-15 Absorption Los Angeles, CA Victoria, BC**** Regina, SK 10 2011 2012 2013 2015 2014 Los Angeles, CA60.9% 78.3% 50.0% -2.0 0.0 2.0 4.0 40% Dallas-Ft. Worth, TX Winnipeg, MB**** Year over YearVictoria, Change BC**** Dallas-Ft. Worth, TX Vancouver, BC New Jersey - Central Year overSaskatoon, YearMB**** Change SK olume Winnipeg, New Jersey -Toronto, Central ON 66.7% 60.5% 20% 80.0% Ottawa, ON Chicago,46.2% IL Saskatoon, SK Chicago, IL QC Montréal, Edmonton, Indianapolis, IN 25.0% Ottawa, ONAB Indianapolis, IN ON Waterloo Region, 0% Savannah, GA Edmonton, AB 300% Savannah, GAAB Calgary, Currently200% U/C Q1-15 Absorption Regina, SK Currently U/C Q1-15 Absorption Victoria, BC**** Currently U/C 100% Q1-15 Absorption CurrentlyN/A U/C Q1-15 Absorption Up Same Down **** - Q4 data displayed. These markets report semi-annually. **** Q4 data displayed. These markets report semi-annually. Winnipeg, MB**** % of reporting markets Source: International **** - Q4 data Colliers displayed. These 0% markets report semi-annually. Saskatoon, SK Source: Colliers International -100% Ottawa, ON 2008 2009 2010 2011 2012 2013 2014 2015 Edmonton, AB $60 $60 300% -2.0 0.0 2.0 4.0 4 300% North Year American Research Report | Q1 2015 | Industrial Market Outlook | Colliers International over Year Change & Forecast ling 4-Qtr Deal Volume $60 300% www.sokolmediaonline.com • 20 $60 $60 300% Vancouver, BC 200% $60 300% $40 300% $40 Currently U/C Q1-15 Absorp 200% Toronto, ON

% 7.7%

Construction Activity Rising industrial demand is pushing new supply to pre-recession levels. Some 52 MSF of space came online in North America in Q1, including 49.7 MSF in the U.S. and 2.3 MSF in Canada. The quarterly volume of construction activity is at the highest level since Q4 2007 with no letup in sight. 166.3 MSF are under construction in North America, including 147.9 MSF in the U.S. and 18.4 MSF in Canada. Markets with the most new supply in the first quarter were Los Angeles – Inland Empire (6.5 MSF), Dallas – Ft. Worth (6.3 MSF), Houston (3.9 MSF), Indianapolis (3.2 MSF) and Columbus (2.5 MSF). In each of those markets virtually all of the new supply was in modern distribution centers characterized by higher ceilings and a larger footprint. In Canada, almost half of new supply in Q1 was in Vancouver (1.1 MSF), while the other markets with the most new supply were Calgary (382,000 SF) and Waterloo, Ontario (263,000 SF). Vancouver’s growing inventory could reflect increased activity in Prince Rupert, which has access to rail lines that run parallel to the U.S. border and is a convenient feeder to distribution centers in Chicago. Toronto (8.0 MSF) and Calgary (4.1 MSF) have the most space under construction. A sign of the times is that a large portion of the new supply (60%) in the United States is speculative. In Canada, 13.4 MSF of the 18.4 MSF under construction is speculative. So far, supply and demand have been in balance with enough tenant demand to fill the development pipeline over the next 12 to 18 months.

Transaction Activity Investor demand for all segments of U.S. real estate remains strong, helping to lift industrial transaction volume to its highest level since the height of the last cycle. North American firstquarter volume reached a record $17.5 billion according to Real Capital Analytics, fueled by the Government of Singapore’s $8.1 billion acquisition of IndCor Properties from Blackstone. This transaction demonstrated several trends: the strong performance of U.S. real estate, demand for industrial portfolios and foreign

Industrial Real Estate Indicators U.S.

GDP:

-0.7% in Q1

Inventory

14.9 BSF

Vacancy

7.0% Nationwide (down 15 bps)

Net Absorption

58.6 MSF in Q1

New Supply

49.7 MSF in Q1, up 16.4% over Q4

New Supply to Inventory

1.3% annualized Note: Up to 2% is considered healthy

Net Absorption to New Supply Ratio

1.2:1 Q1 2015 vs. 1.6:1 Q4 2014

• Top 10 Markets account for 49.7% of 58.6 MSF net absorption in Q1. Source: Colliers International

capital flowing into the U.S. Commercial real estate is in the midst of a positive fundamentals growth cycle, and expectations are for a continued reduction in the vacancy rate and continued rent growth. Investors are drawn to the industrial sector’s low volatility compared to office or retail product, and institutions looking in this sector are willing to pay a premium for portfolios in order to allocate large chunks of capital. Compared to other options, the United States remains an attractive investment location for non-U.S. investors. One such example is Norges Bank, controlled by the government of Norway, teaming up with ProLogis to buy a $5.9 billion industrial portfolio located in the United States from KTR Capital Partners. Demand has kept upward pressure on asset values, as capitalization rates fell 20 bps in Q1 to 7.0%, the lowest level since 2007 and down 130 bps since 2010, according to RCA. Cap rates are lowest in the West, averaging 6.7%, followed by the South (7.2%), and the East and Midwest (7.3%). The Bay Area continues to have the lowest cap rates with Oakland at 4.9% and San Francisco Peninsula at 5.0%. Cap rates in Canada averaged 6.7% in Q1, with Vancouver (5.2%) and Toronto (5.5%) remaining the lowest. Although industrial is not a high-turnover sector, it is likely that a fair number of property owners will be tempted to sell while prices remain inflated. Deal flow is dominated by the U.S., which represents about 98% of the first-quarter volume and 95% of deals over the last year. According to RCA, the trailing 12-month average of deals $2.5 million or more was $49.5 billion, up 22% from the year-earlier period and the most-active period since Q4 2007. U.S. investment volume was concentrated in California, which had the top five investment markets in Q1: Los Angeles ($1.6 billion), Orange County ($971 million), East Bay ($703 million), San Francisco ($633 million) and San Jose ($546 million).

Top 5 MSAs Q1 Net Absorption

1. Los Angeles - Inland Empire

5.2 MSF

2. Houston

3.8 MSF

3. Atlanta

3.7 MSF

4. New Jersey - Northern

3.5 MSF

5. Los Angeles

3.4 MSF

Source: Colliers International

North American Research & Forecast Report | Q1 2015 | Industrial Market Outlook | Colliers International

21 • www.sokolmediaonline.com

Houston, TX

Victoria, BC Halifax, NS** Saskatoon, SK Winnipeg, MB

Dallas-Ft. Worth, TX

orption

Savannah, GA

mi-annually.

Currently U/C

Conclusion and Outlook

14 20 15

Q4-14 Absorp

Currently U/C

Industrial Transaction Volume Bil. Q1 2015 - NA $80

Billions

Strong economic and market fundamentals continue to paint a positive outlook for the industrial300% sector for the rest of 2015. This economic strength is underpinned by our expectations for stronger 200% GDP and job growth during the rest of 2015, coupled with rising consumer optimism and lower gas prices. The industrial market will 100% also benefit from secular trends such as the changing e-commerce 0% landscape and traditional retailers such as Wal-Mart looking to occupy more modern and efficient distribution centers. Another -100% trend is occupiersâ&#x20AC;&#x2122; desire to embrace technology, which means consolidating facilities or outsourcing portions of their operations third party logistics firms. Industrial demand is exceeding supply 4-Qtr Deal to Volume Year over Year Change in select markets as companies need newer, better and larger spaces to meet the ongoing demands of their businesses. Vacancy rates are down to near historical lows in many markets, and there remains upward pressure on rents. Supply is increasing rapidly as well but is being easily absorbed due to pent-up industrial demand following the downturn and robust occupier demand for modern space. Transaction volume hit record highs while pushing cap rates to cyclical lows in Q1 2015. The industrial sector is vulnerable to a general economic slowdown or an exogenous event that affects exports and/or imports. Beyond that, the signs are very positive for industrial real estate in the short run.

Curr

200%

$70 $60 $60

150% 300% 100% $50 200% $40 $40 50% 100% $30 0% $20 0% $20 -50% $10 -100% $$0 2007 2008 2009 2010 2011 2012 2013 2014 2015 -100% 2007 2008 2009 2010 2011 2012 2013 2014 12-Month Trailing Volume Rolling 4-Qtr Deal Volume (left-axis)

Year-Over-Year % Change Year over Year Change (right-axis)

Note: Latest data as of Q1 2015; all data are 12-month trailing Sources: Real Capital Analytics, Colliers International

The Top Five MSAs in Transaction Volume Q1 2015

1. Los Angeles

$1.6 bil.

2. Orange County

$971 mil.

3. East Bay

$703 mil.

4. San Francisco

$633 mil.

5. San Jose

$546 mil.

Sources: Real Capital Analytics, Colliers International

North American Industrial Overview | Q1 2015 NORTH AMERICA

# of Markets Inventory (Millions SF) % of N.A. Inventory New Supply (Millions SF) % of N.A. New Supply Vacancy (%) Absorption (Millions SF) % of N.A. Absorption

CANADA

UNITED STATES

WEST

MIDWEST

SOUTH

NORTHEAST

16,700.1

1,794.1

14,906.1

3,867.9

4,261.3

4,508.3

2,268.5

100.0%

10.7%

89.3%

23.2%

25.5%

27.0%

13.6%

52.0

2.3

49.7

13.9

13.6

17.0

5.2

100.0%

4.5%

95.5%

26.7%

26.1%

32.7%

10.0%

6.7%

3.8%

7.0%

5.1%

6.8%

7.9%

8.8%

63.1

4.5

58.6

21.4

10.8

19.1

7.4

100.0%

7.1%

92.9%

33.9%

17.0%

30.3%

11.7%

North American Research & Forecast Report | Q1 2015 | Industrial Market Outlook | Colliers International www.sokolmediaonline.com â&#x20AC;˘ 22

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