M-NCPPC Research & Technology Center

Economic Forces that shape

Montgomery County
2007
M-NCPPC Research & Technology Center

Economic Forces that shape

Montgomery County 2007

• Job Market
• Federal Government Activity
• Commercial Real Estate Activity
• Housing Market
M-NCPPC Research & Technology Center

Job Market

Job Growth, Wages, Employment

by Industry and Unemployment
M-NCPPC Research & Technology Center

Job Market Themes

• Net new jobs: +5,783
• Current employment: 466,666
• Performance varied by sector:
– Consumer-related industries lost jobs.
– Technology sectors grew steadily.
• Unemployment spiked in mid-2006,
then fell in early 2007:
– July, 2006 3.5 percent
– January, 2007 3.2 percent
– March, 2007 2.6 percent
M-NCPPC Research & Technology Center

Job growth has slowed.

Montgomery County added 5,873 jobs from 2005 to 2006—a 1.3 percent growth rate.

20,464
18,032
Change from prior year
(2nd quarter)
10,847
9,410 9,792
8,323
7,243
5,873
4,019
2,606 2,773 2,685 2,159
1,354 1,921

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

-14,337

Source: RESI compilation of Bureau of Labor Statistics QCEW data (2006 2Q)
M-NCPPC Research & Technology Center

The County lost 2,260 jobs in

Financial & Consumer Services.
2005 2006 Change
Natural Resources and Mining 813 849 4.4%
Construction 29,519 30,799 4.3%
Manufacturing 14,768 14,252 -3.5%
Trade, Transportation & Utilities 64,354 63,780 -0.9%
Information 14,938 15,353 2.8%
Finance Activities (including Real Estate) 36,230 35,784 -1.2%
Professional & Business Services 101,071 106,551 5.4%
Education & Health Services 57,031 58,402 2.4%
Leisure & Hospitality Services 40,380 38,563 -4.5%
Other Services 21,794 22,067 1.3
Private Sector 381,594 387,069 +1.4%

Public Sector 79,199 79,597 +0.5%

Federal Government 39,850 39,544 -0.8%
State Government 1,039 1,068 2.7%
Local Government 38,310 38,985 1.8%

Source: RESI compilation of Bureau of Labor Statistics QCEW data (2006 2Q)
M-NCPPC Research & Technology Center

The Technology Sector supplies

23 percent of jobs in the County.

Aerospace
4%
Other Private
Sector Biotech
49%
60% Technology
Sector
23% InfoCom
33%

Other High Tech

Public Sector 14%
17%

Source: RESI compilation of Department of Labor, Licensing & Regulation (DLLR) data (2006 2Q)
M-NCPPC Research & Technology Center

The County added jobs in

Aerospace manufacturing.
The County’s 106,614 tech jobs are in Consumer Services (49 percent);
Research, Design & Development (44 percent); and Production (7 percent).

5,747
46,145 15,506
Other High Tech
Aerospace
InfoCom
25,437
Biotechnology

4,264
3,755

Consumer Services Research, Design & Development Production

Source: RESI compilation of DLLR data (2006 2Q)
M-NCPPC Research & Technology Center

Lockheed Martin is the County’s

largest Tech Sector employer.

Lockheed Martin 3,680

Global Exchange Services 2,360

International Businesss Machines 2,000

BAE Systems 1,700

Aspen Systems 1,000

Hughes Network Systems 900

Acterna 700

Westwood One 610 2006 Employment

at largest job location in Montgomery County
Human Genome Sciences 575

Oracle Systems Corp 500

Source: Dun & Bradstreet Selectory Online

M-NCPPC Research & Technology Center

Tech Sector job growth

was steady at 3.4 percent.
The tech sector grew at a more robust pace than the
overall economy, gaining four points from 2Q 2005 to 2Q 2006.
150
Employment Index Montgomery County
145
1st Quarter 1992 = 100 Maryland
140
United States
135
130
125
120
115
110
105
100
95
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Biotech jobs grew 3.8 percent.

Employment in R&D grew 14.8 percent. Production jobs increased 14.2 percent.
Together, these two biotech segments employ 5,800 people in Montgomery County.

160 Employment Index

1st Quarter 1992 = 100 Montgomery County
155
150 Maryland
145
United States
140
135
130
125
120
115
110
105
100
95
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Health Services job growth

outpaced the state and nation.
The Healthcare & Social Assistance industry employs 49,938 workers
–a 2.6 percent increase over last year.

170
Employment Index Montgomery County
165
1st Quarter 1992 = 100
160 Maryland
155
150 United States
145
140
135
130
125
120
115
110
105
100
95
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

High Tech Services jobs grew 5 percent.

After peaking at 16,000 at the end of 2005, employment in high tech services
settled at 15,500 in mid-2006, for a total gain of 320 jobs.

170
165 Employment Index
Montgomery County
160 1st Quarter 1992 = 100
155 Maryland
150 United States
145
140
135
130
125
120
115
110
105
100
95
90
85
80
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

InfoCom employment was unchanged.

Within the InfoCom cluster, 25,440 people work in systems design & software
development, and 4,260 people work in communications technology manufacturing.

160
Employment Index
155 Montgomery County
1st Quarter 1992 = 100
150
145 Maryland
140 United States
135
130
125
120
115
110
105
100
95
90
85
80
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Aerospace jobs climbed 11 percent.

The County’s defense & aerospace industries added 350 net new jobs,
with employment peaking in the 4th quarter of 2005.

110
105 Montgomery County
100 Maryland
95
90 United States
85
80
75
70
65
60
55
50
Employment Index
45
1st Quarter 1992 = 100
40
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Finance & Insurance industry

employment fell by 200 jobs.
22,943 people work in Montgomery County’s Finance & Insurance sector.

155
Employment Index Montgomery County
1st Quarter 1992 = 100
145
Maryland

135 United States

125

115

105

95

85
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Administrative & Support Services

employment declined.
Following last year’s peak of 33,572 jobs, Montgomery County lost
566 administrative & support service industry jobs.
190 Employment Index
185 Montgomery County
180 1st Quarter 1992 = 100
175 Maryland
170
165 United States
160
155
150
145
140
135
130
125
120
115
110
105
100
95
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Corporate offices added staff.

Employment in the Management of Companies & Enterprises
sector grew 6 percent to 3,064.

150
Employment Index
145
1st Quarter 1992 = 100 Montgomery County
140
Maryland
135
United States
130
125
120
115
110
105
100
95
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

Professional, Scientific & Technical

Services jobs grew 3 percent.
From 2005 to 2006, the County added 1,930
Professional, Scientific & Technical Services industry jobs.
155
Employment Index Montgomery County
150
145 1st Quarter 1992 = 100
Maryland
140
135 United States
130
125
120
115
110
105
100
95
90
85
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: RESI compilation of DLLR data (2006 2Q)
M-NCPPC Research & Technology Center

The housing market correction has

hit Construction industry jobs.
The Construction industry employs 30,551 people in Montgomery County.
170
Employment Index
Montgomery County
165
160 1st Quarter 1992 = 100
Maryland
155
150 United States
145
140
135
130
125
120
115
110
105
100
95
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: RESI compilation of DLLR data (2006 2Q)
M-NCPPC Research & Technology Center

The Retail sector lost 678 jobs.

Retail employment in Montgomery County is 49,000.

135
Montgomery County
Employment Index
130
1st Quarter 1992 = 100 Maryland
125
United States
120

115

110

105
100

95

90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: RESI compilation of DLLR data (2006 2Q)

M-NCPPC Research & Technology Center

How well do jobs pay

in Montgomery County?
20 percent of people who work in Montgomery County earn $10.60 per hour or less.

Wage Category Average Annual Salary Average Hourly Wage

High $50,000 and up $26.00 and up

Medium $30,000 to $49,999 $15.62 to $25.99

Low less than $30,000 less than $15.62

M-NCPPC Research & Technology Center

Fewer people work in mid-wage jobs.

There was growth in high-wage and low-wage jobs.
Employment in medium-wage jobs continues to decline.
165
Wage Index
160 1st Quarter 1992 = 100
155 Low wage
150
145 Medium wage
140 High wage
135
130
125
120
115
110
105
100
95
90
85
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: RESI compilation of DLLR data (2006 2Q)
M-NCPPC Research & Technology Center

Unemployment fell to
2.6 percent in March, 2007.
There are 13,434 unemployed persons in Montgomery County.

5.0%
March 1992 February 2002
4.5%
3.9% 3.8% July 2006
4.0% January 2007
3.5% 3.2%
3.5%

3.0%

2.5%

2.0% March 2007

1.5%
2.6%
December 1999
1.0% 1.6%
0.5%

0.0%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Maryland Department of Labor and Licensing Regulation

M-NCPPC Research & Technology Center

Federal Government

Procurement, Employment
& Leasing Activity
M-NCPPC Research & Technology Center

The Federal Government is a key

economic driver in the County.
Employer:
• 68,000 people are working in federal space.
• $3.6 billion payroll in Montgomery County (FY 2004).

Tenant:
• 6.7 million square feet of leased commercial space.

Customer Base:
• $6.8 billion in goods and services purchased by the Federal
Government from Montgomery County businesses (FY 2006).
M-NCPPC Research & Technology Center

The federal government pumps

$ billions into the County economy.
In FY 2004, the U.S. government spent $15.3 billion in Montgomery County.

$7.5

billions of dollars

$3.6
$3.0

$1.2

Procurement Wages Direct Payments Grants

Source: Consolidated Federal Funds Report

M-NCPPC Research & Technology Center

BRAC will add 2,500 personnel

to National Naval Medical Center.
Most of the BRAC-related workforce expansion will occur in years 2010 and 2011.

workforce at National Naval Medical Center

10,600
10,100

8,100 8,100 8,100 8,100

2005 2006 2007 2010 2015 2020

Source: M-NCPPC analysis of U.S. federal government data

M-NCPPC Research & Technology Center

FDA-White Oak consolidation will

boost installation-based jobs.
From 2007 to 2020, jobs at federal installations are expected to grow 33 percent and
jobs in federal leased space are expected to fluctuate between 21,500 and 24,700.

Workers in federal installations employment in thousands

Workers in federal leased space
24.7
21.5
27.8 23.9
27.2 28.6 27.3
26.2
22.5 20.5 23.1 23.7
19.8 20.2 21.4
51.7 53.8
46.1
38.8 38.9 38.3 37.9 38.1 37.9 38.1 39.4 40.3
36.4 35.7 35.9

1994 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2010 2015 2020

Source: M-NCPPC analysis of U.S. federal government data

M-NCPPC Research & Technology Center

By 2010, most FDA-White Oak

workers will be in place.
FDA expects to have 7,720 workers at White Oak when consolidation is complete.

Workers in leased space

Workers at FDA installation
7,720 7,720
1,248
4,714
4,662
6,069
5,565

1,850 2,056

2005 2006 2007 2010 2015 2020

Source: M-NCPPC analysis of U.S. federal government data

M-NCPPC Research & Technology Center

GSA federal leased space fell

by 1.8 percent in the past year.
GSA’s inventory of leased space has declined by 123,500 square feet since January 2006.

Millions of Square Feet

6.7 6.9 7.0 6.9

6.6 6.5 6.6 6.7
6.2 6.0 6.0

3.7 3.7

1984 1989 1994 1996 1997 1999 2000 2002 2003 2004 2005 2006 2007

Source: General Services Administration (GSA)

M-NCPPC Research & Technology Center

Most of Montgomery County’s federal

leased space is in the Rockville area.
GSA leases 3.8 million square feet in Rockville (which includes most of North Bethesda)
1.3 million square feet in Silver Spring and 1.0 million square feet in Bethesda.

Rockville
19%
Silver Spring
Bethesda
Gaithersburg
57% 14%
Other

6%
4%

Source: General Services Administration (GSA)

M-NCPPC Research & Technology Center

47 percent of GSA-leased space

is up for renewal in 2009 and 2010.
For the first time, GSA has leases extending beyond 2015.

2007 309
2008 346
2009 1,128
2010 2,061
2011 321
2012 19
2013 1,592
2014 259
2015 664
Thousands of square feet of
2016 25
leased space by lease expiration year
2017 10

Source: General Services Administration (GSA)

M-NCPPC Research & Technology Center

FY 2006 procurement was $6.8 billion,

a $100 million drop from FY 2005.
Procurement increased moderately in Fairfax County and rebounded in Washington, D.C.
Federal procurement peaked at $6.9 billion in Montgomery County in FY 2005.

Billions of dollars
$18 Montgomery County
$16
$14 Prince George's
$12 County
$10 Fairfax County
$8
$6 Washington, DC
$4
$2
$0
83
84

85

86
87

88

89
90

91
92

93

94
95

96

97
98

99
00

01

02
03

04

05
06
19
19

19

19
19

19

19
19

19
19

19

19
19

19

19
19

19
20

20

20
20

20

20
20

Source: M-NCPPC analysis of Federal Procurement Data Center data

M-NCPPC Research & Technology Center

Montgomery County lagged the

region in procurement growth.
In the early 1990s, Montgomery County and the Washington, D.C. MSA had comparable
growth rates in federal procurement, but the County has lagged the region since 1998.

Annual Growth Rate

4.5

4.0

3.5
Montgomery County
3.0

2.5 Washington, D.C. MSA

2.0

1.5

1.0 Compound growth rate

Montgomery County = 8.3 percent
0.5 Washington, D.C. MSA = 9.7 percent
0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: M-NCPPC analysis of Federal Procurement Data Center & Federal Procurement Data System data
M-NCPPC Research & Technology Center

Commercial Real Estate

Where Is Montgomery County’s
Office Market Headed?
M-NCPPC Research & Technology Center

The real estate cycle provides a

framework for understanding.

Phase 2 Phase 3
2001
Expansion 2000 Oversupply
Net Absorption
2002
1997
Time

2003

1994 2004

Phase 1 Phase 4
Recovery Recession
M-NCPPC Research & Technology Center

A new investment cycle begins.

Phase 3
Oversupply
Phase 2
Net Absorption Expansion

Time
2007

2006
2005

Phase 1 Phase 4
Recovery Recession
M-NCPPC Research & Technology Center

Sublet vacancy rates show that

office market expansion has stalled.
Recession
4.0%
Vacancy Rate
3.5%

3.0%

2.5%
Oversupply Recovery
2.0%

1.5%

1.0%
Expansion Expansion
0.5%

0.0%
July-97

July-98

July-99

July-00

July-01

July-02

July-03

July-04

July-05

July-06
November-97

November-98

November-99

November-00

November-01

November-02

November-03

November-04

November-05

November-06
March-97

March-98

March-99

March-00

March-01

March-02

March-03

March-04

March-05

March-06

March-07
Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends
M-NCPPC Research & Technology Center

Class A Office Space

Metropolitan Washington, D.C. Region

M-NCPPC Research & Technology Center

Class A office space vacancies

are climbing in the region.

millions of square feet 22.5

21.6

17.6 17.5 18.2

15.9

11.4

8.0

2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends
M-NCPPC Research & Technology Center

Vacancies have risen in

all regional submarkets.

Vacant Space (First Quarter) 8.6 8.9

millions of square feet

5.6
4.3 2006
3.7
3.0 2007

District of Columbia Suburban Maryland Northern Virginia

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends
M-NCPPC Research & Technology Center

The District absorbed significant

Class A office space in 1Q 2007.
1st quarter Class A office space absorption
(millions of square feet)
4.5
4
3.5
3
Maryland
2.5
Virginia
2
1.5 Washington, DC
1
0.5
0
-0.5
-1
2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends
M-NCPPC Research & Technology Center

Rents are rising in all submarkets.

$50

$45

Region
$40
District of Columbia
$35 Northern Virginia
Suburban Maryland
$30

$25

$20
2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends
M-NCPPC Research & Technology Center

Class A Office Space

Montgomery County, Maryland

M-NCPPC Research & Technology Center

Montgomery County’s Class A

office rents were stable.
$34

$32
Fairfax
$30 County,
Virginia
$28
Montgomery
$26 County,
Maryland
$24

$22

$20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends
M-NCPPC Research & Technology Center

Class A office space data in 1Q 2007

shows negative net absorption.
1st quarter Class A office space absorption
(millions of square feet)
2.0

1.5 1.62
1.40
1.0
1.01 1.00
0.87
0.78
0.5
0.38
0.0
-0.22

-0.5
2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search, County Snapshot
M-NCPPC Research & Technology Center

The County’s sublet vacancy rate

is unchanged from last year.
1st quarter Class A office space
(millions of square feet)

35.0

30.0 0.4
0.8 0.5 0.4
0.8 1.8 1.9
2.4
25.0
0.8
2.7
3.0
25.8 26.6 26.9 Sublet Vacancy
0.4
0.2 2.4 24.1
1.3 23.0 Direct Vacant
1.3
20.0 21.2 21.3
20.1
Occupied
15.0

10.0

5.0

0.0
2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search

M-NCPPC Research & Technology Center

Class A vacancy rate is unchanged;

Class B vacancies are up 9 percent.
Vacancy rate Class A Space
Class B Space
18.0%
Class C Space
16.0% All Office Space
14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search

M-NCPPC Research & Technology Center

1st Q 2007 office space construction

surged by 1.6 million square feet.
Millions of square feet constructed
5.0

4.0

Completed Under Construction Proposed

3.0

2.0

1.0

0.0
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: M-NCPPC Research and Technology Center; Maryland State Department of Taxation and Assessments; CoStar Group
M-NCPPC Research & Technology Center

Phased expansions account for

largest new office spaces.
Square feet of new space constructed

MedImmune
120,553
(Gaithersburg)

Cloverleaf Center
114,067
(Germantown)

Lakefront @ Washingtonian
105,595
(Gaithersburg)

United Therapeutics
90,630
(Silver Spring)

Traville Research Park 2

60,554
(Rockville)

Source: M-NCPPC Research and Technology Center; Maryland State Department of Taxation and Assessments; CoStar Group
M-NCPPC Research & Technology Center

Six 60,000+ square foot office

projects will deliver in 2007.
Square feet of new space delivered
Four Irvington Center is 84 percent pre-leased.
Four Irvington Center Developer delivered 6-story project in May 2007.
(Rockville)
220,000

Monument Corporate Center is expected to be delivered in

Monument Corporate Center
(Gaithersburg)
200,000 July but no space has been pre-leased.

Tower Oaks is 36 percent pre-leased.

Developer expects to deliver project January 2008.
Tower Oaks (Rockville) 199,093

Opus Center completed in April 2007 was only 2 percent

Opus Center 1 (Bethesda) 187,000 pre-leased.

Rockville Town Center

93,450 The premiere office building in the Rockville Town Center
(Rockville)
is expected to be delivered in September 2007 but about 4
percent of this new space is pre-leased.
Crystal Rock Plaza
60,000
(Germantown) Germantown’s Crystal Rock Plaza will open its doors in
August with nearly all its space leased to tenants.

Source: CoStar Group, Property Professional Database

M-NCPPC Research & Technology Center

+2 million square feet of office space

proposed in the next 2 years.
Square feet of planned space

Twinbrook Commons I 350,000

Wisconsin Place 305,000
Century 270 276,000
City Place 240,000
Twinbrook Metro Park 180,000
Park Potomac Bldg E 176,400
Milestone Business Park Bldg 3 156,638
Twinbrook Place 150,000
DANAC Stiles Corporate Campus 72,000
Higgins Estate 13,650
Medical Building 10,000

Source: CoStar Group, Property Professional Database

M-NCPPC Research & Technology Center

Capital flows into the U.S. are driving

regional commercial construction.

55% Return on Investment

(office space)
45%
Return on Investment
35% (total)

25%

15%

5%

-5%

-15%

-25%
1994 to 1995to 1996 to 1997 to 1998 to 1999 to 2000 to 2001 to 2002 to 2003 to 2004 to 2005 to 2006 to
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: NAREIT Property Index; NCREIF Office Index ; RC Analytics

M-NCPPC Research & Technology Center

Newsworthy notes on leasing activity

• Bethesda-based financial services firm Capital Source will move from its
current location as a tenant in the six-year old Chase Tower to the new
Wisconsin Place where it will occupy 160,00 square feet. Capital Source
might end up paying $50 per square foot.

• Boston Properties Inc. is selling its 688,493 square foot multi-tenant office
complex known as Democracy Center at 6901-6905 Rockledge Drive. The
complex, which is 85 percent leased, includes such premiere tenants as
HMS Host and USEC. The buildings could sell somewhere in the $22.0
million to $26.0 million range.

• BAE Systems, currently leasing space in a 150,000 square foot multi-tenant

Class B office building located at Research Boulevard, rumored to be
moving. It has asked broker CRESA Partners to find 400,000 square feet in
the county.

Source: Montgomery Newsletter

M-NCPPC Research & Technology Center

Newsworthy notes on leasing activity

• The Lakefront@Washingtonian, a 105,600 square foot Class A multi-tenant office

building completed late last year has leased space to real estate developer
Buchanan Partners, financial services firm Ameriprise, and biotech company Sigma
Tau Pharmaceuticals. There are still 55,000 square feet available.

• The Twinbrook Metro Park, a multi-tenant Class A office building completed in 2004
is fully leased. Earlier this year the Regulatory Affairs Professionals Society occupied
the remaining 14,000 square feet.

Source: Montgomery Newsletter

M-NCPPC Research & Technology Center

Other
Commercial Space

Flex & Retail

M-NCPPC Research & Technology Center

Vacancies in flex and industrial space

are up but rents have dropped, slightly.
$16 13.0%
Rents Vacancy Rates 12.0%
$14
11.0%
$12 10.0%
9.0%
$10 8.0%
7.0%
$8
6.0%
$6 5.0%
4.0%
$4 3.0%
2.0%
$2
1.0%
$0 0.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search

M-NCPPC Research & Technology Center

Rents for retail space in Montgomery

County have grown every year since 2003.
$31.9

Rent per square foot of retail space $24.6

$22.8 $23.4

$15.9 $16.1 $16.4

$15.0 $15.0
$12.6 $12.9 $13.2
$11.8
$9.1 $8.5

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search

M-NCPPC Research & Technology Center

Class A Office Space Trends

Montgomery County SubMarkets

M-NCPPC Research & Technology Center

Silver Spring has low office vacancies.

I-270 Corridor has affordable space.
Rents Vacancy Rate
$33.74

$29.78 $29.83
$29.18 9.4%
6.6%
5.4%

1.6%

Montgomery County I-270 Bethesda/Chevy Chase Silver Spring/ 29-N

Source: CoStar Group, Property Professional Database, Analytical Search

M-NCPPC Research & Technology Center

More empty office space in the County and

the I-270 and Silver Spring sub-markets.
Thousands of square feet of net office space absorbed
800

550

300

50

-200

I-270 Bethesda/Chevy Chase Silver Spring/Route 29 North Montgomery County

-450
2000 2001 2002 2003 2004 2005 2006 2007

Source: CoStar Group, Property Professional Database, Analytical Search

M-NCPPC Research & Technology Center

Housing Market

Montgomery County
M-NCPPC Research & Technology Center

Housing sales eased in 2006.

Condominiums Single Family Units

Number of housing units sold 18,416

17,344 17,426
16,732
16,112
15,050
14,411
13,086
12,159 12,490
10,919

6,029
5,366 5,331
4,750
4,010 4,283 3,924
3,313
2,409 2,068 2,433

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Maryland State Department of Assessments and Taxation (SDAT)

M-NCPPC Research & Technology Center

Mortgage rates remain

below pre-2003 levels.
Effective interest rates for Metro Washington-Baltimore-Northern Virginia DC-MD-VA-WV.

30-year fixed effective mortgage interest rates

10.4%
9.7%

8.5%
8.2% 8.2% 8.0% 8.3%
7.9%
7.5% 7.4%
7.2% 7.1%
6.7% 6.6% 6.5%
6.1% 6.0% 6.1%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1Q-
2007

Source: Federal Housing Finance Board

M-NCPPC Research & Technology Center

Mortgage interest rates in the

DC region are close to the U.S. average.
For a 30-year conventional loan, the national average interest rate was 6.42 percent.

San Antonio 6.79%

Miami 6.67%
Chicago 6.58%
Las Vegas 6.53%
Tampa 6.52%
St Louis 6.48%
Phoenix 6.46%
Washington DC 6.45%
Los Angeles 6.43%
U.S. Average 6.42%
30-year fixed
Denver 6.42% effective mortgage
Philadelphia 6.40% interest rates
Seattle 6.37% (1st quarter 2007)
New York 6.31%
Atlanta 6.29%
San Jose 6.24%
Boston 6.19%
Pittsburg 5.81%

Source: Federal Housing Finance Board

M-NCPPC Research & Technology Center

Time-on-the-market
peaked in February 2007.
Days on the market
150
140
130
120
110
100 Montgomery County
90
80 Fairfax County
70
60 Loudoun County
50
40
30
20
10
0
January-03 July-03 January-04 July-04 January-05 July-05 January-06 July-06 January-07

Source: MRIS
M-NCPPC Research & Technology Center

Single-family home prices

have continued to rise.
$1,000,000
New Single-
$900,000 Family
Detached
$800,000
Existing
$700,000 Single-Family
$600,000 Detached

$500,000 New
Townhouse
$400,000

$300,000 Existing
Townhouse
$200,000

$100,000

$0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: STAR
M-NCPPC Research & Technology Center

Local foreclosure rates are below

state-wide and national rates.
Foreclosures per 100,000 households

United States 133

Maryland 45

Virginia 37

Bethesda-Gaithersburg-
Frederick MSA
18

Washington, DC 2

Source: Realty Trac, April 2007.

M-NCPPC Research & Technology Center

A median income won’t buy a

median-priced single-family home.
A 4-person households earning the $90,300 Washington, D.C. metro
area median income (AMI) could not afford a median-priced single-family home in 2006.

Affordability Index
New Single-
1.75
Family
Detached
1.5
Existing
1.25 Single-Family
Detached
1
New
Townhouse
0.75

0.5 Existing
Townhouse
0.25

0 All Single-
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Family Sales

Source: M-NCPPC Research and Technology Center

M-NCPPC Research & Technology Center

A median income won’t buy a

median-priced condominium.
A 4-person households earning the $90,300 Washington, DC metro
area median income (AMI) could not afford a median-priced condominium in 2006.

Affordability Index
2.25

2.00

1.75 All Condominiums

1.50
New Condominiums
1.25
Existing Condominiums
1.00

0.75
2001 2002 2003 2004 2005 2006

Source: M-NCPPC Research and Technology Center

M-NCPPC Research & Technology Center

The apartment market is tightening,

with a 3.9 percent vacancy rate.
Vacancy rate for all units
(market rate and subsidized units combined)

5.1%
Turnover Rents Vacancy Rate 4.6%

3.7% 3.7% 3.8% 3.9%

3.0%
2.5%
1.8%

$726 $871 $928 $1,030 $1,076 $1,111 $1,154 $1,167 $1,212

1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Montgomery County Office of Landlord-Tenant Affairs

M-NCPPC Research & Technology Center

In 2006, single-family & multi-family

completions were roughly 1:1.
3,451 housing units were completed in 2006—down from 3,700 units in 2005,
4,300 units in 2004 and 5,500 units in both 2002 & 2003.

2,320
Multi-family
Single-family attached (townhouse)
Single-family detached
2,658 1,979

2,210 2,044 2,986

2,994
1,662 895 1,398 2,033
1,183 1,772
3,419 1,529 1,751
832 1,304 595 1,126 1,116
755 705
460 569 776
1,054 911
2,496 1,111 858 896 806 974 1,015
2,128 2,167 791
916 2,005 1,912 712
814 1,618 1,694 618
1,478 1,498 1,562 1,435 1,460 1,450
1,327 1,216
1,031 1,082
914

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: M-NCPPC Research and Technology Center

M-NCPPC Research & Technology Center

More households are spending

+30 percent of income on housing.

40.7%
Owner Occupied Renter Occupied
37.5%

29.4%
27.4%

16.9%
13.4%
11.3%
8.8%

1987 1997 2003 2005

Source: M-NCPPC Research and Technology Center, 2005 Census Update Survey
M-NCPPC Research & Technology Center

More than 40 percent of households

have incomes above $100,000.
Median Household Income (2005)

Less than $50,000

$50,000 to $99,000
11%
26% $100,000 to $149,000
9%
$150,000 to $199,000

$200,000 and up
21%

33%

Source: M-NCPPC Research and Technology Center, 2005 Census Update Survey
M-NCPPC Research & Technology Center

Single-family homes
continue to get larger.
Median square footage
Single-family detached homes sold in Montgomery County in 2006 3,272
(by year built)

2,528

2,003
1,872 1,880
1,624
1,323

Pre-1950 1950 to 1959 1960 to1969 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2006

Source: STAR
M-NCPPC Research & Technology Center

Townhomes
continue to get larger.
Median square footage
Single-family attached homes sold in Montgomery County in 2006
(by year built) 1,792

1,509
1,454
1,320
1,260

891

1950 to 1959 1960 to1969 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2006

Source: STAR
M-NCPPC Research & Technology Center

Condominiums
continue to get larger.
Median square footage
Condominiums sold in Montgomery County in 2006
(by year built)

1,320 1,300
1,149 1,181
1,037

420

1950 to 1959 1960 to1969 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2006

Source: STAR