2009 Office Market Overview Presented by Spencer Stouffer Managing Director January 27, 2009
Agenda 1.Cassidy & Pinkard Colliers 2.Capital Markets Overview 3.Office Statistics for DC area & Predictions –DC –Northern Va. –Maryland –GSA 4.Construction Pricing
Leasing Portfolio of 53M square feet Management Portfolio of 21M square feet Largest Lease Deals in the Region Largest Finance Deals Sales – Transacted $1B of the $3.4B Cassidy & Pinkard Colliers
320 million sf properties under management 210 million sf of space for lease $5 billion in annual capital market transactions $13 billion in transactions $800 million in construction projects 22,000 managed corporate facilities 2,000 employees 210 owners Cassidy & Pinkard – Consolidation New Company Overview
Investment Sales Market
Office Sales Lowest Since 1999 Washington Metro Area, $Volume Billions Source: Cassidy & Pinkard Colliers
Loan Volume Dollar Volume ($Billions) Dollar VolumeLoan Volume CMBS Office Loans Maturing in DC Region
Sales Volume Forecasted below $2B in 2009 Being in DC is good Back to Basics – Equity Contribution 2-3x 2007 levels You don ’ t want to be a Seller Pricing has changed (Cap rates up 200 bps) Recovery???? Relationships Matter Conclusions
Office Leasing Market
80-90% renewals Tenants & Tenant brokers skeptical regarding Landlord’s ability to perform (self-help, escrow) Moved from a “Negotiation” market to a “Competition” market Many deals being retraded at the last minute Sublease space inventory increasing Leasing – What is happening out there?
District of Columbia: New Supply Mostly in Non-Core Markets Square Feet (Millions) Source: Cassidy & Pinkard Colliers
Prediction “The District will be the only office market in the country to record positive absorption in 2009.”
Northern Virginia Office Market
Tenant Activity 8,000,000 sf of “Tenants in the Northern Va. Market” 20+ deals “in the market” over 75,000 sf
Continued consolidation among large contractors – many "one off" offices will be closed at lease expiration Two or Three Gov. Contractors sign leases in excess of 400,000 sf in 2009 Predictions
Construction Costs
Metro Washington, DC Construction Market Cost ItemBudget (Jan. 1, 08)Budget (Jan. 1, 09) Hard Costs$45-$50$36-$41 A/E Design Costs/Peer Review /Permit Cost $5.00$4.50 Project Management/ Reimbursable $4.00$3.50 Project Contingency (10%)$5.00$4.00 Total Hard & Soft TI Costs$59.00-$64.00$48.00-$ Trends Approximately 20% Reduction in Cost
GSA & Federal Leasing
Big Deals: The Consolidation will Continue : Over 5.2 Million Square Feet of Consolidation Leases Median Size: 575,000 Square Feet 2009 – 2013: Well Over 4 Million Square Feet of Consolidation Demand Winners: NOMA, Southwest, Prince George’s TRENDS: What’s on the Federal Horizon Renewals will Continue for Sub-prospectus Leases 2005 – 2008: Renewals Exceeded 91% of Expiring Leases Poor GSA Planning will Continue to Result in Lease Holdovers Winners: CBD and Crystal City GSA Leasing Methodology Protests are Killing Source Selection Criteria Price Only Competition will Reemerge as the Standard Winners: No One! (maybe the taxpayers)
Department of Transportation (DOT) Why?: $53.1 Billion of Emergency Stimulus Funding Submarkets of Influence: Southeast/Ballpark Area Likely Suspects: Contractors TRENDS: Sectors for Federal Growth “Which agencies will grow under Obama?” State Department (State) Why?: Diplomatic and Consular Affairs Expansion / Hillary Clinton Submarkets of Influence: CBD, West End, Rosslyn Likely Suspects: Federal Employees Department of Energy (DOE) Why?: Alternative Energy Strategy Submarkets of Influence: Southwest, Suburban Maryland Likely Suspects: Federal Employees and Contractors
TRENDS: Sectors for Federal Growth National Institutes of Health (NIH) Why?: Medical Research / Health Care System Overhaul Submarkets of Influence: Suburban Maryland Likely Suspects: Federal Employees and Contractors Department of Education (EDU) Why?: $66 Billion of Emergency Stimulus Funding Submarkets of Influence: Southwest, CBD Likely Suspects: Federal Employees Health and Human Services (HHS) Why?: Health Care System Overhaul Submarkets of Influence: Suburban Maryland Likely Suspects: Federal Employees and Contractors
Summary
Summary We are fortunate to be in DC Area “Back to Basics” Service and Relationships Guiding Strategy – Bridge to the better market
2009 Office Market Overview Presented by Spencer Stouffer Managing Director January 27, 2009