'07 4Q - Boston

MARKET SMARTRESTON/HERNDON‘074QQuarter in ReviewAfter a robust period of growth, in which 4.2 millionsquare feet of office space was absorbed in under fouryears, the Reston/Herndon Corridor grappled withslowing tenant demand and excessive speculativedevelopment during the fourth quarter.Five buildings covering 1.0 million square feetdelivered in Reston/Herndon during 2007, just 31.6%of which was preleased. Direct vacancy rates soaredfrom 10.7% at the beginning of the year to 12.3% inthe fourth quarter, and large inventories of subleasespace pushed total vacancy rates to 13.9%.While tenants along the Toll Road benefited from morechoice with a large amount of supply coming online,the increased options did not produce substantialdownward pressure on rental rates. Average askingrents increased 25 cents during the fourth quarter to anall-time high of $30.50 per square foot. Although rentalrates remained firm, landlord concession packagesbecame increasingly generous, with tenantimprovement allowances above $65 per square footand several months of free rent offered for long-termdeals with large, creditworthy tenants.Demand within the Reston/Herndon Corridor washighly segmented, as well-located properties withaccess to premium amenities captured the majority ofinterest from tenants in the market. Activity in andaround Reston Town Center was brisk, whilecommodity space in Class A and B buildings generatednotably less interest. Three of the five largest deals ofthe fourth quarter were signed in Reston Town Center,as professional service firms continued to gravitate tothe quality space and rich amenities of the area.Looking AheadAt the end of the fourth quarter, 1.6 million square feetwas under construction in Reston/Herndon, just 27.4%of which was preleased. With large blocks of space stillsitting vacant and federal spending patterns leveling orreceding, the Reston/Herndon Corridor may be facinga protracted climb in its vacancy rates.Development projects located near the region’s coreamenities and transportation structure should fare best,with space at Reston Town Center continuing togenerate the most preleasing activity and garnering thehighest rents. On the other hand, the five buildingsunder construction outside the confines of the TownCenter were 16.6% preleased at the fourth quarter’send, which will likely lead to downward pressure onrents, generous concession packages and increasedcompetition for securing tenant commitments.1801 K Street, NW Suite 1000 Washington, DC 20006 + 202.719.50001600 Tysons Boulevard Suite 1000 McLean, VA 22102 + 703.485.8800SFKey Market IndicatorsSupply25,003,785 SFYTD Net Absorption402,384 SFDirect Vacancy Rate 12.3%Total Vacancy Rate 13.9%Average Asking Rent$30.50 PSFUnder Construction1,612,841 SFNet Absorption, New Supply and Total Vacancy RateChange in Supply Net Absorption Total Vacancy3,500,00035%30%2,500,00025%1,500,00020%500,00015%10%(500,000)5%(1,500,000)0%'00 '01 '02 '03 '04 '05 '06 '07Class A vs. B Average Asking Rental Rates$ PSFClass AClass B$35$30$25$20$15$10$5$0'00 '01 '02 '03 '04 '05 '06 '07www.joneslanglasalle-dc.com