'07 4Q - Boston

MARKET SMARTLOUDOUN COUNTY‘074QQuarter in ReviewAlthough Loudoun County has registered eightconsecutive quarters of positive net absorption, tenantdemand slowed over the second half of 2007, andleasing activity failed to match the rate of newconstruction in the area.Key Market IndicatorsSupplyYTD Net Absorption7,535,698 SF246,768 SFFive projects covering nearly a half million square feetdelivered in Loudoun County in 2007, approximately42% of which was preleased. The absence of largerequirements in the market, combined with a 7%increase in the size of local inventory, led directvacancy rates 2.7% higher over the past year. Totalvacancy rates ended the fourth quarter at 14.1%, theirhighest point in five quarters.Positive net absorption of 39,722 square feetrepresented the smallest increase in occupied space inLoudoun County in eight quarters. Annual netabsorption of 246,768 square feet was 50% below the2006 total of 490,147 square feet, and 35% below themarket’s 10-year average of 381,998 square feet.Rental rates rose modestly during the fourth quarter,but fell slightly on the year. Average asking rental ratesended the fourth quarter at $24.68 per square foot,which was largely unchanged from year-end 2006’saverage of $24.71 per square foot. Rental rates haveincreased just 2.8% over the past five years inLoudoun County, which falls 10.5% behind FairfaxCounty (13.3%) to make Loudoun County the biggestlaggard in Northern Virginia.Looking AheadOngoing development, especially in the Route 28North submarket, should further add to LoudounCounty’s inventory and place upward pressure onvacancy rates over the short term. Nearly 700,000square feet of office space was under construction inLoudoun County and slated to deliver over the nextthree quarters, just 9% of which was preleased.While new Class A projects should enhance averageasking rental rates and provide excellent choice fortenants in the market, Loudoun County’s competitiveposition relative to established job centers in FairfaxCounty remained tenuous. Additionally, weakeneddemand due to a slowdown in federal spending andsoftness in the national economy is expected to persistover the next 12 months. While it may take some timefor overcapacity to be absorbed, renewed demand inthe aerospace, life sciences and technology sectorsshould gradually improve the area’s fundamentals.SFDirect Vacancy Rate 12.1%Total Vacancy Rate 14.1%Average Asking Rent$24.68 PSFUnder Construction683,110 SFNet Absorption, New Supply and Total Vacancy RateChange in Supply Net Absorption Total Vacancy1,400,0001,200,00030%25%1,000,000800,00020%600,00015%400,00010%200,00005%(200,000)0%'00 '01 '02 '03 '04 '05 '06 '07Class A vs. B Average Asking Rental Rates$ PSFClass AClass B$30$25$20$15$10$5$0'00 '01 '02 '03 '04 '05 '06 '071801 K Street, NW Suite 1000 Washington, DC 20006 + 202.719.50001600 Tysons Boulevard Suite 1000 McLean, VA 22102 + 703.485.8800www.joneslanglasalle-dc.com