'07 4Q - Boston

MARKET SMARTNORTHERN VIRGINIA‘073Q‘074QQuarter in ReviewLeasing activity in Northern Virginia picked upconsiderable velocity during the fourth quarter,particularly in submarkets located inside the Beltway,although a slow start to the year resulted in taperedgrowth relative to the recent booms experienced overthe previous four years.Key Market IndicatorsSupplyYTD Net Absorption137,730,157SF746,707 SFPositive net absorption of 450,584 square feet duringthe past three months produced the most robustquarter of 2007, but annual net absorption of 745,707fell far short of the 4.9 million square feet of absorptionaveraged annually in the area since year-end 2002.While Northern Virginia could not match the aggressiveabsorption totals achieved in recent years, certainsegments of the market displayed particularly strongfundamentals. Trophy space in Tysons Corner andReston Town Center featured some of the highestrental rates and lowest vacancy rates in the area, anddemand for office space inside the Beltway acrossvirtually all asset classes continued to soar.Arlington County captured a 70.0% share of NorthernVirginia’s net absorption in the fourth quarter,contributing 314,315 square feet of positive netabsorption toward the region’s total. Alexandria posted147,213 square feet of positive net absorption, whichwhen factored with negative net absorption in Fairfaxand Prince William Counties, and modest positive netabsorption in Loudoun County, resulted in virtually allthe quarterly growth being focused inside the Beltway.With aggressive new construction in Reston, Herndonand Route 28 South, vacancy rates climbed to 9.8% inNorthern Virginia during the fourth quarter, theirhighest point since mid-year 2005. 3.1 million squarefeet of new construction delivered to the market in2007, 94.4% of which fell outside the Beltway. The newdeliveries were 28.7% preleased, and the 5.9 millionsquare foot under-construction pipeline was 26.7%preleased, which threatened to push vacancy rateshigher over the short term.While rental rates held steady during the fourth quarterin spite of the new deliveries, increased concessionpackages became prevalent in many outlying markets.Tenant improvement allowances above $65 per squarefoot were obtained on select deals, often withgenerous periods of free rent. While the Toll Roadstruggled to realize rental rate growth, the supplyconstrainedenvironment inside the Beltway triggeredcontinued rent increases for buildings in the Rosslyn-Ballston Corridor, Alexandria, Crystal City and TysonsCorner, most of which have already experienced 6.0%annual rent growth over the past three years.1801 K Street, NW Suite 1000 Washington, DC 20006 + 202.719.50001600 Tysons Boulevard Suite 1000 McLean, VA 22102 + 703.485.8800SFDirect Vacancy Rate 9.8%Total Vacancy Rate 11.4%Average Asking Rent$30.34 PSFUnder Construction5,936,219 SFNet Absorption, New Supply and Total Vacancy RateChange in Supply Net Absorption Total Vacancy10,000,0008,000,00030%25%6,000,0004,000,00020%2,000,00015%010%(2,000,000)(4,000,000)5%(6,000,000)0%'00 '01 '02 '03 '04 '05 '06 '07Class A vs. B Average Asking Rental Rates$ PSFClass AClass B$36$32$28$24$20$16$12$8$4$0'00 '01 '02 '03 '04 '05 '06 '07www.joneslanglasalle-dc.com