CBRE

Baltimore Office
www.cbre.com/research Fourth Quarter 2011

Market fundamentals remained relatively flat in the Baltimore market due to the continued uncertainty surrounding the 2012 federal budget and financial The markets. Landlords are seeking renewals to minimize vacancy increases.

ClearEdge IT Solutions, and the GSA. Increased activity in the Baltimore City East submarket has been a bright spot for the market, with significant lease transactions in Harbor East. This area has the newest inventory, commanding the highest asking rates in Baltimore City. Due to the Under Armour expansion, many tenants currently at TidePoint are looking to relocate within the submarket, creating increased activity along Boston Street and Brewers Hill. Demand in the Reisterstown Rd. Corridor and West Side submarkets is down as many users such as Legg Mason, Lockheed Martin and CMS vacated or downsized within the area, creating over 379,000 square feet of negative absorption in the area. Development of new office product in the Columbia, BWI, and Harford County submarkets is sustaining long-term confidence in the market. Without a rise in leasing activity, the vacancy will climb as 89.4% of the pipeline is available for lease.

Quick Stats
Change from last

credit worthiness of tenants is crucial in negotiations, as landlords are unwilling to

enter long term lease agreements without strong financial statements. The unstable economic recovery has kept many new users on the sidelines, creating a challenge for landlords as there are fewer firms out in the market for space. Tenants making real estate decisions are acting conservatively and often downsizing to preserve capital and occupancy costs. Also as leases come up for renewal, many tenants are relocating to less space within the market in order to cut back on real estate expenditures. Baltimores overall vacancy rate decreased this quarter, driven by significant moveins by tenants such as Transamerica,

Vacancy Lease Rates YTD Net Absorption* YTD Completions

16.6% $20.10 550,416 1,113,403

* The arrows are trend indicators over the specified time period and do not represent a positive or negative value (e.g., absorption could be negative, but still represent a positive trend over a specified period).

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The overall vacancy rate decreased over the quarter from 17% to 16.6% due to significant move-ins such as Transamerica, ClearEdge IT Solutions, and the GSA. The largest deal signed this quarter was a 154,000-square-foot lease by Ciena at 7035 Ridge Road in Hanover. Demand is weak in the West Side and Reisterstown Rd. Corridor submarkets. The Baltimore Metropolitan Areas unemployment rate decreased to 7.2% as of October 2011, gaining 10,800 office-using jobs.

Net Absorption/Vacancy Rate

Vacancy Rate Net Absorption

16.6% 550,416 SF

2011, CBRE

Market Statistics
Baltimore Office

County CBD Baltimore City (Non-CBD) Baltimore City Total Lower Suburban Upper Suburban Baltimore Total

Inventory SF 12,359,734 8,025,959 20,385,693 23,406,972 20,034,995 63,827,660

Overall Vacancy Rate % 19.2% 18.4% 18.9% 15.2% 15.8% 16.6%

4Q 2011 Net Absorption SF 177,614 36,577 214,191 228,151 (309,686) 132,656

YTD 2011 Net Absorption SF 149,349 72,407 221,756 297,167 31,493 550,416

Under Construction SF

Avg Asking Dir Lse Rate ($/SF/YR) $20.85 $19.24

0 322,830 215,200 538,030

$19.51 $21.94 $18.84 $20.10

Economic Growth

Office-using Employment

10,800 jobs

The Baltimore economy is still recovering from the national and local economic crisis. The Baltimore Metropolitan Areas unemployment rate decreased to 7.2% as of October 2011, gaining 10,800 office-using jobs year-over-year as of preliminary numbers, according to the US Bureau of Labor Statistics. The job growth was driven by increased employment in the Professional and Business Services and Other industries, which experienced net growth of 7,400 and 4,000 jobs, respectively. These job figures are complicated due to the resolution of the Verizon Wireless strike, which sent 4,000 workers back to work, during the time of the employment survey. Looking ahead, Northrop Grumman announced plans to eliminate 800 jobs, which will not impact the local economy until January of 2012. This highlights the states reliance on government and defense-related jobs, during budget constraints.

New Construction

Deliveries Under Construction

885K SF 538K SF

The only delivery this quarter was the 228,000-square-foot building at 7205 Windsor Boulevard in the West Side submarket, which is 57% preleased with CMS and Northrop Grumman taking over 128,000 square feet. Year-to-date, over 1.1 million square feet of space delivered to the Baltimore office market. 538,000 square feet is expected to deliver in the Columbia, BWI, and Harford County submarkets by year end 2012. The supply constrained I-83 corridor has had no new product since 2009, translating into flat leasing activity as tenants remain in place due to lack of large blocks of space. With the shortage of Class A space, there are a number of projects in the area totaling approximately 980,000 square feet that are pad ready if a build-to-suit opportunity presents itself.

Fourth Quarter 2011

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2011, CBRE

Vacancy
18.0% 18 0% 17.0% 16.0% Vac cancy Rate 15.0% 15 0% 14.0% 13.0% 12.0% 11.0% 10 0% 10.0% 2006 2007 20082 0092

Vacancy Rate

16.6%

0102

011

Overall vacancy decreased slightly over the quarter due to significant move-ins around the market. Down from 17.0% to 16.6%, the overall vacancy rate was impacted by the 170,840-square-foot move-in by Transamerica at 100 Light Street, the 24,500-square-foot move-in by ClearEdge IT Solutions at 10620 Guilford Road and the 16,561-squarefoot move-in by the GSA at 100 S Charles Street. The vacancy rate in the Reisterstown Road Corridor increased from 15.7% to 19.0% as Carefirst and Legg Mason vacated 144,307 square feet in Owings Mills. In the West Side submarket, the vacancy rate increased from 11.1% to 16.9% as CMS, Lockheed Martin, and Douglas Consulting accounted for 63,094 square feet of vacant space returning to the market. These contractions were offset by new growth in the CBD, Columbia and Towson/Timonium submarkets.

Baltimore Office

Rental Rate
$24 $23 $22 $21 $/Squ Foot uare $20 $19 $18 $17 $16 $15 2006 2007 2008 2009

Rental Rate

$20.10 FS

The overall asking rental rate for office space in the Baltimore area increased from the previous quarter by $0.35 to $20.10 per square-foot full service. This is the first time since 2007 that overall asking rates have increased from the previous quarter. This was due in a large part to the increase in Class A+/Trophy space in the CBD. Rental rates jumped from $22.83 to $25.03 from the previous quarter for that product. The Baltimore office markets overall asking rate was still below the local average of $22.25 from the fourth quarter of 2010. Looking ahead, asking rates are expected to remain relatively steady over the next 12 months without an increase in demand to take space off the market. Tenant concession packages remain competitive with landlords seeking to minimize vacancies in their buildings.

2010

2011

Net Absorption
2,500 2,000 Square Feet (000 e 0) 1,500 1,000 500 0 2006 2007 2008

Net Absorption

550,416 SF

2009

2010

2011

The Baltimore office market experienced over 132,656 square feet of positive net absorption this quarter, bringing the year-to-date total to 550,416 square feet. The high volume of mid-size move-outs and downsizing was offset by the positive movement from tenants who signed leases at the end of 2010/beginning of 2011. Defense-related leases are expected to commence mid-year 2012, bringing 198,500 square feet of new growth to the market. Leases signed by Johns Hopkins Hospital and CyberPoint are scheduled to commence first quarter 2012 bringing another 80,000 square feet of new growth to the Baltimore City East submarket. In the CBD more relocations and downsizes are expected as businesses continue to give back space until national indicators point to sustained, long term economic recovery and job growth.

Fourth Quarter 2011

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2011, CBRE

Baltimore Office

Top 4Q 2011 Lease Transactions

Address
7035 Ridge Road 920 Elkridge Landing Road 8621 Robert Fulton Drive 10096 Red Run Boulevard 7 St. Paul Street 888 Bestgate Road

Average Asking Lease Rate Rate determined by multiplying the asking net lease rate for each building by its available space, summing the products, then dividing by the sum of the available space with net leases for all buildings in the summary. Net Leases Includes all lease types whereby the tenant pays an agreed rent plus most, or all, of the operating expenses and taxes for the property, including utilities, insurance and/or maintenance expenses. Market Coverage Includes all competitive office buildings 10,000 square feet and greater in size. Net Absorption The change in occupied square feet from one period to the next. Net Rentable Area The gross building square footage minus the elevator core, flues, pipe shafts, vertical ducts, balconies, and stairwell areas. Occupied Area (Square Feet) Building area not considered vacant. Under Construction Buildings which have begun construction as evidenced by site excavation or foundation work. Available Area (Square Feet) Available Building Area which is either physically vacant or occupied. Availability Rate Available Square Feet divided by the Net Rentable Area. Vacant Area (Square Feet) Existing Building Area which is physically vacant or immediately available. Vacancy Rate Vacant Building Feet divided by the Net Rentable Area. Normalization Due to a reclassification of the market, the base, number and square footage of buildings of previous quarters have been adjusted to match the current base. Availability and Vacancy figures for those buildings have been adjusted in previous quarters.
For more information regarding the MarketView, please contact: Marianne Swearingen, Research Manager CBRE 750 9th Street, NW, Suite 900, Washington, DC 20001-4516 T. 202.585.5642 F. 202.783.1723 marianne.swearingen@cbre.com

Submarket Map

Copyright 2011 CBRE Statistics contained herein may represent a different data set than that used to generate National Vacancy and Availability Index statistics published by CBREs Corporate Communications Department or CBREs research and Econometric Forecasting unit, CBRE Econometric Advisors. Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.