Page 1

2018 MID-YEAR MARKET REPORT


ECONOMIC OVERVIEW

OFFICE MARKET ACTIVITY

Montgomery County experienced steady gains by the end of the mid-year with an addition of almost 3,000 jobs from last year. The County recorded over 545,943 employees as of June 2018, an increase of 2.6% from last year and the employment rate saw a slight uptick of 0.1 percentage points (pp) to 3.8% from this time last year. The uptick can be attributed to the negative change in employment by the Finance sector.

During the first half of 2018, Montgomery County experienced positive market activity of positive net absorption and healthy new leasing activity. As Q2 2018 ended, net absorption registered at positive 238,231 square feet (SF). Significant move ins helped maintain this positive activity. These include the American Physiological Society which moved into 30,000 SF at 6120 Executive Boulevard, and Hendall Inc. renewed and expanded into an additional 11,000 SF at 1803 Research Boulevard. In return, vacancy rates have contracted with the positive activity. Total vacancy ended Q2 2018 at 15.8%, 0.2 pp lower than this time last year. Rental rates are also on the rise ending the mid-year at $28.86 per square foot (PSF), a 2.1% increase from this same time the previous year.

There were strong gains in the Healthcare, Construction, Education, and the Professional and Business Services sectors. Healthcare, one of the largest employment sectors in the county, it saw a growth rate of 1.7% and added 1,574 jobs over the past year. With the start of significant development projects such as the Purple Line and new office product in the Bethesda/Chevy Chase market, the Construction sector saw an uptick in activity with the addition of 706 jobs from last year. The Educational sector added 673 jobs while the Professional and Business Services sectors rounded out the top four with an addition of 606 jobs from last year. YEAR-OVER-YEAR GROWTH AS OF Q2 2018 Industry Employment

Employment Change

Health Care and Social Assistance

1,574

Construction

706

Education

673

Professional and Business Services

606

Manufacturing

553

Management

497

Transportation

358

Administrative and Support

341

Arts, Entertainment, and Recreation

333

Public Administration

279

Source: JobsEQ

2

2 0 1 8 M I D -Y E A R R E P O R T

Year-to-date new leasing activity totaled 955,746 SF in the county according to Cushman & Wakefield. Supernus Pharmaceuticals signed the largest new lease this year for 119,000 SF at 700 Quince Orchard Road to relocate their headquarters. New leasing activity has increased almost 52% as compared to this time last year. Combined, the Bethesda and North Rockville markets make up nearly 50% of the new leasing activity. Overall leasing ended Q2 2018 1.1 million square feet (msf). The largest overall lease was the renewal and expansion of Henry M. Jackson at 6720 Rockledge Drive whose total space leased will be 146,142 SF.

INVESTMENT ACTIVITY Investment sales activity continues the healthy trend seen in 2017. There were 67 trades as the mid-year closed. Bridge Commercial Real Estate purchased a portfolio of 13 office buildings in eight states that included 6720-A and 6720-B Rockledge Drive for $45 million. The Venter Institute was part of a portfolio of eight life science buildings in Rockville and Gaithersburg that sold for $146.5 million, both fully leased at sale. Meso Scale Diagnostics, LLC purchased 1701 Research Boulevard from Biomed Realty for $40.5 million or $387.1 PSF. In a joint venture, Capital Digestive Care, LLC, Anchor Health Properties and MedProperties Holdings, LLC purchased the Shady Grove Professional Center from Harrison Street Capital for $16.5 million or $315 PSF. The portfolio is comprised of two office buildings totaling 103,856 SF. As of Q2 2018 there were a total of 61 investment sales totaling $267 million or $215 PSF.


OFFICE LEASING FUNDAMENTALS 1,200,000

18%

1,000,000

16%

800,000

14%

600,000

12%

400,000 10% 200,000 8%

0

6%

-200,000

4%

-400,000 -600,000

2%

-800,000

0% 2008

2009

2010

2011

2012

Net Absorption

2013

2014

Deliveries

2015

2016

2017

Q2 2018

Vacancy

Figure 1: Showing office fundamentals over time.

Source: CoStar

TOP LEASES MID-YEAR 2018 Properties

SF

Tenant

Transaction Type

Submarket

6720-A Rockledge Drive

146,142

Henry M. Jackson Foundation

Renewal/ Expansion

North Bethesda

700 Quince Orchard Road

119,000

Supernus

New

Gaithersburg

1101 Wootton Parkway

86,000

Assistant Secretary to Health & Human Services

Renewal

North Rockville

20501 Seneca Meadows Pkwy

80,000

AECOM

Renewal

Germantown

2440 Research Boulevard

23,448

H. Beck

New

North Rockville

1803 Research Boulevard

22,866

Hendall Inc.

Expansion

North Rockville

2275 Research Boulevard

22,473

Capital Bank

New

Germantown

4747 Bethesda Avenue

21,000

Orano

New

Bethesda

7200 Wisconsin Avenue

14,526

Industrious Realty

New

Bethesda

4701 Sangamore Road

14,064

Launch Workplaces

New

Bethesda Source: CoStar

3

2 0 1 8 M I D -Y E A R R E P O R T


SUBMARKET ACTIVITY

Germantown

Gaithersburg

• M  ontgomery County Board of Elections decided to remain in place and renew its lease for 67,673 SF at 18753 North Frederick Avenue.

• S  upernus Pharmaceuticals leased 119,000 SF for its headquarters operations at 700 Quince Orchard, making it the largest lease of the quarter. • A  pplied Biomimetic, a Cincinnati company, will lease space in two Gaithersburg buildings. The incubatorformed company leased 7,000 square feet at 942 Clopper Road for its headquarters & 8,000 feet on Perry Parkway for the R&D and manufacturing work. • L  eidos has a buyer in Gaithersburg.

• A  long search for a consolidation has taken Germantown-based Viasat Inc. to Black Hill. Now located in two buildings in Germantown on the east side of I-270, the communications firm has a parcel in the Lerner Enterprises project under contract, where it expects to develop a multi-story building. Rockville

North Bethesda/Potomac • T  he Henry M. Jackson Foundation has decided to renew and expand at 6720 Rockledge Drive, bringing its total occupancy to 147,000 SF. • W  ilmer Eye Institute, an affiliate of Johns Hopkins Community Physicians, has leased 19,000 SF at 6410 Rockledge Drive. • R  ecently 6116 Executive Boulevard completed $10 million in renovations establishing the 217,000 SF building as a Class A building. Bethesda/Chevy Chase

Downtown Rockville

• Dan Ryan Builders moved its corporate headquarters to 2099 Gaither Road in Rockville recently, where it leased 22,000 SF.

The National Institutes of Health (NIH)

• O  rano USA plans to consolidate its headquarters at 4747 Bethesda Avenue from (offices in) Vienna and Washington, DC. The company will join Booz Allen and Host Hotels and occupy 21,000 sf on the 10th floor of the property. • C  lark Enterprises has put its signature building, 3 Bethesda Metro, on the market. Despite the possible sale, Clark is expected to keep its Bethesda presence. • A  OTA has agreed to sell its headquarters at 4720 Montgomery Lane to an unidentified buyer and struck a deal to remain in the building for a twoyear window to find new office space.

4

2 0 1 8 M I D -Y E A R R E P O R T

• T  wo permits have been taken out for 1801 Rockville Pike. The first was for $280,000 fit-out permit on behalf of the American Society for Pharmacology (ASPET) and Experimental Therapeutics. The group is leasing about 6,000 SF in the Rockville building. A second fit-out permit was issued in the same building for ED Club, a tutoring group. • A  ldi’s build-out for a new grocery store at 1501 Rockville Pike went to Doyle construction. The Rockville firm pulled a $715,000 permit that will re-fit the former HHGregg store for the German grocer. North Rockville • M  eso Scale Diagnostics purchased one of the BioMed buildings, 1701 Research Boulevard, which it already occupies, and a vacant parcel at 1711 Research, for $40.55 million. • T  he biotech company, Lonza Walkersville, will expand its presence to Rockville and signed a lease for 25,000 SF at 9900 Medical Center Drive.


• N  orth Rockville investment sales totaled $124 million, over 50% of the investment sales in the county. Some of the most notable trades were 9704 Medical Center Drive, 170 Research Boulevard, and 15005 Shady Grove Road. Silver Spring • F  or $70 million, or about $127 PSF, Foulger-Pratt and partner Cerberus Capital Management purchased the Discovery Communications building located in Silver Spring’s Central Business District (CBD). The new owners plan extensive renovations, including lobby improvements, and more tenant amenities. • D  iscovery will still maintain its presence in Silver Spring. The media company recently signed a 60,000 SF lease at Silver Spring Metro Plaza. • T  he state’s transportation department, better known as MDOT, will auction off 2.67 acres located at 14108 New Hampshire Avenue in Silver Spring that it no longer needs for the ICC.

OUTLOOK Looking to the future, Montgomery County is expected to add proximately 19,042 jobs over the course of the next five years. The two sectors that will experience the most growth is the Professional and Business Services and Healthcare. In the coming years, the Healthcare sector will account for 34% of the County’s total employment base while the Professional and Business Services sector will account for 22%. Montgomery County continues to foster demand and hopes for new product as new proposed and under construction Class A developments come into fruition. Improving market fundamentals, and strong preleasing activity reflect the strong demand for newer product within the County. Rental rates in Bethesda have already reached $65.00 PSF which will help owners justify new projects in the near future.

• B  ridge Investment has added another East County 400-unit apartment complex, the Spring Parc, for $70.25 million. The firm had already bought the 534unit Ashford at Woodlake Apartments in 2016, so the two deals give it nearly 1,000 units locally.

Montgomery County, MD

5

2 0 1 8 M I D -Y E A R R E P O R T


1801 Rockville Pike, Suite 320, Rockville, MD 20852

I

240.640.6700

I

thinkmoco.com

2018 Mid-Year Market Report  
2018 Mid-Year Market Report