MARKET REPORT

RETAIL
Washington, D.C., Metro Area Q2/19
Northern Virginia Development Weighs on Vacancy;
High Demand for Retail Space in Core D.C. Retail 2019 Outlook

Modest development improves rents in District of Columbia and CONSTRUCTION:

vacancy in Maryland. Steadily increasing population density inside the
Construction activity picks up year over
District continues to raise the demand for retail services, which is enabling
year in 2019 but falls below the annual
rents to appreciate faster than in most other parts of the market. Vacancy
is also expected to improve as construction delays push new development 1.3 MILLION SQ. FT.
will be completed
average for this cycle. The development
pipeline expands in Northern Virginia
to one of its lowest levels in more than a decade. Of the space opening in
but contracts in Maryland and D.C.
2019, about half is ground-floor retail within larger mixed-use projects.
Supply growth is also moderating in suburban Maryland. Worman’s Mill
Town Center in Frederick mark’s the region’s largest single delivery at
VACANCY:
68,000 square feet. As retail construction declines in Maryland, tenant
demand will continue to compress vacancy here. However, the unoccupied Vacancy will rise to 4.4 percent this year
after remaining flat at 4.3 percent in
space left is generally older and in less-central locations, skewing the aver-
age asking rent in the downward direction this year in Maryland. 10 BASIS POINT
increase in vacancy
2018. A construction-driven increase in
Virginia is impacting the metro average.
Developers remain Price Perfocused
primarily Squareon
Foot Trends
Northern Virginia. Tyson’s
Corner continues to grow as the retail component
Single-Tenant of Capital One’s new
Multi-Tenant
corporate campus opens later this year. Other nearby construction
30%
projects include The Boro, a live-work-play marketplace, and the third
RENTS:
Year-over-Year Appreciation

phase of the Tyson’s West shopping center. Both benefit from proximity to The average asking rent will tick up to
15%
$26.79 per square foot in 2019. Asking
highway access ramps and mass transit. Other developments in the pipe-
line include the
0% Lidl-anchored Ashbook Marketplace located off Route 7 0.3% INCREASE rates have improved less than 1 percent
between Leesburg and Reston. The new arrivals are raising the vacancy in asking rents over the past three years.
rate in these-15%
two submarkets, but operations in Northern Virginia remain
generally tighter than in D.C. or Maryland.
-30%
* 09 10 11 12 13 14 15 16 17 18 19*
Investment Trends
• Trading velocity increased inside the District for the 12-month period
Local Retail Yield Trends ended in March. Much of this rise was due to more properties chang-
Retail Cap Rate 10-Year Treasury Rate
ing hands in the Capitol Hill submarket. High levels of foot traffic in
12% the historic neighborhood generated revenues that contributed to a
below-market average cap rate of mid-5 percent.
9%
• In Maryland, Frederick was the most frequent target for acquisitions
Average Rate

6%
as several smaller properties with floor plates under 5,000 square feet
were exchanged. Investors seeking low entry costs can obtain assets
3% built over 100 years ago with upside potential at an average sale price of
$110 per square foot, some of the lowest prices for the whole market.
0%
• Old Town Alexandria remains a popular Virginia investment destina-
01 03 05 07 09 11 13 15 17 19*
tion while buyers are also entering into Fredericksburg and the I-66
Corridor with greater frequency. High returns are a motivating factor,
as properties in both submarkets traded at cap rates in the low- to mid-7
percent range, 50-100 basis points above the market average.

* Cap rates trailing 12 months through 1Q19; 10-year Treasury up to March 29

Sources: CoStar Group, Inc.; Real Capital Analytics
 Employment vs. Retail Sales Trends 1Q19 –
Price Per Square 12-Month
Foot Trends Trend
Employment Growth Retail Sales Growth Single-Tenant EMPLOYMENT
Multi-Tenant
12% 30%
0.9% increase in total employment Y-O-Y

Year-over-Year Appreciation
Year-over-Year Change

6% 15% • The pace of hiring slowed slightly year over year in March with
the creation of 29,800 positions. The professional and business
0% 0%
service sector as well as the leisure and hospitality sector added
the most jobs with a combined total of 29,700 slots.
-6% -15%
• Payrolls modestly contracted by 4,300 roles in the trade,
-12%
-30% transportation, and utilities industry. Another 3,500 financial
09 10 11
09 10 11 12 13 14 15 16 17 18 19* activities jobs12vacated
13 14 15 16
the market in17the18past19*12 months.

Retail Completions Local Retail Yield Trends

Completions Absorption Retail Cap Rate CONSTRUCTION
10-Year Treasury Rate
6,000
12%
907,400 square feet completed Y-O-Y
Square Feet (thousands)

4,000
9%• Deliveries slowed down over the past 12 months from the 1.4
Average Rate

million square feet of retail space delivered the prior year. More
2,000 6%
than 400,000 square feet of space came to Northern Virginia,
with slightly fewer openings in suburban Maryland.
0 3%
• Development activity inside the District was highlighted by the
-2,000 0% completion of the retail component of Square 450, which added
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07
80,500 square feet to09the Mount
11 13 15
Vernon 17 19*
neighborhood.

Vacancy Rate Trends

Metro United States VACANCY
12%
10 basis point decrease in vacancy Y-O-Y
9%
• Vacancy mildly contracted year over year in March to 4.3 percent
Vacancy Rate

as availability declined in Northern Virginia and the District but

6%
stayed flat in suburban Maryland.

3% • Operations in Northern Virginia remain tighter than in other

parts of the market, with vacancy rates at or below 3 percent in
0% Alexandria and portions of Fairfax County.
09 10 11 12 13 14 15 16 17 18 19*

Asking Rent Trends

Metro United States RENTS
8%
0.6% decrease in the average asking rent Y-O-Y
Year-over-Year Change

4%
• Asking rents continue to advance in D.C. while taking a step back in
Maryland and Virginia, producing a market average of $26.66 per
0%
square foot in March, a little below where it was a year before.

-4% • Monthly rates improved above the national pace in several sections of
the metro, including Capitol Hill, Georgetown, and the I-95 Corridor.
-8% Negative net absorption across several submarkets contributed to
09 10 11 12 13 14 15 16 17 18 19* lower asking rents, impacting the overall metro average.

*Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics
Demographic Highlights

2019 Job Growth* Five-Year Population Growth** Five-Year Household Growth**

Metro 1.3% 273,100 or 0.9% Annual Growth 149,600 or 1.2% Annual Growth
U.S. Average 1.3% U.S. 0.6% Annual Growth U.S. 1.0% Annual Growth

1Q19 Retail Sales per Month

$3,719 Per Household

U.S. $3,971
1Q19 Median Household Income Retail Sales Forecast**

Metro $103,389 $1,425 Per Person Metro 17.2%

U.S. Median $64,259 U.S. $1,544 U.S. 16.9%
* Forecast ** 2018-2023

SUBMARKET TRENDS SALES TRENDS

High-Yield Potential Draws New Buyers to Market,
Lowest Vacancy Rates 1Q19* Maintaining Competition for Single-Tenant Assets
• Multi-Tenant: Multi-tenant transaction velocity over the past 12
Y-O-Y Average
Vacancy Y-O-Y % months remains about on par with the previous three years as buyers
Submarket Basis Point Asking
Rate Change
Change Rent targeted less-central, higher-yield Virginia submarkets, helping lift
the marketwide average cap rate into the low-7 percent zone.
Greater Fairfax County 2.5% -10 $34.38 -4.3%
• Single-Tenant: Single-tenant trading activity rose over the past four
Southeast Fairfax County 2.5% 70 $29.17 1.2% quarters as more older assets changed hands, limiting the average sale
price increase to 1.5 percent, sustaining a 6.3 percent average cap rate.
Alexandria/I-395 Area 3.0% -10 $36.62 1.5%
Outlook: Initial yields regularly above 6.0 percent are motivating some
local buyers to enter the retail landscape from other sectors, including
Leesburg/Route 7 Corridor 3.0% -70 $29.92 -3.4%
multifamily, where yields can be 150 or more basis points lower.

Calvert County 3.2% 10 $20.27 -14.9%

Georgetown/Uptown Employment
3.4% vs.-100
Retail Sales Trends4.8%
$47.83 Price Per Square Foot Trends
Employment Growth Retail Sales Growth Single-Tenant Multi-Tenant
I-270 Corridor 12% 3.4% -40 $28.56 -1.7%
30%
Year-over-Year Appreciation
Year-over-Year Change

Northeast/Southeast D.C. 3.8% -50 $23.20 -12.1%

6% 15%

Woodbridge/I-95 Corridor 3.8% -10 $18.68 12.2%

0% 0%

Southeast Montgomery County 4.4% 70 $30.74 3.4% -15%

-6%

Overall Metro 4.3% -10 $26.66 -0.6% -30%

-12%
09 2.510 11 square
12 feet13of inventory
14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
* Includes submarkets with more than million

* Trailing 12 months through 1Q19 over previous time period

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Retail Completions Local Retail Yield Trends
Completions Absorption Retail Cap Rate 10-Year Treasury Rate
6,000

1Q19* Retail Acquisitions
By Buyer Type
Cross-Border, 34.9%
Other, 2.2%
Private, 47.2%
Listed/REITs, 3.7%
Salt Lake City Office:
Phil Brierley Regional Manager
111 South Main Street, Suite 500
Retail Mortgage Originations
Salt Lake City, UT 84111 By Lender
(801) 736-2600 | phil.brierley@marcusmillichap.com
100%
Percent of Dollar Volume
CAPITAL
CAPITAL MARKETS
MARKETS
By DAVID G. SHILLINGTON, President,
Marcus & Millichap Capital Corporation
• International pressures weigh on domestic outlook; Fed remains
patient. Amid ongoing trade disputes between the U.S. and China
and slowing growth throughout the European economy, the global
economic outlook has become more cautious. Market volatility,
Equity Fund combined with muted sentiment, has sponsored a flight to the safety
& Institutions, 11.9%
of Treasurys, pushing the 10-year yield below 2.6 percent. While
domestic growth has moderated recently, the waning impact of the
tax Office:
Tampa cut stimulus will likely trim forward estimates further. As a result,
the Fed decided to cease reducing its balance sheet reduction through
Bryn Merrey Senior Vice President/Division Manager
201quantitative tightening
North Franklin St., Suite 1100 by September and removed the potential for
Tampa, FL 33602
rate increases through the remainder of the year. The bond market
(813) 387-4700 | bryn.merrey@marcusmillichap.com
has begun to price in a much more dovish Fed, with flattening interest
rates reflecting more caution. Fed officials will likely focus on the

75% CMBS intersection of a global growth slowdown and continued labor market
San Antonio Office: strength to refine their plans moving forward, keeping interest rates
Reg'l/Local Bank
Craig R. Swanson
50% Vice President/Regional Manager Nat'l Bank/Int'l Bank stable for the foreseeable future.
Toronto Office:
8200 IH 10 W, Suite 603 Financial/Insurance
San Antonio, TX 78230
Pvt/Other
• Malls, legacy big-box players cloud otherwise optimistic retail
Mark A. Paterson Broker of Record | Vice President/Regional Manager
25%| craig.swanson@marcusmillichap.com
(210) 343-7800 200landscape;
King Street W., underwriting
Suite 1210 remains conservative. Uncertainty
Toronto, ON M5H 3T4
surrounding legacy retailers and the ongoing shift of consumer
(416) 585-4646 | mark.paterson@marcusmillichap.com
0%
purchasing preferences to online sources have begun to weigh on
14 15 16 17 18
retail sentiment, with lenders proving more cautious and conservative
San Diego Office:
* Trailing 12 months through 1Q19 than in prior years of the cycle. Active lenders include local, regional
Spencer Moyer
Include sales $2.5 million and greater
Regional Manager and national banks, and insurance companies, with a primary lender
4660 La Jolla
Sources: Village
CoStar Drive,
Group, Inc.;Suite
Real 900
Capital Analytics
San Diego, CA 92122
focus on net-leased assets and premier mixed-use structures being
(858) 373-3100 | spencer.moyer@marcusmillichap.com Vancouver
highlyOffice:
desirable. Meanwhile, outlying malls and non-credit tenants
will undergo
Rene H. Palsenbarg muchBroker
more scrutiny.
of Record ThisManager
| Regional has created a two-tier market
National Retail Group 400structure, with
Burrard Street, Suiteloan-to-value
1020 (LTV) ratios in the 55 to 75 percent
Vancouver, BC V6C 3A6
Scott M. Holmes range
(604) depending
675-5200 on borrower, asset and location factors. Mezzanine
| rene.palsenbarg@marcusmillichap.com
Senior Vice President, National Director | National Retail Group
and bridge loan structures have been more frequently used in this
Tel: (602) 687-6689 | scott.holmes@marcusmillichap.com
environment, with owners undertaking capital improvements at high-
San Francisco Office:
Prepared and edited by er leverage ratios on the short-term debt before seeking long-term
Ramon
Cody Kochavi First Vice President/Regional Manager
Young financing options once their operations have been proved.
750 Battery
Research Street, Fifth
Associate Floor Services
| Research
San Francisco, CA 94111
(415) 963-3000 | ramon.kochavi@marcusmillichap.com Washington, D.C., Office:
For information on national retail trends, contact:
John Chang Matthew Drane Regional Manager
7200 Wisconsin Avenue, Suite 1101
Senior Vice President, National Director | Research Services
Bethesda, MD 20814
Tel: (602) 707-9700 | john.chang@marcusmillichap.com (202) 536-3700 | matthew.drane@marcusmillichap.com
San Jose Office:

Price: $250
Steven J. Seligman First Vice President/Regional Manager
2626 Hanover Street
Palo
© Alto, CA
Marcus 94304 2019 | www.MarcusMillichap.com
& Millichap
(650) 391-1700 | steven.seligman@marcusmillichap.com

West Palm Beach Office:

Ryan Nee First Vice President/Regional Manager

5900 North Andrews Ave., Suite 100
Riverside-San Bernardino Office: Fort Lauderdale, FL 33309
(954) 245-3400 | ryan.nee@marcusmillichap.com
Matthew Luchs Regional Manager
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee,
3281 East Guasti Road, Suite 800
express
Ontario,or
CAimplied,
91761 may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data
includes transactions
(909) 456-3400 valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide
| matthew.luchs@marcusmillichap.com
specific investment advice and should not be considered as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge Pipeline; U.S. Census Bureau

Oakland Office:

David C. Nelson Regional Manager