Trends in Housing 2nd Quarter

TRENDS IN HOUSING

MID-YEAR 2010

TRENDS IN HOUSING AT MID-YEAR 2010

Welcome to Trends in Housing, a joint publication of MRIS and Delta Associates. This report provides a regular in-
depth look at the statistics and issues that shape the Mid-Atlantic housing market. Following are highlights of market
activity at mid-year 2010.

The Washington area housing market is in the recovery cycle, ahead of the rest of the nation:

• Prices continue to show signs of recovery: 2nd quarter prices in the metro are up from the 1st quarter
and from the same quarter in 2009, with the Outer jurisdictions (Loudoun, Prince William and Frederick
Counties) outperforming the Core and Inner jurisdictions. Prices will likely gain traction through the
remainder of 2010 facilitating further increases in transaction volume. This is the third consecutive quarter prices
have risen on a trailing 12-month basis.
• Days on market continue to decline compared to both last quarter and a year ago. Properties in
the Outer jurisdictions have experienced the sharpest recovery, but across the region, time on market
is very close to or below the region’s long-term average. Time on market is the lowest since 2006.
• The ratio of inventory to sales continues to decline in most jurisdictions from one year ago. The metro-wide ratio
of 4.5 months’ worth of listings is below the normal, healthy standard of 6 months, signaling that demand is
beginning to outpace supply.
• The gap between buyer and seller demands is closing, with the average sales price in the 2nd quarter of
2010 at 95.2% of list price, the highest ratio in more than two years.

We hope you find this publication valuable and we welcome your feedback.

David Charron
President and CEO
MRIS

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INSIDE THIS ISSUE

1. The Washington Metro Area For-Sale Housing Market 3
2. The Baltimore Metro Area For-Sale Housing Market 8
3. Policy Spotlight: Federal Tax Credit Completion Deadline Extended 9
4. Ask Delta 10
5. Summary Data on the Mid-Atlantic Housing Market 11
6. Local Spotlight: City of Baltimore 15
7. Regional Spotlight: Loudoun County 16
8. The Washington Regional Economy and Outlook 17
9. The Baltimore Regional Economy and Outlook 19
10. The Condominium Market 20
11. The Apartment Market 21
12. The Commercial Real Estate Market 23

Methodology 26
About MRIS and Delta Associates 27

TREND S IN HOUSING MID -YEAR 2010

SECTION ONE

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET

The Washington area housing market in the 2nd MARKET INDICATORS
quarter of 2010 continues to show signs of recov- WASHINGTON METRO AREA
ery, as prices increased from the 1st quarter and from Figure 1 AT MID-YEAR 2010

SECTION ONE
the previous year, and homes sold more quickly. Vol-
ume continued to pick up due to record low interest
rates and improving local employment conditions.

Unit sales volume is up from one year ago. Sales volume
in the 2nd quarter increased 60.6% compared to the 1st

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quarter volume, and is up 15.9% since mid-year 2009

T H E WA S H I N GTO N M E T R O A R E A F O R- S A L E H O U S I N G M A R K E T
despite the expiration in April of the Federal tax credit
program. The Washington region continues to add high-
paying jobs, which is fostering housing demand, even
as it loses lower-paying jobs. As the national economy
gains traction, Washington will see burgeoning strength
in the region’s housing market. As of mid-year 2010, * Sales pace as of June 2010.
Pace is ratio of total for-sale inventory to current month’s sales.
all four major housing market indicators have improved Source: MRIS, Delta Associates; July 2010.
compared to one year earlier. (See Figures 1 and 2)

The average price of a Washington-area home is MARKET CONDITIONS
WASHINGTON METRO AREA
$398,445 in the 2nd quarter of 2010. The metro-wide
Figure 2 AT MID-YEAR 2010
price of homes sold in the 2nd quarter of 2010 was
4.2% higher than in the 2nd quarter of 2009. This
marks the third straight quarter that metro-wide prices
have risen on a trailing 12-month basis.

Prices remain highest in the Core jurisdictions of the
District, Arlington and Alexandria. The average sales
price of a Core home in the 2nd quarter of 2010 is
$509,156, up 2.4% compared to one year ago. In the
District, the average price in June 2010 was up 1.2%
from one year earlier. In Alexandria, the average sales
price in June 2010 was up 7.9% compared to June
2009; Arlington posted price increases of 13.5% for 3
the same 12-month period. (See Figure 3)
Source: Delta Associates; July 2010.
The area’s Inner ring of Fairfax, Montgomery and
Prince George’s counties (and Falls Church and Fair- HOME PRICES BY SUB-AREA*
fax cities) experienced price declines of 1.1% from WASHINGTON METRO AREA
the 2nd quarter 2009; the average price in the 2nd Figure 3 AT MID-YEAR 2010
quarter of 2010 was $392,958. Fairfax County home
prices rose 9.6% from June 2009 to June 2010. In
Montgomery County, prices fell 0.3% over the same
period; Prince George’s home prices fell 16.0%.

*Core: DC, Arlington, Alexandria.
Inner: Fairfax, Montgomery, Prince George’s; Fairfax City and Falls Church.
Outer: Loudoun, Prince William, Frederick.

Source: MRIS, Delta Associates; July 2010.



The Outer suburbs of Loudoun, Prince William and HOME SALES AVERAGE PRICE CHANGE
Frederick counties – where foreclosures led to the re- WASHINGTON METRO BY SUB-AREA*
gion’s steepest price declines in 2006 through 2008 Figure 4 2003 - MID-YEAR 2010

SECTION ONE
– had the strongest yearly price gain of the sub-areas.
The average sales price of an Outer home in the 2nd
quarter is $320,514, up 14.2% from one year ago.
In Prince William County, the average sales price in
June 2010 increased 24.9% from one year earlier. In
Loudoun, home prices rose 10.6% from June 2009 to

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June 2010; Frederick posted declines of 0.3% year-

over-year. (See Figure 4)

In general, 12-month price growth in Virginia jurisdic-
tions is recovering earlier than in Maryland jurisdic-
tions, likely due to two factors. Job growth in North-
ern Virginia has recovered stronger and faster than in *Core: DC, Arlington, Alexandria.
Suburban Maryland, thereby increasing demand for Outer: Loudoun, Prince William, Frederick.

housing. Also, Northern Virginia’s housing market Source: MRIS, Delta Associates; July 2010.

eroded earlier than Suburban Maryland’s and is expe-
riencing a “first-in, first-out” effect. AVERAGE SALES PRICE FOR EXISTING HOUSES
WASHINGTON METRO BY SUB-AREA*
In the 2nd quarter of 2010 the number of homes Figure 5 2002 - MID-YEAR 2010
sold metro-wide is up 15.9% from 2nd quarter 2009,
indicating a return of buyers to the market.

Home prices at the metro level in the 2nd quarter of
2010 were higher than one year earlier, with Outer
jurisdictions showing the most improvement and Core
price change turning positive this quarter. The Inner
suburbs continue to experience a drop in prices af-
ter a bounce in the 2nd quarter of last year; prices
in the Outer suburbs approximate those seen in the
3rd quarter of 2008. We think that in the Washington
metro, the bottom has likely passed. (See Figure 5) *Core: DC, Arlington, Alexandria.
4

As buyer activity has increased, properties are selling Source: MRIS, Delta Associates; July 2010.

more quickly. For the Washington region, homes sold
in an average of 56 days, down from 71 days in the 1st AVERAGE DAYS ON MARKET - EXISTING HOUSES
quarter and 93 days one year ago. At 56 days on mar- WASHINGTON METRO AREA BY SUB-AREA*
ket, this is the lowest time on market since 2006. Figure 6 2002 - MID-YEAR 2010

Homes are taking the longest to sell in the Inner sub-
urbs (Fairfax, Montgomery, and Prince George’s); time
on market fell to 58 days, down from 97 days one year
ago. Properties in the Inner suburbs are selling at a
rate far below the region’s long-term average of 76
days. Time on market in the Outer suburbs now aver-
ages 48 days, down 40 days from one year ago. In the
Core time on market declined to 57 days, down from
80 days one year ago. (See Figure 6)

*Core: DC, Arlington, Alexandria



According to Freddie Mac, the average 30-year fixed- 2009 to May 2010. The affordability index incorpo-
rate mortgage in June 2010 was 4.74%, a decline rates median home prices, median incomes and av-
of 68 basis points from the average of 5.42% in June erage mortgage rates to broadly gauge the national

SECTION ONE
2009. Rates settled at a new record low of 4.58% home-buying climate.
in the first week of July after a record-breaking last
week of June; the previous low occurred during the Lower prices continue to propel sales volume, and the
first week of December 2009. The rate for a 15-year region is working through its inventory overhang. The
fixed-rate mortgage was 4.13% at the end of June. Washington area has an average of 4.5 months of for-
sale inventory at June 2010, down from 5.1 months’

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Recent market statistics indicate that buyer and seller worth one year ago. In recent years, Washington area

pricing expectations are moving toward each other, average prices tend to rise when the ratio of inventory
helping to bring the market into balance. The aver- to sales is below 6 months’ worth. Lender constraints
age selling price in the 2nd quarter of 2010 is 95.2% may hinder a quick rise in prices, but the gap between
of list price, the highest ratio since the 2nd quarter supply and demand is closing in the Washington area.
of 2007. (See Figures 7 and 8)

In May, the national pending-home sales index, a In most jurisdictions the ratio of inventory to sales fell
forward-looking indicator of contracts signed (but not in the 2nd quarter of 2010 compared to one year ago.
settled) for previously owned homes, fell 30.0% from Fauquier County has the highest ratio in the region at
the April reading as the surge driven by the extension 8.7 months’ worth of inventory at June 2010. Juris-
and expansion of the Federal homebuyer tax credit dictions with ratios higher than last year at this time
waned. The May 2010 index, which is published by include Fairfax County, Loudoun County and Fauquier
the National Association of REALTORS®, was 15.9% County. The City of Falls Church has just 2.4 months’
lower than the May 2009 reading. Pending home worth of inventory at June 2010, the lowest in the re-
sales signal optimism in the market; however, some gion.
contracts are taking longer than normal to settle as
appraisers and lenders are grappling with a re-cal-
ibrating market. The National Association of REAL-
TORS® affordability index fell 12.2 points from May

5

MONTHS OF FOR-SALE INVENTORY PRICE CHANGE AND INVENTORY
WASHINGTON METRO AREA WASHINGTON METRO AREA
Figure 7 JUNE 2009 vs. JUNE 2010 Figure 8 2003 - MID-YEAR 2010

*Months of inventory at current sales pace for last month in each quarter. *Pace is ratio of total for-sale inventory to current month’s sales.
Source: MRIS, Delta Associates; July 2010. Source: MRIS, Delta Associates; July 2010.



NAVIGATING THE MARKET index is based on three components. Each of them –
measuring current sales conditions, traffic, and sales
The Washington area housing market appears to expectations for the next six months – fell from May.

SECTION ONE
be in recovery, after 21 months of correction. Key to
continued recovery will be job growth, continued re- Home refinancings continued to surge in the 1st
duced levels of home building, and the condition of quarter with record low interest rates, although tough
the home finance industry, including relatively low in- credit standards are still stifling volume. According
terest rates. to Freddie Mac’s Quarterly Refinance Review, hom-
eowners cashed out $9 billion in home equity in the

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Building activity in the region remains light, as it 1st quarter of 2010, the smallest quarterly amount in

should. The market is not yet expanding and lending ten years. The aggregate amount of $70 billion that
activity is still constrained. According to the Commerce was cashed out during 2009 is the lowest annual to-
Department, the annualized number of permits for tal since 2000. The likely cause of the decline is that
new housing nationally in May 2010 (the most recent homeowners have a smaller equity cushion. Nearly
data available) was 574,000, down 5.9% from the three quarters of those refinancing in the 1st quarter
April number, but up from the record low of 498,000 of 2010 kept their loan balance largely unchanged
set in April 2009. The number of permits issued in or lowered their principal balance. Conversely, the
May 2010 was up 4.4% from May 2009. share of refinancing resulting in higher loan amounts
(See Figures 9 and 10) represented 28% in the 1st quarter; the “cash-out”
shares over the 4th and 1st quarters were the low-
The number of housing starts declined 10.0% from est since Freddie Mac began tracking data in 1985.
April 2010 to May 2010 following the expiration of The main causes of this record low are believed to
the homebuyer tax credit, but increased by 7.8% from be tougher underwriting standards and lower home
May 2009 to May 2010. prices.

Concerns about the economy and job security con- The Mortgage Bankers Association reported a small
tinue to affect builder confidence. The National As- increase of 2.1% in seasonally adjusted refinancing
sociation of Home Builders/Wells Fargo Housing Mar- applications from May to June. We expect refinanc-
ket Index of builder confidence was 17 in June 2010, ings to slow as long-term interest rates rise in
down five points from May following the homebuyer 2011 in the aftermath of heavy deficit spending
tax credit-related surge experienced in the previous by the Federal government.
three months. An index below 50 indicates that more
builders view sales conditions as poor than good. The
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CONSTRUCTION STARTS AND BUILDING PERMITS* CONSTRUCTION BUILDING PERMITS BY STATE
UNITED STATES SELECTED MID-ATLANTIC JURISDICTIONS
Figure 9 2000 THROUGH MAY 2010 Figure 10 2000 THROUGH MAY 2010

*For privately owned housing units, seasonally adjusted and annualized. *For privately owned housing units, through May 2010, annualized.

Source: Census Bureau, Delta Associates; July 2010. Source: Census Bureau, Delta Associates; July 2010.



INCOME GROWTH EXCEEDS 3.1% during this time period. In contrast, the National
CONSUMER SPENDING Association of REALTORS® reported a national aver-
age price decline of 0.7%, and a Washington area in-

SECTION ONE
U.S. personal income increased by $53.7 billion, or crease of 4.7% in the twelve months ending 1st quar-
0.4%, in May and consumer spending increased in ter 2010. (FHFA and NAR use different methodologies
May by just $24.4 billion, or 0.2%, according to the to calculate price changes.) (See Figure 11)
Commerce Department. Spending rose 0.2% from
April, after showing no increase from the previous From April 2009 to April 2010, Washington home
month and 0.6% from February to March. The Com- prices increased 7.3%, according to the Case-Shiller

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merce report also showed that personal income in- index, placing 5th among major metro areas for 12-

creased by 0.5% from April after increasing 0.4% the month performance. Of note, Washington home pric-
previous month. As the recovery continues consumers es increased the most compared to 20 other metros
are spending more; however, gains continue to be over the period from March 2010 to April 2010, at
measured. Retail sales continue to be a barometer of 2.4%.
consumer sentiment; slow improvement will not help
bring about a robust recovery. WASHINGTON HOUSING OUTLOOK

We expect this same pattern to hold true for hous- The Washington area housing market has entered
ing – a slow but steady increase in home sales as the the recovery phase of the cycle. We expect that a
recovery progresses. combination of a recovering national economy
and a recovering local labor market will continue
WASHINGTON OUTPERFORMS THE NATION to bring gains to the Washington housing market.
The pace of the recovery may be uneven, how-
By most measures, the Washington metro area hous- ever. In the remainder of 2010, we expect that re-
ing market is performing better than most other met- newed demand will continue to yield yearly price
ro areas. In the Washington metro area, the Federal gains, with gains first apparent in the Outer sub-
Housing Finance Agency (FHFA, formerly OFHEO) re- urbs and Core, but extending to the Inner suburbs
ported an 11.7% annual increase in home prices for by late 2010/early 2011.
the twelve months ending in March 2010, compared
to an increase of 10.6% during 2009. This increase
was the best by far of the large metro areas. FHFA
reported a national average home price decline of

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ANNUAL ESCALATION OF
Figure 11 EXISTING HOME SALE PRICES

*12 months ending March 2010.

Source: National Association of Realtors, Delta Associtaes, July 2010.


SECTION TWO

THE BALTIMORE METRO AREA FOR-SALE HOUSING MARKET

The Baltimore metro market showed positive results The Southern suburbs showed an increase of 1.5%
this quarter after several quarters of mixed perfor- compared to the 2nd quarter of 2009. The average
mance. Yearly statistics show a modest increase in sales price in the Southern suburbs in the 2nd quarter
prices since the 2nd quarter of 2009, and improve- is $372,205.

SECTION TWO
ment in both volume and days on market. It is too
soon to declare the Baltimore metro area housing As a whole, Baltimore metro prices rose 0.9% from
market in recovery, but the remainder of 2010 may one year earlier. The ratio of inventory to sales ticked
herald recovery. down by 0.2 months to 7.7 months during the 2nd
quarter. Unit sales volume in 2nd quarter 2010 to-
Baltimore City: prices rose 3.2% in the 2nd quarter of taled 7,211 units, an increase of 21.5% over the same

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2010 from a year ago. The city’s low average sales quarter in 2009. (See Figure 12)

T H E B A LT I M O R E M E T R O A R E A F O R - S A L E H O U S I N G M A R K E T
price of $165,959 tends to contribute to volatility in
percentage changes. For more detail on the Baltimore housing market,
please see the graphs in Section 5.
The Northern suburbs: prices were down slightly, by
0.5% from one year ago. The average sales price in
the Northern suburbs for the 2nd quarter of 2010 is
$274,825.

8

MARKET INDICATORS
BALTIMORE METRO AREA
Figure 12 AT MID-YEAR 2010

*Sales pace as of June 2010.
Pace is ratio of total for-sale inventory to current month’s sales.


SECTION THREE
POLICY SPOTLIGHT: FEDERAL TAX CREDIT
COMPLETION DEADLINE EXTENDED

Congress passed legislation in early November 2009 Nationally, the Federal homebuyer tax credit is be-
that extended and expanded the $8,000 Federal home- lieved to have magnified price increases during the
buyer tax credit introduced in the Housing and Econom- first half of the year and spurred an artificial increase
ic Recovery Act of 2008. The $24 billion bill expanded in demand. Following the purchase deadline in April
unemployment benefits, provided tax benefits to busi- 2010, transaction volume has slowed precipitously

S E C T I O N T H R E E | F E D E R A L TA X C R E D I T C O M P L E T I O N D E A D L I N E E X T E N D E D
nesses with operating losses, and expanded the housing and new construction activity is also down, signaling
program to more buyers while extending the original a drop in demand.
purchase deadline to April 2010. The deadline for buy-
ers to complete purchase was set for June 30th, 2010. For additional detail on the Washington metro ar-
ea’s performance compared to the U.S. average see
The extension and expansion of the Federal home buyer Section 4.
tax credit has had a noticeable impact on the housing
market since its inception. Locally, we estimate that
1,900 transactions may not have occurred in 2009 if not
for the Federal tax credit. The rush to beat the deadline
to finalize a qualifying transaction has swamped many
service providers and caused delays. Because of this,
the Federal government has extended the deadline to
close a qualifying purchase to September 30th.

It was estimated by the National Association of REAL-
TORS® that as many as 180,000 homebuyers could have
lost their tax credit on a qualifying purchase because
busy lenders and loan servicers were unable to process
the transaction quickly enough to meet the original June
30th deadline. Transactions at risk of not meeting the
original closing deadline may have included as many as
75,000 short sales.

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SECTION FOUR

ASK DELTA

Q
How is the Washington metro real estate Prices at the national level started to decline in 2007
market performing compared to the U.S. due to the credit crunch and fell further at the onset of
average? the national recession, as the credit markets froze and
job losses increased foreclosures. Housing became
The evolving structure of the Washington more affordable in 2008 and affordability flattened in

A area economy and the inherent stability of its 2009. However, as demand for housing keeps pace,
core industries have provided the foundation we expect this ratio to start to rise again.
for continued growth even when the nation- (See Figure 14)
al economy falls into recession. In this decade, the
Washington area economy outperformed the nation, The combined effect of an increase in affordability,
despite two economic downturns during 2001-2003 record-low interest rates and increased employment
and 2008-2009. During the 2000 to 2009 decade, activity in the Washington metro area has led to a
the Washington area ranked first among all metro ar- recovery ahead of the national market.
eas in total job creation. It is Washington’s recent
strong economic performance that is buoying the lo- We expect that a recovering national economy
cal housing market as the National market continues and a recovering local labor market will con-
to lag. tinue to bring gains to the Washington housing
market.
The U.S. median home price was 2.8 times the median
household income during 2009, matching Washing-
ton’s ratio. Nationally, home price growth outpaced

SECTION FOUR
income growth from 2000 to 2006. Washington met-
ro home prices increased an average of 9.5% per year
from 2000 to 2006 – more than any other major met-
ro area – and outpacing the average annual income
growth of 2.5% during the same period.

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House prices increased 11.7% in the Washington met-

A S K D E LTA
ro area during the 12 months ending March 2010,
according to the Federal Housing Finance Agency
(FHFA). This compares to the national decline of 3.1%
during the same period. (See Figure 13)
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RATIO OF MEDIAN HOME PRICE
PERCENT CHANGE IN HOUSE PRICES TO MEDIAN HOUSEHOLD INCOME
WASHINGTON METRO VS. UNITED STATES WASHINGTON METRO AREA
Figure 13 2000 THROUGH MARCH 2010 Figure 14 1992 THROUGH 1ST QUARTER 2010

Note: Seasonally adjusted purchase-only index
Source: FHFA, Delta Associates; July 2010. Source: NAHB/Wells Fargo Opportunity Index, Delta Associates; July 2010.


SECTION FIVE

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

CHANGE IN EXISTING HOME VALUES AVERAGE DAYS ON MARKET - EXISTING HOUSES
SELECT METRO AREAS WASHINGTON METRO AREA
Figure 15 Figure 16 1996 THROUGH MID-YEAR 2010

SECTION FIVE
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S U M M A R Y D ATA O N T H E M I D - AT L A N T I C H O U S I N G M A R K E T
Source: FHFA, GMU Center for Regional Analysis, Delta Associates; July 2010. Source: MRIS, GMU Center for Regional Analysis, Delta Associates; July 2010.

Summary: Summary:
The Washington area saw an 11.7% change in existing The average time on the market in 2nd quarter 2010
home values for the 12 months ending March 2010 (per was 56 days, down from 93 days one year earlier.
FHFA data), ahead of the national average of -3.1%.

SALES VOLUME SALES PRICE CHANGE - TRAILING 12 MONTHS
WASHINGTON METRO AREA, ALL HOUSING TYPES WASHINGTON METRO AREA
Figure 17 1999 THROUGH MID-YEAR 2010 Figure 18 JUNE 2009 THROUGH JUNE 2010

11

Source: MRIS, Delta Associates; July 2010. Source: MRIS, GMU, Delta Associates; July 2010.

Summary: Summary:
Sales volume in the 2nd quarter was 18,021 homes: Prices continue to post gains in the first six months of the
15.9% higher than the same quarter in 2009. year after a strong December. On a 12-month trailing
basis, prices in June 2010 were 3.9% higher than in June
2009. Pricing varies significantly by substate area.



DISTRICT OF COLUMBIA NORTHERN VIRGINIA
HOUSING MARKET INDICATORS HOUSING MARKET INDICATORS
Figure 19 2003 THROUGH MID-YEAR 2010 Figure 20 2003 THROUGH MID-YEAR 2010

SECTION FIVE
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Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William
Counties; Alexandria, Fairfax, and Falls Church Cities.


Summary: Prices fell 1.1% from one year earlier. Average Summary: The average price in the 2nd quarter of 2010
time on market in the 2nd quarter is 63 days, down from is 13.0% higher than one year earlier. Time on market
90 days one year ago. Unit sales volume in the 2nd quar- averaged 43 days in the 2nd quarter – the lowest of any
ter is 34.7% higher than the same quarter of last year. substate area and below the regional average. Unit sales
volume for 2nd quarter 2010 is 2.4% higher than last
year at this time.

SUBURBAN MARYLAND BALTIMORE AREA
HOUSING MARKET INDICATORS HOUSING MARKET INDICATORS
Figure 21 2003 THROUGH MID-YEAR 2010 Figure 22 2003 THROUGH MID-YEAR 2010

12

Includes: Anne Arundel, Carroll, Harford, Howard,
Includes: Frederick, Prince George’s, and Montgomery Counties. and Baltimore Counties; Baltimore City.


Summary: Prices fell 8.1% in the 2nd quarter of 2010 Summary: The average sales price in the 2nd quarter
from the same period in 2009. Average days on market of 2010 rose 0.9% from the same period in 2009. Time
fell to 73 from 119 one year ago. Unit sales for the 2nd on market averaged 106 days in the 2nd quarter, down
quarter of 2010 are 36.1% higher than the same period from 126 days one year earlier. Unit sales for 2nd quarter
in 2009. of 2010 are 21.5% higher than the 2nd quarter of 2009.



DISTRICT OF COLUMBIA NORTHERN VIRGINIA
SINGLE-FAMILY SALES SINGLE-FAMILY SALES
Figure 23 MID-YEAR 2009 vs. MID-YEAR 2010 Figure 24 MID-YEAR 2009 vs. MID-YEAR 2010

SECTION FIVE
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Thousands of Dollars
Thousands of Dollars
Includes: Arlington, Fairfax, Fauquier, Loudoun,
and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

SUBURBAN MARYLAND BALTIMORE AREA
SINGLE-FAMILY SALES SINGLE-FAMILY SALES
Figure 25 MID-YEAR 2009 vs. MID-YEAR 2010 Figure 26 MID-YEAR 2009 vs. MID-YEAR 2010

13

Thousands of Dollars Thousands of Dollars

Includes: Frederick, Prince George’s, and Montgomery Counties. Includes: Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.




MEDIAN SOLD PRICE MEDIAN SOLD PRICE
SELECTED WASHINGTON METRO AREA JURISDICTIONS SELECTED BALTIMORE METRO AREA JURISDICTIONS
Figure 27 JUNE 2009 vs. JUNE 2010 Figure 28 JUNE 2009 vs. JUNE 2010

SECTION FIVE
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SALES BY DAYS ON MARKET
Figure 29 MID-YEAR 2010

14



SECTION SIX

LOCAL SPOTLIGHT: CITY OF BALTIMORE

The City of Baltimore is the largest city in Maryland Homes in this area have sold less quickly than in the
with a population of nearly 640,000 residents. The Baltimore region as a whole. The average time on
City was founded in 1729 and is a major U.S. sea- market in the 2nd quarter of 2010 was 114 days in
port. Baltimore was hit hard by the decline in manu- the City of Baltimore, higher than the regional aver-
facturing in the 1970s and has since reinvented itself age of 106 days, but still below the City’s recent high
as a service-based economy. Baltimore is located in of 130 days in the 1st quarter of 2009.
north-central Maryland along the Patapsco River, an
arm of the Chesapeake Bay, and is situated closer to As of mid-July 2010, there are 1,187 actively market-
major Midwestern markets than any other major sea- ing properties for sale, of which 243 are in foreclosure
port on the East Coast. Transportation options are or are being marketed as a short sale. There are an
plentiful with several interstate highways nearby in- additional 83 homes under contract, of which 72 are

SECTION SIX
cluding I-70, I-83, I-95, I-895, and I-97. Rail options in foreclosure or are being marketed as a short sale.
include Amtrak, MARC commuter rail and light rail.
Baltimore-Washington International Thurgood Mar-
shall Airport (BWI) is located just south of the City.

It is common to divide the City into East or West Bal-

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timore at Charles Street and into North and South at

L O C A L S P O T L I G H T: C I T Y O F B A LT I M O R E
Baltimore Street. Major neighborhoods include the
main commercial area Downtown, Mount Vernon, Lo-
cust Point, Federal Hill and the Inner Harbor.

The average sales price of a home in the City of Bal-
timore was $165,959 in the 2nd quarter of 2010 and
has increased 3.2% from the 2nd quarter of 2009.
The 2nd quarter 2010 average sales price is down
17.5% from a peak in the 2nd quarter of 2008.
(See Figure 30)

15

AVERAGE SALES PRICE
CITY OF BALTIMORE
Figure 30 2006 - MID-YEAR 2010



SECTION SEVEN

REGIONAL SPOTLIGHT: LOUDOUN COUNTY

Loudoun County is located in Northern Virginia, as The average time on market in the 2nd quarter of
part of the Washington, DC metro area. Loudoun cov- 2010 was 44 days in Loudoun County, a decrease
ers more than 500 square miles and has one of the from last quarter’s average of 63 days and below a
highest median incomes in the United States. Loud- high of 134 days in the 1st quarter of 2007.
oun County has an estimated population of 290,000 (See Figure 32)
residents. The eastern portion of the county benefits
from a high concentration of Internet and high-tech As of June 2010, Loudoun County has a 4.7-month
company headquarters as well as proximity to Wash- ratio of inventory to sales, up from 4.3 months at June
ington Dulles International Airport. The western por- 2009. That ratio is slightly above the regional average

SECTION SEVEN
tion of Loudoun County is more rural with the econo- of 4.5 months.
my driven by the equine industry and farming.
Loudoun County was hit hard and early by the housing
A majority of the Washington Dulles International downturn in the metro area. However, the County’s
Airport’s operations are within Loudoun County, al- fundamentals continue to show signs of improvement
though the airport straddles the border with Fairfax as the metro-wide recovery continues.

|
County. Access to the regional road network is con-

R E G I O N A L S P O T L I G H T: L O U D O U N C O U N T Y
venient with the U.S. Routes 50 and 15, State Routes
28 and 7, and several other large arteries within the
county’s borders.

The average home sales price in Loudoun County is
$407,580 in the 2nd quarter of 2010, representing
a 10.3% increase from the 2nd quarter of 2009. The
2nd quarter 2010 average sales price is still down
substantially from a peak in the 3rd quarter of 2005,
but has recovered from a low point in the 1st quarter
of 2009, rising 21.8% since that time. (See Figure 31)

16

AVERAGE SALES PRICE BY QUARTER AVERAGE DAYS ON MARKET
EXISTING HOUSES - LOUDOUN COUNTY EXISTING HOUSES - LOUDOUN COUNTY
Figure 31 2006 - MID-YEAR 2010 Figure 32 2006 - MID-YEAR 2010



SECTION EIGHT

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

The Washington metro area economy is recovering
faster than those of other large metro areas. The Trade/Transportation sector added 8,600 jobs
Washington maintains one of the strongest economic over the past year.
bases in the nation, due to hosting the Federal

SECTION EIGHT
government, as conditions are slowly improving. And The Professional and Business Services sector
this employment recovery has led to an early recovery created 4,100 positions during the last 12 months.
in the region’s housing, apartment and condominium
markets. The Education and Health sector gained 2,500
jobs in the previous 12 months, with most of these
The Washington metro area added 13,200 payroll positions in the health field.
employment positions over the 12 months ending

|
May 2010 while most other large metro areas

T H E WA S H I N GTO N R E G I O N A L E C O N O M Y A N D O U T LO O K
The Other Services sector added 2,400 positions
continued to shed workers. The region also has a low over the past year.
unemployment rate and one of the strongest economic
bases in the country, buoyed by Federal stimulus. Unemployment Rate
(See Figure 33)
The Washington area unemployment rate is 6.0% at
Job Change May 2010, unchanged from last year at this time.

With 3.0 million payroll jobs, the Washington metro The Washington metro area has the lowest
area ranks the fourth largest job base among metro unemployment rate among comparable metros and
areas, behind New York, the LA Basin and Chicago. compares favorably to the national rate of 9.7% in
May 2010. The national rate fell to 9.5% in June
Five of the twelve sectors grew jobs over the past 12 2010. (See Figure 34)
months. The region continues to grow high-wage
jobs even as it sheds low-wage jobs. However, it is
Government hiring, rather than private sector activity,
which is generating most of the job creation.

Job Change by Sector

The Government sector gained 13,900 jobs during
the last 12 months, with all of these jobs created in
the Federal government.
17

PAYROLL JOB CHANGE UNEMPLOYMENT RATES
LARGE METRO AREAS LARGE METRO AREAS
Figure 33 12 MONTHS ENDING MAY 2010 Figure 34 MAY 2009 vs. MAY 2010

Source: BLS, Delta Associates; July 2010. Source: BLS, Delta Associates; July 2010.


THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

Core Industries We expect consumer confidence will edge up moder-
ately this year. As jobs continue to be added to the
The Washington area’s gross regional product (GRP) local area during the balance of the year, consumers
was $405.5 billion in 2009, a decrease of 0.5% in will increasingly become more optimistic. As consum-

SECTION EIGHT
2009 from revised 2008 figures. This reflects a slight ers feel more confident, retail sales will start to pick up
recession for the Washington metro area during 2009. on both essential and non-essential items.
(See Figure 35)
GRP declined 0.5% during 2009. This decline is less
Approximately one-third of the Washington metro severe compared to the national decline of 2.4%. The
GRP is generated by the Federal government – the decline locally is due to retail spending and construc-

|
region’s most important core industry. A core industry tion – the two hardest hit industries in the metro area

T H E WA S H I N GTO N R E G I O N A L E C O N O M Y A N D O U T LO O K
is one that imports capital and exports a good or ser- during 2009.
vice. Total Federal spending in the Washington metro
area totaled $148.8 billion in 2009. We project the area’s GRP (in constant dollars) will
grow 3.5% to $419.7 billion in 2010, before increas-
The performance of the Washington area’s core indus- ing 3.8% to $435.6 billion in 2011, as the technology
tries bolsters the area during economic downturns. and construction sectors rebound.

The most important element of Federal spending in In consultation with Dr. Stephen Fuller of George
the metro area economy is procurement — the Feder- Mason University, we project that 32,200 payroll
al government’s purchase of goods and services from jobs will be added to the Washington metro area
the private sector. Spending increased notably during economy during 2010.
2009 by 8.7% to $78.5 billion. This level of spending
growth is healthy for this part of the economic cycle, We expect the Northern Virginia substate area to be
but it is below the 30-year annual average of 10.5%. the leader in job growth with 16,700 new jobs in
2010. The Suburban Maryland and District substate
Washington Area Economic Outlook areas should produce 9,300 and 6,200 new jobs, re-
spectively. (See Figure 36)
We expect the Washington metro area economy to
slowly recover during the balance of 2010 —add- We expect job growth will gain greater steam in
ing new jobs methodically. Although we believe the lo- 2011 and 2012 – adding 37,300 and 44,300,
cal economy is in recovery, we expect the speed to be respectively.
slow, as consumers and companies remain cautious.
18

CORE ECONOMIC SECTORS PAYROLL JOB GROWTH
IN CURRENT YEAR DOLLARS WASHINGTON METRO AREA
Figure 35 WASHINGTON METRO AREA Figure 36 2000 - 2012

Note: Figures are estimates.
Procurement figures do not include US Postal Service and FAA purchases. Note: Data restated since 2000 consistent with redefinition of metro area in March 2005.
Source: GMU Center for Regional Analysis, Delta Associates; July 2010. Source: Dr. Stephen Fuller, Delta Associates; July 2010.


SECTION NINE

THE BALTIMORE REGIONAL ECONOMY AND OUTLOOK

The recovery of the Baltimore metro area economy Core Industries
has been slow through mid-year 2010. The Baltimore
metro area shed 17,700 jobs during the 12 months The Federal/State Government sector represented
ending May 2010. This compares to the loss of 42,800 18.8% of the Baltimore metro area’s gross regional
jobs during 2009, as revised by BLS in March. The un- product (GRP) during 2009. The Financial Activi-

SECTION NINE
employment rate is currently 7.4%, lower than a peak ties sector closely follows, representing 17.3% of the
of 8.7% at February 2010, but slightly higher than last GRP Baltimore’s GRP in 2009 totaled approximately
.
year’s rate of 7.3%. We expect conditions to improve $131.7 billion, a decline of 1.2%, from $133.3 billion
modestly during 2010, as stimulus funding continues in 2008. This compares to a 2.4% decline nationally.
to feed the area through 2011. Coupled with a solid (See Figure 37)
core economic base and a boost from BRAC, this area

|
will recover ahead of most metro areas and remain Baltimore Area Economic Outlook

T H E B A LT I M O R E R E G I O N A L E C O N O M Y A N D O U T L O O K
stable in the long-term.
We expect the Baltimore metro economy to recov-
Job Growth by Sector er at a slow pace during the balance of 2010. We
believe the recession has ended in Baltimore and the
Over the past 12 months ending May 2010, five sec- local economy is currently on a slow path to recovery.
tors added new jobs in the metro area – the Leisure
and Hospitality, Education/Health, Professional and Job growth should start to recover during 2010 with
Business Services, Government and the Trade/Trans- 5,000 new jobs. Companies should continue growing
portation sectors. during 2011 and 2012, adding 15,000 and 18,000
new jobs, respectively. However, we expect this surge
The Leisure and Hospitality sector created 6,100 to be short-lived, with job gains falling in line with the
payroll jobs over the last year in the Baltimore area. 20-year average of 6,500 after 2012.
The majority of these positions were created in food
service and drinking establishments. We expect a job recovery similar to that of the 1990-
1991 recession – around four to five years to recover
The Education/Health sector added 5,700 payroll the total amount of jobs lost during this recession.
jobs over the last year. Most of this gain was in health
care and social assistance.

The Professional and Business Services sector cre-
ated 4,000 positions over the last year.
19
The Government sector added 2,600 jobs over the
past 12 months; all of these positions were created by
CORE ECONOMIC SECTORS
the Federal government.
IN CURRENT YEAR DOLLARS
Figure 37 BALTIMORE METRO AREA
The Trade/Transportation sector added 300 posi-
tions since last year at this time.

Unemployment Rate

The Baltimore area unemployment rate was 7.4%
in May 2010, up slightly from 7.3% one year prior.
Among comparable metros, Baltimore has the low-
est unemployment rate, ahead of Pittsburgh at 8.5%,
Cleveland at 9.1% and St. Louis at 9.2%. Baltimore’s
current unemployment rate compares favorably to the
national rate of 9.7% in May 2010. The national rate
declined to 9.5% in June 2010.

Source: Bureau of Economic Analysis, Delta Associates; July 2010.


SECTION TEN

THE CONDOMINIUM MARKET

THE WASHINGTON AREA Concession rates declined in the District, as more
CONDOMINIUM MARKET projects with long-standing inventory finally
reach sell-out. Some District submarkets are not of-
Mid-Year 2010 Highlights: fering concessions at all. Conversely, the highest con-
cession rate in the metro area is in Loudoun/Prince
• Sales volume: New unit sales volume (defined as William at 5.8%. As a result, prices are down in that
net binding contracts written with security deposits submarket by more than 10% from a year ago.
up) totaled 636 units.
The Washington metro area currently has an inven-
• Prices: New prices are down, while resale prices tory of 4,624 new units to sell – a 1.8-year inventory
are on the rise. at current rates of net sales velocity. Before price in-
creases become the norm again, the leftover “dog”
• Effective new condo prices were down 6.0% inventory of condos in most submarkets needs to be
metro-wide from 12 months ago, with prices in absorbed and new, more desirable product needs to
the Central submarket of the District up by be introduced to the market. We look for this to be the

SECTION TEN
3.6%. metro-wide norm by 2011.

• Resale prices are up 4.1% metro-wide. However, THE BALTIMORE AREA CONDOMINIUM MARKET
prices remain lower in Suburban Maryland juris-
dictions. During the past 12 months, there were 376 sales
metro-wide, an increase of 22% from the prior 12-

|
• Concessions: Metro-wide, concessions are stable, month period.

THE CONDOMINIUM MARKET
averaging 3.9% of the asking price at mid-year
2010 compared to 3.8% last year at this time. Effective new condo prices are down 3.6% metro-
wide since June 2009. Price declines in the Southern
• Pipeline: There are currently 4,624 unsold new Suburbs are over 10%, while in Baltimore City prices
condominium units that are actively marketing in are up 1.3%.
the metro area; about the same amount as last
quarter. As a result, there is now 1.8 years’ worth Concessions are up 50 basis points metro-wide
of inventory of product on the market at current from last year. Currently, projects in the Northern
rates of sales velocity in the metro area. In the Suburbs are offering the most concessions.
Central submarket in the District there is less than
six months of new inventory left to sell. There are 1,752 unsold units currently marketing
in the metro area. 20
• Sales pace: Projects that have sold out in the past
two years have averaged 2.4 sales per month.
Projects introduced to the market more recently
have averaged a higher pace.

During the second quarter there were 631 net sales in
the Washington metro area. In the 12-month period
ending June 2010 there were a total of 2,620 sales,
which is an increase of 62% from the prior 12-month
period. In Northern Virginia, the number of sales is
up 91% during the same time period. However, in
Suburban Maryland there were fewer sales during the
past 12 months due to contract cancellations in the
second half of 2009 in Prince George’s County.

The majority of sales during the first half of 2010 have
occurred in Loudoun/Prince William, Montgomery,
and Arlington/Alexandria; whereas the least amount
have occurred in the Upper NW submarket of the Dis-
trict and Prince George’s.


SECTION ELEVEN

THE APARTMENT MARKET

THE WASHINGTON AREA APARTMENT MARKET tion. Average monthly absorption at new projects
increased over the quarter to 14 units per project
The Washington metro area continues to be one of per month, propelled by strong lease-up pace at
the best performing apartment markets in the nation projects delivering during the spring. Despite eight
due to: deliveries this quarter, the number of projects in
lease-up has declined from 47 to 34 over the past
1. A job market that is one of two major metro ar- 12 months.
eas to be gaining jobs at this point in the grow-
ing national economic recovery. • Concessions at Class A projects edged lower fol-
lowing a pattern first seen in this cycle in the 1st
2. A transient work force that has produced a large quarter of 2010. At mid-year 2010 concessions
pool of Class A renters by choice. were 4.1% of face rent compared to 6.2% of face
rent at mid-year 2009.
3. A demographic trend that is experiencing a
structural shift away from ownership and toward • Pipeline: After the pipeline ballooned to 36,951
renting. units in December 2007, largely driven by the re-

SECTION ELEVEN
version of condominium projects, the pipeline be-
Following a year of competitive apartment market gan its cyclical decline, continuing downward to a
conditions due to an elevated number of deliver- new historical low of 16,606 as of year-end 2009.
ies in 2008 and 2009, the Washington market has As the horizon for improving market fundamentals
turned the corner. Limited starts during the economic grew closer in 2nd quarter 2010, the pipeline edged
downturn and strong absorption in the Washington up to 17,309 units. We believe that we are now

|
metro are laying the groundwork for strong market seeing a cyclical increase in the development pipe-

T H E A PA R T M E N T M A R K E T
conditions in 2011 and 2012, with an emerging prod- line, although it will be gradual at first due to the
uct shortage by mid-2011 in select submarkets, with difficulty of obtaining development credit.
widespread shortages in late 2011 into early 2012.
THE BALTIMORE AREA APARTMENT MARKET
• The pipeline of supply is edging up from its cyclical
bottom in the 4th quarter of 2009. Demand for rental housing in the Baltimore area has
improved, particularly in the southern suburbs, and
• Annualized Class A absorption exceeds 6,700 – one fundamentals are looking up as supply comes into
of the highest metro totals in the nation. line with demand.

Mid-Year 2010 Highlights: Mid-Year 2010 Highlights: 21

• The region’s stabilized vacancy rate for invest- • Stabilized Class A vacancy is down 120 basis
ment grade apartments (Class A and B) is 3.1%, points from last year to 4.0%. Vacancy in Balti-
down from 4.3% a year ago. With the national rate more’s southern submarkets is down to 2.2% from
at 8.2%, this is one of the lowest vacancy rates of 4.3% a year ago. Vacancy in Baltimore’s northern
any metro area in the nation. submarkets is down to 4.6% from 4.9% last year at
this time. The Baltimore region’s vacancy rate con-
• Rents for all investment grade apartments were up tinues to outperform the national average of 8.2%.
3.6% over the past twelve months. Class A rents
performed even better, rising by 4.2% during this Concessions in the Baltimore metro area have fall-
period, compared to a decline of 1.8% during the en since last year to 4.0% at June 2010, from 5.7%
preceding year. last year.

• Annual net absorption, at 11,845 Class A and B • Average effective rents in the metro area are
apartments, set a new record due to a surge in $1,401 ($1.39 per SF). Rents grew in this metro
Class B apartment absorption. Class A absorption area over the year by 2.5%. Rents in the Baltimore
continued at a strong pace with 6,770 units ab- suburbs have risen by 3.1% since Mid-year 2009.
sorbed, remaining one of the strongest in the na- Effective rents in the southern suburbs increased


THE APARTMENT MARKET

3.6% over the past twelve months and the north- Lease-up pace for the five actively marketing projects
ern suburbs grew effective rents by 2.3% during the in the Baltimore area currently averages twelve units
same period. Effective rent growth in the Baltimore per month per project.
City submarkets was essentially flat, growing by
0.1% in both the Fells Point/Inner Harbor and The pipeline remained constrained, as in recent quar-
downtown submarkets. However, the Fells Point/ ters. As a result, we project that the 36-month supply
Inner Harbor submarket greatly outperformed the will be slightly less than the number of units that will
Downtown submarket with rent growth of 5.6% be absorbed in the Baltimore area over the next 36
compared to a decline of 2.7% over the year. months. This imbalance indicates that occupancy will
improve and rent growth is likely to continue over the
• The supply pipeline metro-wide has edged down next three years.
over the quarter and since mid-year 2009. Some
2,979 units are planned to deliver in the next 36
months in the Baltimore metro area (down from the
4,072 units planned this time last year).

SECTION ELEVEN
|
T H E A PA R T M E N T M A R K E T
22


S E C T I O N T W E LV E

THE COMMERCIAL REAL ESTATE MARKET

The Washington metro area office market experi- • Effective rents: Down 4.2% during the 1st half
enced mixed, but on balance encouraging, signals of 2010, compared to a decline of 6.9% in 2009.
during the 2nd quarter of 2010. Absorption surged,
boosted by government leasing, to 2.4 million SF in • Investment sales: $887 million ($329/SF) dur-
the 2nd quarter. Yet private sector leasing remains ing the 1st half of 2010, inclusive of partial inter-
weak. Vacancy edged down to 12.8% from 13.2% in est sales.
the 1st quarter, yet is up from one year ago. Sublease
space declined during the past three months, as ten- The Washington metro area market should re-
ants plan to utilize this shadow space as the economy main one of the best performing office markets
improves. Rents declined 4.2% during the 1st half of in the nation. We believe the recession bottomed out

2010 – an annualized rate worse than in 2009. locally during the first half of 2009 and a recovery is
underway. Recovery will be slow during the balance
THE WASHINGTON AREA OFFICE MARKET of 2010.

Overall, the metro area remains one of the top per- Although we expect the Federal government to eat
forming markets in the nation. away at the oversupply of office space in the metro
area, leasing by the private sector will remain modest.

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Mid-Year 2010 Highlights: We expect limited leasing by the private sector from

T H E C O M M E R C I A L R E A L E S TAT E M A R K E T
companies with the budget to secure space at lowered
• Net absorption: 2.4 million SF in the 2nd quart- rents. Meaningful growth will not be felt until 2011.
er, compared to 630,000 SF in all of 2009.
We expect vacancy will decline to 12.0% in the Wash-
• Overall vacancy rate: 12.8%, up from 12.1% ington metro area over the next two years. Although
one year ago; down from 13.2% in the 1st quart- we project vacancy will decline, this rate remains ele-
er. Fourth lowest rate in the nation. vated compared to a cyclical low of 7.9% experienced
(See Figure 38) at Year-end 2005.

• Space under construction: 4.6 million SF, down We project rents will decline by 5.0% to 7.0% in 2010
from 10.5 million SF one year ago. – with concession offerings limiting effective rents. We
expect available space to remain elevated in 2010,
• Space U/C is 51% preleased, compared to 32% keeping rents down. By 2012 rents should gain trac-
a year ago. tion, and return to the long-term average increase of
3.8% inside the Beltway by 2013.
23

OFFICE VACANCY RATES
SELECTED METRO AREAS

Source: CoStar, Delta Associates; July 2010.



THE BALTIMORE AREA OFFICE MARKET In the long term, the Baltimore metro area is well
positioned for steady future growth, as the health
The Baltimore metro area experienced improving and life-science industries fuel demand in the
conditions during the 2nd quarter of 2010. Absorp- area. BRAC relocations will give a boost to the
tion turned positive during the past three months due area during the 2010-2011 period.
to pre-leased deliveries and a large user purchase.
Although the vacancy rate edged down during the THE WASHINGTON AREA RETAIL MARKET
quarter, the rate remains elevated due to weak de-
mand from hesitant tenants. Offsetting some of the Incomes in the Washington metro area grew by 30.3%
weak demand, BRAC has spurred leasing activity from from 2000 to 2009, compared to 26.2% nationally. By

contractors – generating a handful of developers to 2014, the Washington metro area’s average house-
break ground on new office space this quarter. Rents hold income is projected to rise 4.7%, compared to a
declined during the 1st half of 2010, as property own- rise of 4.2% nationally, and enough to support future
ers with available space struggle to obtain tenants. retail growth.
Although the Baltimore metro area should experi-
ence sluggish conditions in the near-term, the market The Washington metro area has over 119 million SF
should stabilize quicker than many other metro areas of retail space, inclusive of all types of retail, in over

|
due to the expanding health care industry and the on- 1,000 shopping centers. Northern Virginia is home to

slaught of BRAC relocations to the area. over half of the total metro retail inventory.

Mid-Year 2010 Highlights: Of the total retail inventory in the Washington metro
area, 55.9 million SF is located in 319 grocery-an-
• Net absorption: positive 742,000 SF in the 2nd chored shopping centers, which is almost half of the
quarter, compared to positive 91,000 SF during total retail inventory in the metro area.
all of 2009. (See Figure 39)

• Overall vacancy rate: 14.0%, down from 14.5%
at 1st quarter, but up from 12.8% one year ago.

• Space under construction: 1.1 million SF, down
from 1.7 million SF one year ago.

• Rents: down 2.9% during the 1st half of 2010,
compared to a decline of 5.2% in 2009. 24

• Investment sales: $135 million during the 1st
GROCERY-ANCHORED SHOPPING CENTER
half of 2010. Average sales price: $202/SF.
We expect the Baltimore area office market to re-
main sluggish during the balance of 2010, with
modest improvements late in the year. BRAC and the
life-science industries should fuel demand in the near
term – offsetting the reduced demand by hesitant ten-
ants.

We expect vacancy to edge down by June 2012, as
the economy improves and tenants relocate here due
to the BRAC decision. We believe the construction vol-
ume will rise, particularly around Ft. Meade and Ab-
erdeen Proving Ground during 2010. We anticipate
rents will edge down during 2010 by an average of
2.5% to 3.5%, as vacancy remains elevated. Note: Estimates



The metro-wide vacancy rate for grocery-an- GROCERY-ANCHORED SHOPPING CENTER
chored shopping centers increased to 5.3% at VACANCY RATES
year-end 2009, from 3.7% one year earlier. At 5.3% Figure 40 WASHINGTON METRO AREA 1999 - 2009
vacant, grocery-anchored shopping centers are some-
what outperforming the overall shopping center mar-
ket at 5.6% vacant at year-end 2009.
(See Figure 40)

Rental rates at grocery-anchored centers de-
creased 5.8% in 2009, after rising by 1.7% in 2008.

Metro-wide average in-line tenant rents were $31.77/
SF at year-end 2009. Suburban Maryland rents were
$32.25/SF, a 4.8% decline from one year earlier.
Northern Virginia rents were $31.29/SF, down 6.6%
from year-end 2008. (See Figure 41)

The core submarkets experienced the least decline in

|

asking rates during 2009, as there continues to be de-

mand within the core and this area has limited avail- GROCERY-ANCHORED SHOPPING CENTER
ability. The inner and outer rings experienced steeper ASKING RENTS
rent declines at 5.4% and 7.4%, respectively, as these Figure 41 WASHINGTON METRO AREA 1999 - 2009
submarkets have less demand and a greater amount
of available inventory.

The metro area has 25.9 SF of retail space per capita,
compared to the national average of 23.4. Although
Northern Virginia and Suburban Maryland are above
the national average, the District remains underserved
at just 8.6 SF of retail space per capita. Given the
high incomes in the Washington suburbs, these areas
are not overserved. (See Figure 42)

We believe retail is poised for a stronger recovery in
the metro area than elsewhere, given high incomes 25
and a projected job growth. We believe investors and Source: Delta Associates; July 2010.

developers should act now by:
RETAIL SPACE PER CAPITA
1. Selectively accumulating assets at below replace- 2010
Figure 42
ment cost while prices and interest rates are low.
2. Acquiring debt or recapitalizing assets.
3. Developing new projects in the 2011-2013 per-
iod in select locations with good supply/demand
fundamentals.

We believe Washington metro area retail will remain
successful, even through economic downturns, if the
center is:

• Located within mixed-use or neighborhood cen-
ters in a submarket with solid supply/ demand
fundamentals.
• Close to transit and jobs.
• Focused on everyday necessities and amenities, Source: CoStar, U.S. Census, Delta Associates; July 2010.
such as groceries, banking, and entertainment.


METHODOLOGY

SINGLE-FAMILY HOUSING DATA

Northern Virginia is defined as Arlington, Fairfax,
Fauquier, Loudoun, and Prince William Counties;
Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Frederick,
Montgomery, and Prince George’s Counties.

The Washington Metro Area describes all of the
jurisdictions listed above and the District of
Columbia.

The Baltimore Metro Area is defined as Anne Arundel,
Baltimore, Carroll, Harford, and Howard Counties;
Baltimore City. BUREAU OF LABOR STATISTICS METRO AREA DEFINITIONS

COMMERCIAL REAL ESTATE DATA Atlanta
Atlanta-Sandy Spring-Marietta, GA

Office, Apartments, Condominiums Austin
Austin-Round Rock, TX
Northern Virginia is defined as Arlington, Fairfax, Boston
Loudoun, and Prince William Counties; Alexandria, Boston-Cambridge-Quincy, MA-NH (Metropolitan NECTA)
Fairfax, and Falls Church Cities.
Chicago
Chicago-Naperville-Joliet, IL-IN-WI
Suburban Maryland is defined as Frederick, (Non-Metropolitan Division)
Montgomery, and Prince George’s Counties.

M E T H O D O LO GY
Dallas-Fort Worth
Dallas-Forth Worth-Arlington, TX
The Washington Metro Area is defined by all of the
jurisdictions listed above, plus the District of Denver
Denver-Aurora, CO + Boulder, CO
Columbia.
Houston
The Baltimore Metro Area is defined as Anne Arundel, Houston-Sugar Land-Baytown, TX
Baltimore, Carroll, Harford, and Howard Counties, LA Basin
26
plus Baltimore City. Los Angeles-Long Beach-Glendale, CA (Metropolitan Division)
Riverside-San Bernardino-Ontario, CA
Santa Ana-Anaheim-Irvine, CA (Metropolitan Division)
Retail
New York
Northern Virginia is defined as Arlington, Fairfax, New York-Northern New Jersey-Long Island, NY-NJ-PA
Loudoun, and Prince William Counties; Alexandria, Phoenix
Fairfax, and Falls Church Cities. Phoenix-Mesa-Scottsdale, AZ

San Antonio
Suburban Maryland is defined as Montgomery and San Antonio, TX
Prince George’s Counties.
San Francisco Bay
San Francisco-Oakland-Fremont, CA + San Jose-
The Washington Metro Area is defined by all of the Sunnyvale-Santa Clara, CA
jurisdictions listed above, plus the District of
Columbia. South Florida
Fort Lauderdale-Pompano Beach-Deerfield Beach, FL
Miami-Miami Beach-Kendall, FL
West Palm Beach-Boca Raton-Boyton Beach, FL

Washington
Washington-Arlington-Alexandria, DC-VA-MD-WV
(Non-Metropolitan Division)


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