Montgomery County Department Of Park And Planning The Maryland-national

MONTGOMERY COUNTY DEPARTMENT OF PARK AND PLANNING THE MARYLAND-NATIONAL CAPITAL PARK AND PLANNING COMMISSION

MCPB Item #7 June 1, 2006

8787 Georgia Avenue Silver Spring, Maryland 20910-3760 301-495-4500, www.mncppc.org

May 22, 2006 Memorandum To:

Montgomery County Planning Board

From:

Research & Technology Center staff Karl Moritz, 301-495-1312 Krishna Akundi, 301-495-4561 Wayne Koempel, 301-495-4718 Sharon Suarez, 301-495-4720

Re:

Economic Forces That Shape Montgomery County 2006 Annual Update

Attached please find a copy of the 2006 Annual Update to Economic Forces That Shape Montgomery County. This report finds the County’s economy healthy, with accelerated job growth, sustained federal government activity, and continued recovery in the commercial space market. The for-sale housing market, very “hot” in 2004, was at least as strong in 2005. Home prices continue to accelerate. Most single-family homes are priced out of the range of households earning the area median income of $89,300. A household earning the median income can still afford the median-priced existing townhouse (but just barely) and the median-priced existing condominium, but that will not be true in a few years if current trends continue. The Planning Board is undoubtedly aware that there are numerous reports of the national and regional housing market cooling off in 2006. Staff has included some first quarter 2006 home sales data in the report, and will further update the Board during our presentation.

MONTGOMERY COUNTY PLANNING BOARD, 8787 GEORGIA AVENUE, SILVER SPRING, MARYLAND 20910

Economic Forces That Shape Montgomery County Annual Update 2006 May 2006

Produced by The Research & Technology Center serving the Montgomery County Department of Parks and the Montgomery County Department of Planning of the Maryland-National Capital Park and Planning Commission with Towson University

THE MARYLAND-NATIONAL CAPITAL PARK & PLANNING COMMISSION The Maryland-National Capital Park & Planning Commission is a bi-county agency created by the General Assembly of Maryland in 1927. The Commission’s geographic authority covers most of Montgomery and Prince George’s counties. The Commission’s planning jurisdiction, the Maryland-Washington Regional District, comprises 1,001 square miles; its parks jurisdiction, the Metropolitan District, comprises 919 square miles. The Commission has three major functions: (1)

The preparation, adoption, and, from time to time, amendment or extension of The General Plan (On Wedges and Corridors) for the Physical Development of the Maryland-Washington Regional District Within Montgomery and Prince George’s Counties.

(2)

The acquisition, development, operation and maintenance of a public park system.

(3)

In Prince George’s County only, the operation of the entire County public recreation program.

The Commission operates in each county through a Planning Board appointed by and responsible to the county government. The Planning Boards are responsible for preparation of all local master plans, recommendations on zoning amendments, administration of subdivision regulations, and general administrations of parks.

The Maryland-National Capital Park & Planning Commission encourages the involvement and participation of individuals with disabilities, and its facilities are accessible. For assistance with special needs (e.g., large print materials, listening devices, sign language interpretation, etc.), please contact the Community Relations Office, 301-495-4600 or TDD 301-495-1331.

ELECTED AND APPOINTED OFFICIALS County Council George Leventhal, President Marilyn Praisner, Vice-President Phil Andrews Howard Denis Nancy Floreen Mike Knapp Thomas E. Perez Steve Silverman Michael L. Subin

County Executive Douglas M. Duncan

The Maryland-National Capital Park & Planning Commission Derick P. Berlage, Chairman Samuel J. Parker, Jr., Vice Chairman Commissioners Montgomery County Planning Board

Prince George’s County Planning Board

Derick P. Berlage, Chairman Wendy C. Perdue, Vice Chair Allison Bryant John Robinson Meredith K. Wellington

Samuel J. Parker, Jr., Chairman William M. Eley, Jr., Vice-Chair Jesse Clark John H. Squire Sylvester J. Vaughns

Abstract Title:

Economic Forces That Shape Montgomery County: Annual Update 2006

Author:

Research & Technology Center, serving the Montgomery County Department of Parks and the Montgomery County Department of Planning of the Maryland - National Capital Park and Planning Commission

Subject:

Economic Indicators of the Health of Montgomery County’s Economy, Focusing On Job Growth, Federal Impact, Commercial Space Activity, and the Housing Market

Source of Copies:

The Maryland-National Capital Park & Planning Commission 8787 Georgia Avenue, Silver Spring, Maryland, 20910 301-495-4700 http://www.mc-mncppc.org

Date:

May 2006

Number of Pages:

40

Abstract:

Economic Forces That Shape Montgomery County is an annual report started in the mid-1990s when there was concern about Montgomery County’s slow recovery from the 1991 recession. The report includes information not available elsewhere, especially: trends in high-technology employment sectors; trends in federal government activity as an employer, as a landlord and tenant, and as a purchaser of goods and services; trends in the commercial space market; and trends in the housing market.

Economic Forces That Shape Montgomery County Annual Update 2006 Table of Contents About Economic Forces That Shape Montgomery County...................................... 1

2006 Annual Update Review of Selected Economic Indicators ....................................................... 2 Job Growth ........................................................................................... 3 Federal Impact ...................................................................................... 5 Commercial Space Market .................................................................... 7 Housing Market .................................................................................... 8 A Graphical Review .................................................................................... 10 Job Growth Federal Impact Commercial Space Market Housing Market

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

About Economic Forces That Shape Montgomery County Economic Forces That Shape Montgomery County is an annual report started in the mid-1990s when there was concern about Montgomery County’s slow recovery from the 1991 recession. The first report found slow growth but very healthy fundamentals. Since then, each subsequent report has found somewhat more rapid growth, whereupon last year we were able to conclude that the economy was very healthy, growing at a rapid but manageable pace. The Economic Forces studies seek to support the Montgomery County Council’s economic analysis needs, particularly during preparation of the budget and when evaluating economic development initiatives or regulatory proposals. To accomplish this, the Research & Technology Center has worked with County government agencies to identify economic trends and for suggestions on how to improve the usefulness of the report. Such collaboration helps eliminate duplication of effort while helping to assure that even though opinions may differ, the information underlying those opinions is consistent and valid. A major value of each Economic Forces update is that a review of the trends indicates issues that deserve more in-depth study. In the past, such studies have included a study of Class B & C office space, a commercial sites characteristics inventory, indepth reports on Montgomery County’s information technology and biotechnology industries, and housing market studies. Other recent projects include an update to a 1993 analysis of retail space and an update of our inventory of land available for nonresidential construction. In 2004, a special focus of the Economic Forces report was a review of the economic impact of associations on the Montgomery County economy. This analysis was performed at the suggestion of the Montgomery County Department of Economic Development and the Association Council of Montgomery County. This year there are no “special studies” included in the Economic Forces report. Developing the in-house expertise required to complete the Economic Forces update has strengthened the Research & Technology Center’s ability to support master plan development and to respond quickly and thoroughly when policy questions arise, such as debates on the County’s Growth Policy, affordable housing, elderly housing, and other issues.

1

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

Review of Economic Indicators Each annual update of Economic Forces That Shape Montgomery County contains four core areas that are updated each year: •

Job Growth: This section consists of a review of statistics on jobs created or lost by each industry in Montgomery County, compared to the state and the nation, with special emphasis on the County’s technology sectors. This section relies on ES-202 data compiled by the Maryland Department of Labor, Licensing and Regulation (DLLR) and reported to the U.S. Bureau of Labor Statistics. Although these data are confidential, state universities have access to the full database and are permitted to release custom analyses as long as they do not compromise confidentiality. The Research & Technology Center staff has a long partnership with Towson University to conduct this analysis for us. In addition, the Research & Technology Center depends greatly on the Montgomery County Department of Finance for advice and insight on these job statistics and for their perceptive analysis of the variety of other factors affecting the County’s economy.

•

Federal Impact: By far, the largest single influence on Montgomery County’s economy is the federal government: as an employer, as a landowner, as a tenant, and as a purchaser of goods and services. Each year, Research & Technology Center staff survey each federal installation in the County about current and expected employment changes, construction plans, and space leasing activities. Typically, Research staff also analyze federal purchasing and contracting activity – however, again this year the federal procurement data are not yet available. Staff will provide the Planning Board and County Council will an analysis of federal procurement trends when the data are available.

•

Commercial Space Activity: The relationship of economic trends to the pace and character of development is of particular interest to officials and staff making land use decisions. One of the major questions addressed by the first Economic Forces That Shape Montgomery County report focused on understanding the collapse of the commercial space market that occurred during the 1990-91 recession. Subsequent reports have focused on tracking and understanding the market’s recovery as well as looking for signs of pending weakness.

•

The Housing Market: Each year, Economic Forces includes a report on the County’s housing market from the perspective of County residents – those who are, or intend to be, homeowners or tenants in the County. Housing continues to be one of the strongest aspects of the economy and housing issues are the focus of considerable public attention at this time.

2

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

Job Growth Montgomery County added 9,792 jobs between the second quarter of 2004 and the second quarter of 2005, an increase of 2.1 percent. This compares with a job growth figure of 4,109 in last year’s report and 1,921 in the previous year’s report. This is the first time since 2001 that job growth has been greater than 1 percent. Although the Economic Forces report focuses on second quarter data, the state is expected to release third quarter 2005 job statistics prior to the Economic Forces presentation to the Montgomery County Planning Board and County Council. Between the second quarters of 2004 and 2005, private sector jobs grew by 9,826, or 2.6 percent. Industries that added the most jobs were Professional and Technical Services (up 2,265 jobs), Administrative and Support Services (up 1,922 jobs), and Clothing Stores (up 1,051 jobs). Major industries with the greatest percentage increases were Internet Publishing and Broadcasting (up 25 percent), Chemical Manufacturing (up 17 percent), and Management of Companies and Enterprises (up 10 percent). Public sector lost 34 jobs, essentially no change from last year. About 820 jobs lost were federal government jobs. About the Data The job growth statistics reviewed in this report are from the Maryland Department of Labor, Licensing and Regulation (DLLR) and the data series is known as the “ES-202 series.” The data is collected from firms submitting information for unemployment insurance purposes. Therefore, jobs that are not covered by unemployment insurance are not included in this jobs series. These include sole proprietorships, farm workers, some domestic workers, and unpaid family workers. Certain non-profit employers, such as churches, may not be counted. Some students and spouses of students in the employ of schools, colleges, and universities are also excluded. Although there are these gaps, this is a standard data series for measuring job growth and, because the information is reported for every county in the nation, the series allows us to compare Montgomery County trends with those of the state and nation.

The Technology Sector: Growth in High Tech Clusters Mixed The county’s economic base consists of three main pillars, the public sector (represented, in large part, by the federal government), the technology sector, and other private businesses. Based on an extensive review of the literature and following discussions with the Department of Economic Development, staff presents its analysis of the technology sector not just in terms of individual industries, but also as clusters.

3

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

A cluster is a concentration of companies and industries in a geographic region that are interconnected by the markets they serve and the products they produce as well as by the suppliers, trade associations, and educational institutions with whom they interact. There are four principal clusters that staff analyzed: Biotech, InfoCom, Aerospace and Other High Tech Services. Each cluster is comprised of productionoriented industries or businesses, research, development, and design-oriented businesses, and consumer-oriented businesses. The Technology sector, as per this new definition, accounts for 23 percent of the County’s employment. That share, however, does not include the many public sector high tech jobs in Montgomery County, including those at federal installations such as the National Institutes of Health, the National Institute for Standards and Technology, and the Department of Energy. There are 105,300 jobs in the County’s high tech clusters: 7 percent of high tech jobs are in production, 45 percent in research, development and design, and 48 percent in consumer services. There is effectively no change in the number of technology sector jobs between 2nd Quarter 2004 and 2nd Quarter 2005. However, 964 high tech production and research-oriented jobs were lost— a 1.6 percent decline from last year. The Aerospace cluster lost around 600 jobs. While the trend at the national and state level has remained steady, at the local level, decline continues. Biotechnology continues to outshine the other technology clusters in the County in terms of percentage growth. The Biotechnology cluster (not including consumeroriented businesses) grew by 9 percent. Nationally, the biotechnology cluster (not including consumer-oriented businesses) showed a 2.1 percent increase. Biotech production industries (e.g. pharmaceutical makers and medical equipment manufacturers) added 754 jobs to their payrolls: a 47 percent increase over last year. Biotech companies in the research, development, and design segment of this market (i.e., testing labs, consulting services, and r&d firms) grew 6.6 percent over last year. Health Care Services (hospitals, ambulatory health care, nursing and residential care facilities)—the upper end of the biotech cluster’s consumer market— added 10,311 jobs. The InfoCom cluster continues to lose jobs, over 2100 jobs between 2004 and 2005. The nation and state, on the other hand, gained jobs: 5400 and 1300, respectively. Other High Tech Services cluster in Montgomery County consists of companies in architectural services, engineering services, surveying and mapping, testing labs (not including biotech labs), research and development services (not including biotech and infocom), technical consulting services (not including biotech and infocom), and social

4

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

science and humanities. This cluster increased 3.4 percent. The cluster also gained jobs at the national and state levels. Other Major Industries Professional and Technical Services is a major component of the County’s economy, comprising over 63,000 jobs. The County’s Professional and Technical Services jobs increased 3.7 percent between the second quarters of 2004 and 2005. Construction jobs in the County increased 0.3 percent. This low rate of growth may be explained by the decline in permits issued for multifamily construction in the county in 2005. The highest-paying industries (employing more than 500 people) in Montgomery County are: securities and commodities brokers (average wage: $110,906), computer and electronic product manufacturing (average wage: $104,985), broadcasting (average wage $98,437), management of companies and enterprises (average wage: $84,924), and chemical manufacturing (average wage: $84,727). The largest industry with an average wage in excess of $60,000 per year is “professional, scientific, and technical services” with an average wage of $71,078 and 63,165 jobs. Of the major private sectors, the “food services and drinking places” sector pays the lowest average wages, about $16,500 per year. The average salary paid by a Montgomery County job in the second quarter of 2005 was $51,435 per year, an increase of 8.0 percent over the previous year. The average private sector job pays about $48,278 while the average public sector job pays $66,639. The comparatively higher salaries paid by the public sector are due to federal government salaries, which average $79,800.

Federal Impact The federal government plays three very important roles in Montgomery County’s economy: it is an employer, it is a tenant and landowner, and it is a purchaser of goods and services. During fiscal year 2004, the federal government pumped $15.3 billion dollars into the County’s economy in the form of federal expenditures, 23 percent of all the federal expenditures in Maryland. The federal government spent $7.5 billon to purchase goods and services, paid $3.6 billion in wages and salaries to County workers, paid County residents $3.0 billion in direct payments to individuals for retirement and other benefit programs, and spent $1.2 billion on grants.

5

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

Federally Leased Space The General Services Administration (GSA) currently leases almost 6.9 million square feet of space in Montgomery County, a decrease of 179,000 square feet compared to 2005. Between January 2005 and 2006, GSA did not renew 12 leases totaling 853,000 square feet of space, but added 8 new leases to their inventory totaling 674,000 square feet of space. GSA leases about 11 percent of the County’s existing rental office space and pays an annual rent totaling $159 million, an increase of $6 million over the previous year. GSA no longer provides information on which federal agencies occupy their leased space. In the past, about two-thirds of GSA’s inventory was occupied by the Department of Health and Human Services (HHS). Over half of GSA’s leased space is in the Rockville area, which includes most of North Bethesda. GSA leases 3.9 million square feet of space in the Rockville area, 56 percent of their County inventory. Two other areas have over 1 million square feet of GSA leased space: Silver Spring has 1.3 million square feet (19 percent) and Bethesda has 1.1 million square feet (15 percent). About 6 percent of GSA’s leased space, 432,000 square feet, is up for renewal in 2006. Based on last year’s data, seven agencies occupy this space. HHS occupies about 58 percent of this space, mainly in the Rockville area. The Food and Drug Administration (FDA) is the tenant in 137,600 square feet of this space about 32 percent. The Treasury Department, 16 percent, and the Department of Commerce (NOAA), 12 percent, are the only other agencies occupying more than 10 percent of the space up for renewal in 2006. About 83 percent, 5.7 million square feet, of GSA’s space is leased beyond 2008 940,000 square feet more than last year. This marks the first year GSA has leases extending to 2015. About 546,000 square feet of space is leased through 2015. In general, however, history indicates that GSA typically renews most of these leases. GSA would like to renew most leases because moving means relocation costs. The main reasons for not renewing leases are: consolidating into government owned space, not needing the space due to changes in work programs or employment levels, and buildings becoming too old and outdated. Survey of Agencies Collectively, the thirteen agencies and installations surveyed estimate they have about 64,700 workers in 2006, 100 workers less than last year. Agencies reporting increases are: FDA reports 770 more workers, National Institutes of Health (NIH) reports 200 more workers and the Nuclear Regulatory Commission reports 170 more workers. The National Institute of Standards and Technology, Department of Energy,

6

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

and Walter Reed Army Medical Center report more modest gains. Agencies reporting decreases are: National Oceanic and Atmospheric Administration (NOAA) reports 528 fewer workers (NOAA reported an increase of 540 workers last year), Health and Human Services (other than NIH and FDA) reports 448 fewer workers, and the Naval Surface Warfare Center at Carderock reports 271 fewer workers. The consolidation of FDA on the White Oak campus that was the site of the former Naval Ordnance Laboratory is progressing. The first two phases of the consolidation, the 128,900 square-foot Life Sciences Lab and the 555,100 square-foot Center for Drug Evaluation and Research are complete and occupied by 1,850 workers. Phases 3 through 5, about 1.6 million square feet to be occupied by about 4,200 workers, is scheduled to be finished in 2010. A 778,000 square-foot phase 6 will follow adding about 1,700 workers. We asked the surveyed agencies how they would be affected by the 2005 Base Realignment and Closure (BRAC) Commission recommendations that were approved by the President and U.S. Congress. The 2005 BRAC requires that all actions be completed by 2011. The National Geospatial Intelligence Agency (NGA) will be moving from Montgomery County to Fort Belvoir in Northern Virginia. NGA indicated that their move would likely occur between 2009 and 2011. For this survey NGA decided to count their 2,800 employees in Montgomery County in 2010 and show no NGA employees in the County beyond 2010. As a result of BRAC, the Walter Reed Army Medical Center (WRAMC) estimates a transfer of about 970 military and civilian personnel from their District of Columbia facility to the Bethesda Naval Medical Center (BNMC) in 2010 and estimates a transfer about 250 employees to their Forest Glen Annex. BNMC expects a BRAC related increase of about 2,000 personnel, mainly coming from the WRAMC and from the Office of Naval Research in Ballston Virginia. They do not expect the full 2,000 personnel to transfer until 2011. Collectively, the agencies surveyed anticipate job levels increasing by almost 18 percent, 11,500 jobs, between 2006 and 2020 when workers at these agencies will number about 76,200. Given the federal policy of shifting workers from leased space to owned space, workers at federally owned space are expected to increase by about 13,800 between 2006 and 2020. The main shift from leased to owned space is the Food and Drug Administration’s consolidation at their facility in White Oak and the anticipated purchase by the federal government of the NOAA buildings in Silver Spring. Even with these major shifts from leased to owned space, the federal government expects to remain a major tenant in the County’s office market. In 2020, the agencies project 24,700 workers in leased space, 2,300 fewer than 2006 but similar to 2002 levels. NIH anticipates adding about 5,400 workers in leased space between 2006 and 2020.

7

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

Commercial Space Market The positive trend, begun last year, continues. Montgomery County’s commercial space market shows improvement: vacancy rates declined, absorption of new space increased and office rents held steady. In the past year, the amount of occupied Class A office space in Montgomery County increased to 26.9 million square feet from 26.1 million square feet a year ago. The total amount of vacant Class A office space declined from 3.0 million square feet in 2005 to 2.4 million square feet in March of 2006. The total Class A office space vacancy rate is now 7.2 percent. Class A office rents in Montgomery County have been much less volatile than some other markets in the region. This is particularly true when comparing Montgomery County to Fairfax County, where average rents exceeded those in Montgomery County as recently as 2001 but are now lower. Fairfax County average Class A office space rents declined from a high of $33 to an average of $25 in 2004, but have since rebounded hitting $28 in March 2006. Montgomery County’s average rents for Class A office space have held steady at $29. There are two types of vacant space: direct and sublet. Direct vacant space is available directly from the landlord. Sublet space is available from a tenant in a building that finds that they do not need some or all of the space they have rented. Over time, increases in sublet space can be an early signal of recession while decreases in sublet space can signal recovery. However, some fluctuation is simply due to the individual tenant circumstances. The amount of Class A office space available for sublet in the first quarter of 2006 has declined by 109,000 square feet from the first quarter of 2005. The amount of vacant sublet Class A office space is now 435,000 square feet. Vacant sublet Class A space is now half of what it has averaged this decade. Direct vacancy rates for Montgomery County’s Class B office space fell from a high 9.8 percent in March 2005 to a low 7.9 percent in March 2006. The direct vacancy rate for Class C space fell from 7.6 percent in March 2005 to 6.9 percent. There is about 961,338 square feet of office space under construction now in Montgomery County for completion in 2006, almost half of what was under construction at this time last year. Developers and leasing agents have proposed about 2 million square feet of space for completion in 2007/2008. Finally, the flex and industrial space markets are still solid, vacancy rates have fallen from 10 percent in 2005 to 6.8 percent in March 2006. Rents are more affordable, falling from $13.73 to $13.31 per square foot: the flex market is more competitive and attractive to tenants.

8

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

Housing Market The housing market in Montgomery County continued to be very strong throughout 2005. Low interest rates, regional job growth, and a continued belief in the investment value of real estate pushed prices higher and kept the number of housing sales at 2004’s high levels. The low interest rates, however, are not enough to counterbalance the effect of rapidly rising home prices, so housing affordability continued to suffer during 2005. For the first time in 15 years, the median income household could barely afford the median priced existing townhouse in 2005, according to the Department of Planning’s Affordability Index. Median prices for new townhouses and for new and existing singlefamily detached homes remain out of reach for most households. Existing condominiums are also still relatively affordable, but if current trends continue, within two years the median income household will not be able to afford the median priced existing condominium. The median price of all single-family housing reached a new high of $455,250 in the first three quarters of 2005, compared to a median price of $395,000 at the end of 2004. The median price of new detached home rose from $666,540 to over $760,000 while the price of an existing detached home increased from $450,000 to $527,000. The median price of new townhouses climbed sharply from $428,000 to $476,000, while the median price of an existing townhouse rose from $283,000 to $335,000. In spite of rising prices, time on the market before a house is sold continued to be short: 27 days on average, which is the same as a year ago. The number of home sales in the first three quarters of 2005 dropped by 6,000: from 23,000 sales in 2004 to 17,000 in 2005. Rental housing vacancies continued to ease, according to the latest Office of Landlord-Tenant Affairs survey. Rental vacancy rates decreased from 5.1 percent to 4.6 percent in 2005. This vacancy rate is indicative of a tightening rental market. It is still considered healthy, however, for landlords and provides some relief to tenants after the very tight markets of the past (in 2001, the rental vacancy rate was just 1.8 percent). Apartment rents are continuing their upward trend (to an average of $1,167 in 2005). Rents averaged $1,154 in 2004. The upward pressure on the rental market has been reduced a bit by a combination of renters moving to home ownership to take advantage of low interest rates and an increase in apartment construction. In 2003, residential completions dropped from two consecutive years at a pace of 5,500 units per year. In 2005, residential completions totaled 3,700 units. Multi-family led the way with 1,722 units, down from 2,033 units the year before. Townhouse

9

ECONOMIC FORCES THAT SHAPE MONTGOMERY COUNTY ANNUAL UPDATE 2006

completions fell from 791 in 2004 to 712 in 2004. Construction of single-family detached units also fell from 1,450 to 1,216.

10

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Economic Forces That Shape Montgomery County

Job Growth Performance

2006

2nd Quarter 2004 to 2nd Quarter 2005

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Job growth themes

Total jobs increased by 9,792

• The number of jobs increased by 9,792 to 460,681 • December unemployment below 3 percent • Growth in Technology Sectors Mixed

20,000

Second quarter figures (change from previous year)

15,000 10,000 5,000

Aerospace: down 4.6% Biotechnology: up 5.1% InfoCom: down 5.7% High tech services: up 3.4%

-15,000

• High Wage Industries added jobs

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

-10,000

1992

0 -5,000

1991

– – – –

25,000

Source: RESI compilation of DLLR data

-20,000

Between the second quarters of 2004 and 2005, Montgomery County added 9,792 jobs, or 2.1 percent.

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Professional services add most jobs. 2004 Natural Resources and Mining Construction

2005 Change

725

813

29,434

10.8%

29,512

0.3

Manufacturing

15,445

14,767

-4.6

Trade, Transportation and Utilities

63,622

64,348

1.1

Information

14,993

14,936

-0.4

Finance Activities (incl. Real Estate)

34,382

36,200

Professional & Business Services

96,593

101,074

4.4

Education & Health Services

55,534

57,026

2.6

40,381

3.2

Leisure & Hospitality Services

39,097

5.0

Other Services

21,327

21,728

1.8

Private Sector

371,656

381,482

2.6

Public Sector

79,233

79,199

0.0

Federal Government

40,667

39,850

-2.1

State Government

1,083

1,039

-4.1

Local Government

37,483

38,310

2.2

Source: RESI compilation of DLLR data (2005Q2)

Adventist Hospital tops list of private sector employers Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Company Name Adventist Hospital Giant Food IBM Federal Unit Marriott International Holy Cross Hospital Lockheed Martin Red Coats Inc. Global Exchange Services Westat Inc. BAE Systems Applied Technologies Kaiser Permanente Health Plans Suburban Hospital GEICO Insurance Montgomery General Hospital Human Genome Sciences Inc. Aspen Systems Mid-Atlantic Medical Services General Conference Corporation B.F. Saul Company Celera Genomics Corporation Otsuka American Pharmaceutical Acterna Manugistics Group United Communications Group, LP Discovery Communications

Jobs 6,951 3,847 3,400 3,000 2,900 2,704 2,700 2,360 2,170 1,700 1,622 1,600 1,500 1,283 825 800 800 750 670 590 570 500 500 500 470

Source: Dun and Bradstreet, Selectory Online; Interview with Corporate Relations Officers.

11

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Technology sector comprises 23% of jobs in County Aerospace 3%

50,800

47,500

45,000

16,100

40,000 Biotech 48%

InfoCom 34%

Technology Sector 23%

55,000 50,000

Other 15%

Other Private Sector 59%

52% of jobs in technology sector are production and research-oriented

35,600

50,600

35,000 30,000

Other HT

25,000

Aerospace

20,000

InfoCom Biotech

15,000

7,000

10,000 5,000

Public Sector 17%

0 Production

Research, Design & Development

Consumer Services

There are 105,300 jobs in the County’s high tech clusters: 7% of jobs are in production, 45% in research, design, & development , and 48 % in consumer services

Source: RESI compilation of DLLR data (2005Q2

M-NCPPC Research & Technology Center

Biotech grows 9%

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1990Q1

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

1990Q1

80

1996Q1

Montgomery Co.

90

Maryland United States

1995Q2

100

1994Q3

110

Montgomery Co.

1993Q4

United States

120

200 190 180 170 160 150 140 130 120 110 100 90 1993Q1

Maryland

130

Index: 1990Q1=100

Index: 1990Q1=100

140

1992Q2

Total number of Technology jobs show growth

1991Q3

M-NCPPC Research & Technology Center

1990Q4

Source: RESI compilation of DLLR data (2005Q2)

6,000-persons work in biotech research, development, and production. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

M-NCPPC Research & Technology Center

Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

M-NCPPC Research & Technology Center

180 170 160 150 140 130 120 110 100 90 80

High Tech Services Up 3.4 % 150

United States Maryland

Index: 1990Q1=100

Montgomery Co.

140

Maryland

130

United States Montgomery Co.

120 110 100 90

There are 41,065 health services jobs in Montgomery County. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

1990Q1

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

80 1990Q1

Index: 1990Q1=100

County trend in Health Services leads nation and state

Other high tech services jobs increased by 538 persons to 16,148. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

12

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

160 150 140 130 120 110 100 90 80 70 60

Aerospace jobs continue slide 110

United States

Index: 1990Q1=100

100 Maryland

70 60 50

Montgomery Co.

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

1990Q1

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

M-NCPPC Research & Technology Center

There are 3,064 aerospace industry jobs in Montgomery County. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

M-NCPPC Research & Technology Center

Finance & Insurance add 760 Jobs 150 140 130 120 110 100 90 80 70 60 50

Montgomery Co.

Professional, Scientific, & Technical Services adds most jobs of any industry 160

Maryland United States

Index: 1990Q1=100

150 United States Maryland

140

Montgomery Co.

130 120 110 100

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1995Q2

1996Q1

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

Index: 1990Q1=100

Maryland United States Montgomery Co.

1990Q4

2,000 administrative and support services jobs were added to Montgomery County payrolls up from 32,157 last year. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

180 170 160 150 140 130 120 110 100 90 1990Q1

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

Maryland

1992Q2

1994Q3

Corporate Headquarters and Management Offices increase staff

United States Montgomery Co.

1991Q3

1993Q4

M-NCPPC Research & Technology Center

180 170 160 150 140 130 120 110 100 90 80 1990Q4

1993Q1

Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

Admin. & Support Services up 6.0%

1990Q1

1992Q2

Professional, Scientific, & Technical services added 2,265 jobs between 2004 and 2005

Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

M-NCPPC Research & Technology Center

1991Q3

1990Q1

There are 22,996 persons employed in the County’s finance and insurance businesses.

1990Q4

80

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

90 1990Q1

Index: 1990Q1=100

Maryland United States

80

30

The County’s information and communications technology cluster employs 4,200 workers in the manufacture of communications technology and 25,300 in systems design and software development. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

Index: 1990Q1=100

90

40

Montgomery Co. 1990Q1

Index: 1990Q1=100

County InfoCom jobs down 5.7%

Employment in Management of Companies and Enterprises increased 10 percent: from 2,787 to 3,064 workers Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

13

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Construction jobs inch up 0.3%

Retail Trade climbs 1,400 jobs

140

United States

120 110

Maryland

100 90

Montgomery Co.

80 70

115 Index: 1990Q1=100

130

United States

110 105

Montgomery Co. Maryland

100 95 90 85

There are 29,512 construction jobs in Montgomery County.

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

There are 48,903 retail trade jobs in Montgomery County.

Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

M-NCPPC Research & Technology Center

All wage categories show gain.

How well do County jobs pay?

120 115 110 105 100 95 90 85 2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

80 1990Q1

• High: Industries with jobs that pay an average of $50,000 ($26/hr and up) • Medium: Industries with jobs that pay an average of $30,000 to $49,999 ($15.62 - $26.0/hr) • Low: Industries with jobs that pay an average of less than $30,000 ($15.62/hr and less) • 20 percent of workers earn $10.60/hr or less

Middle: 2.1% High: 3.0% Low: 2.5%

125 Index: 1990Q1=100

We track job growth by average salary to show how well new jobs are paying:

130

1990Q4

M-NCPPC Research & Technology Center

1993Q4

1993Q1

1992Q2

1990Q1

1991Q3

80

2005Q1

2004Q2

2003Q3

2002Q4

2002Q1

2001Q2

2000Q3

1999Q4

1999Q1

1998Q2

1997Q3

1996Q4

1996Q1

1995Q2

1994Q3

1993Q4

1993Q1

1992Q2

1991Q3

1990Q4

1990Q1

60

1990Q4

Index: 1990Q1=100

120

There are 98,018 jobs in low-wage industries, 108,855 jobs in medium-wage industries, and 174,000 jobs in high-wage industries in Montgomery County. Source: RESI compilation of MD Dept of Labor, Licensing, and Regulation data (2005Q2)

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Unemployment rate returns to 1988 levels 4.5%

June 1992: 3.9%

4.0% 3.5%

December 2005: 2.6%

3.0% 2.5%

Federal Government Role

2.0% 1.5% 1.0%

Jan 1988: 2.6%

0.5% 0.0%

Source: MD DLLR

There are 13,434 unemployed persons in Montgomery County.

14

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

The federal government is a major component of Montgomery County’s economy As an employer, – About 65,000 workers are in federal space, – In FY2004, the federal government paid $3.6 billion in wages to jobs in Montgomery County

Federal expenditures in Montgomery County worth $15.3 billion in FY2004 • The federal government pumps billions of dollars into the County’s economy. $7.5 billion

As a tenant,

$3.6 billion

– The General Services Administration leases 6.9 million square feet of commercial space in the County,

As a purchaser of goods and services, – FY2004’s federal procurement was $7.5 billion the County’s all-time high.

M-NCPPC Research & Technology Center

$3.0 billion $1.2 billion

Procurement

Wages

Direct Payments

Grants

Source: Consolidated Federal Funds Report

M-NCPPC Research & Technology Center

Workers at federal installations are beginning to increase due to FDA’s consolidation Workers

Federal leased space dropped by 2.5 percent during the past year. 8,000,000

80,000

7,000,000

70,000

Square feet

6,000,000 5,000,000

60,000 50,000 40,000

Leased

30,000

Installation

20,000

4,000,000 3,000,000 2,000,000 1,000,000

10,000 19 94 19 96 19 97 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 10 20 15 20 20

Source: M-NCPPC analysis of US government data

Between 2006 & 2020, jobs at installations are expected to grow by 36 percent above current levels. Jobs in leased space are expected to fluctuate between 21,500 and 24,700.

M-NCPPC Research & Technology Center

Other Gaithersburg 4% 6%

Bethesda 15% Rockville 56%

Source: General Services Administration (GSA)

Source: General Services Administration (GSA)

Since January 2005, GSA’s inventory of leased space has declined by 178,800 sq. ft.

M-NCPPC Research & Technology Center

Rockville area is home to most federal leased space

Silver Spring 19%

19 84 19 89 19 94 19 96 19 97 19 99 20 00 20 02 20 03 20 04 20 05 20 06

0

0

Over 80 percent of GSA’s leased space is up for renewal after 2008 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0

sq. ft. of leased space by lease expiration year

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GSA leases 3.9 mil. sq. ft. in Rockville (which includes most of North Bethesda), 1.3 mil. sq. ft. in Silver Spring, and 1.1 mil. sq. ft. in Bethesda.

Source: General Services Administration (GSA)

For the first time, GSA has leases extending to 2015.

15

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

The real estate cycle provides a framework for understanding 2001

Expansion

Oversupply (Phase 3)

(Phase 2) 2000

Net Absorption

Where Is the County’s Office Market Headed?

1997

2002 2003

1994

2004

Recovery

Recession

(Phase 1)

(Phase 4)

Time

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

A new real estate investment cycle is beginning

Declining sublet vacancy rates indicate recovery 4.0%

Expansion

3.5%

(Phase 3)

3.0% Vacancy Rate

Net Absorption

(Phase 2)

Oversupply

Recession

2.5% 2.0%

Recovery

1.5%

Recovery

Oversupply

1.0%

M-NCPPC Research & Technology Center

Mar-06

Mar-05

Mar-04

Mar-03

Mar-02

Mar-01

Mar-00

Mar-99

(Phase 4)

Time

Mar-98

Recession

(Phase 1)

Mar-97

Recovery

Mar-96

0.0% Mar-95

2005

Expansion

0.5%

2006

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

M-NCPPC Research & Technology Center

The region’s vacant Class A office space falls The Washington, DC Region Class A Office Market

25,000,000

1st quarter data, in square feet

20,000,000 15,000,000 10,000,000 5,000,000 0

2000 2001 2002 2003 2004 2005 2006 Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

16

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Vacant space in all regional submarkets continues to fall

First quarter 2006 shows little absorption of Class A office space 4,500,000

25,000,000

Square feet

4,000,000

20,000,000 15,000,000

1st quarter Class A office space absorption, in square feet

3,500,000 3,000,000 13,380,732

2,500,000

9,457,280 8,562,207

10,000,000

Northern Virginia

MD

2,000,000

VA

1,500,000 4,741,295

5,000,000 4,350,878

3,700,925

3,025,753

4,348,641

Suburban Maryland Washington, DC

4,331,602

DC

1,000,000 500,000 0

0

-500,000

1st Qtr 2004 1st Qtr 2005 1st Qtr 2006

2000

2001

2002

2003

2004

2005

2006

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Rents rise throughout the region $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0

Average asking price for Class A office space – first quarter

Washington, DC: $45 Regional average: $33

The Montgomery County Office Market

Northern Virginia: $30 Suburban Maryland: $26

2000

2001

2002

2003

2004

2005

2006

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

County’s Class A office rents remain stable $35

800,000

Montgomery County: $29

$30

600,000

$25

Fairfax County: $28

$20 $15

2006

2005

2004

2003

2002

2001

2000

1999

1998

Source: CoStar Group, Property Professional Database, Analytical Search, County snapshot

-400,000

1997

19 19 19 19 19 20 20 20 20 20 20 20 95 96 97 98 99 00 01 02 03 04 05 06

0 -200,000

1996

Average rent for Class A office space – first quarter

1995

$0

400,000 200,000

$10 $5

194,000 sf of Class A space absorbed in 1st quarter 2006

Montgomery County net class A office space absorption, in square feet

Source: CoStar Group, Property Professional Database, Analytical Search, County Snapshot

17

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Annual net absorption of Class A office space falls in 2005

Less vacant Class A space available in first quarter 2006 35,000,000

2,000,000

30,000,000

1,750,000 1,500,000

25,000,000

1,250,000

20,000,000

2,945,088

3,487,113

434,793

Sublet vacant

1,930,370

Direct vacant

2,676,965

1,000,000

15,000,000

750,000

10,000,000

500,000

21,595,104

23,253,139

24,388,707

26,070,662

2003

2004

2005

26,881,454

Occupied

5,000,000

250,000 0 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

0

2005

2002

2006

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

Source: CoStar Group, Property Professional Database, Analytical Search, County Snapshot

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Class A vacancy rates lowest in four years

961,338sf under construction in 2006 6

18.0% 16.0%

All types

5

14.0% 12.0% 10.0% 8.0%

Montgomery County office space completed per year in millions of square feet

4

2006: Under construction 2007: Proposed for completion

3 2

6.0% 4.0%

1 ABC

ABC

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

M-NCPPC Research & Technology Center

0 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979

2.0% 0.0%

544,008 2,458,610

991,043 1,111,775 1,022,121

Source: Completions: M-NCPPC Research & Technology Center; under construction and proposed: CoStar Group, Property Professional Database.

M-NCPPC Research & Technology Center

Largest office projects are continuations of multi-phase developments Project

Square Ft.

Location

Mid-Atlantic Federal Credit Union

27,000

Germantown

Sandy Spring Plaza Phase I

36,000

Rockville

Montgomery County Teachers FCU

43,000

Rockville

Belward II

54,000

Rockville

MedImmune Phase II

218,650

Gaithersburg

Genomic Research Bldg 5

290,910

Rockville

Source: M-NCPPC Research & Technology Center; Maryland State Tax Assessor; CoStar Group, Property Professional Database.

Nine development projects under construction in ‘06 Name

Location

SF

Leased

Expected Delivery

Chevy Chase Center

Chevy Chase

Opus Center – Phase I

412,000

97.8 %

May 2006

Lakefront @ Washingtonian

Bethesda

197,403

0.0%

Nov 2006

Seneca Meadows - 10

Gaithersburg

108,574

4.3%

June 2006

Germantown

60,000

0.0%

Sep 2006

Pershing Court Condominiums

Silver Spring

34,000

11.8%

May 2006

Source: CoStar Group, Property Professional Database, Property Search

18

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Several large office development projects are planned for 2007/ 2008

Gaithersburg Class A vacancy rate higher than other County submarkets Rents

Germantown 2008

4.0%

$5.0

2.0%

$0.0

0.0% Average Rent

an to w n

Milestone Business Center

6.0%

$10.0

Vacancy Rate

B

G er m

450,000

8.0%

$15.0

g

Chevy Chase 2008

er sb ur g

Wisconsin Place

10.0%

$20.0

G ai th

585,000

12.0%

$25.0

e

Gaithersburg 2007

pr in

Monument Corporate Center

er S

750,000

14.0%

$30.0

R oc kv ill

Delivery

ilv

Location

S

Proposed Development

C et ou he nt sd y a/ C he vy C ha se

SF

Vacancy rates

$35.0

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

Source: CoStar Group, Property Professional Database, Property Search

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Flex & Industrial space: vacancy rates fall, rents dip slightly Vacancy Rates

Rents

Other Commercial Space: Flex & Retail

$16.0

14.0%

$14.0

12.0%

$12.0

10.0%

$10.0 8.0% $8.0 6.0% $6.0 4.0%

$4.0

2.0%

$2.0

0.0%

$0.0 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Rents Vacancy Rates

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Retail space: vacancy up, rents up Vacancy Rates

Rents $25.0

3.0%

2.5%

$20.0

2.0% $15.0 1.5% $10.0 1.0% $5.0

0.5%

$0.0

0.0% 1993

1994

1995

1996 1997

1998

1999

2000

2001

2002

2003 2004

2005

2006

Rents Vacancy Rates

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

19

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Montgomery County’s Housing Market

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

2005 housing sales strong

2006 – Housing Update

Number of housing units sold

20,000

• Price increases continue to increase as affordability suffers. • 2005 data show hot market; some signs of cooling in 2006. • Rental vacancy rates tighten. • Fewer units, larger units.

18,000

Condos

Single Family Units

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1996

1997

2000

2001

2002

2003

111

90

Days on the market 2006

80

100

71

70 80

60 50

55 45

40

2005

Housing on the market longer in first quarter 2006 but still sold at healthy pace

Days on the market

60

2004

M-NCPPC Research & Technology Center

Housing units continued to sell quickly in 2005 120

1999

Includes sales of new and existing single-family attached and detached units and condominium units.

Source: STAR

M-NCPPC Research & Technology Center

1998

40

29

26

27

26

26

20

30

69

2004

58 50 42 37 36 34

50 42 38 37 31

35 33 28 26

20

2003 2002 2001

10 0

2005

64

2000

0

1998

1999

Sources: MRIS

2000

2001

2002

2003

2004

2005

January

February

March

Sources: MRIS

110

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Marked increases continued for single-family home prices

Average time on market increasing slightly during 1st Qtr 2006 $900,000

Days on the market Montgomery County

153

160

Fairfax County

140

New Detached $775,218

Median Prices

$800,000

Existing Detached $530,000 New Attached $499,375 Existing Attached $340,000

$700,000

Loudoun County

$600,000

Montgomery County Trendline

120

$500,000

100

$400,000

80

$300,000

64 69

60

42

40

38

37 28

20

58

37

49

50

$200,000 $100,000

26

28

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

99 J0 0 F0 0 M 00 J0 1 F0 1 M 01 J0 2 F0 2 M 02 J0 3 F0 3 M 03 J0 4 F0 4 M 04 J0 5 F0 5 M 05 J0 6 F0 6 M 06 A p0 6

M

J9 9 F9 9

0

1988

$0

1987

180

In 1999, the average days on the market peaked at 153 days in February, compared to 58 days in Feb of 2006.

Sources: MRIS

Source: STAR

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Half of single-family homes sold for $460,000

In 2005, resale townhomes were the sole singlefamily option for households earning $89,300*

$500,000

$400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000

Source: STAR

20 05

20 04

20 03

20 02

20 01

20 00

19 99

19 98

19 97

19 96

19 95

19 94

19 93

19 92

19 91

19 90

19 89

19 87

19 88

$50,000

2005’s figure represents a 16.5 percent increase over 2004’s median of $395,000.

M-NCPPC Research & Technology Center

Affordability index Existing Townhouse New Townhouse Existing Single Family New Single Family

*$89,300 in the area’s median income for a 4-person household

19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 MC 05 M SA

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0

$450,000

M-NCPPC Research & Technology Center

Condominiums are still considered affordable to households earning the median wage.

Mortgage rates are still lower than pre2003 rates.

Affordability index 2.5

12.0%

2

EXISTING Condominiums

30-year fixed effective mortgage interest rates 10.39% 9.66%

10.0%

8.50%

8.0%

7.48%

8.17% 8.18% 7.98% 7.89%

8.25% 7.19% 7.44%

7.11%

6.69%

6.0% 1

NEW Condominiums 0.5

6.09% 6.02% 6.05%

6.55%

4.0% 2.0%

2002

2000

1998

1996

1994

1st Quarter data for Metro Washington-Baltimore-Northern Virginia DC-MD-VA-WV

1st Qtr 06

the score, the more affordable the housing. A score of “1.0” means the monthly cost of buying a home equals 30% of gross median income.

Source: M-NCPPC Research & Technology Center

1992

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2005 MSA AMI Assumes a moderate $250 per month Condominium Association Fee (CAF). The higher

1990

0.0%

0

2004

1.5

ALL Condominiums

The higher the score, the more affordable the housing is. A score of “1.0” means the monthly cost of buying a home equals 30% of gross median income.

Source: STAR

Source: Federal Housing Finance Board

111

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Apartment market is tightening, with vacancy rates now below 5%. Vacancy Rate

Turnover Rent 7 ,1 6 $1

,1 5

1

$1

,1 1 $1

,0 76

0 $1

28

$1,200

8,000

Multi-family 48%

7,000

Single-Family Detached Single-Family Attached

6,000

$1,000

5,000

$800

4,000

$600

3,000

$400

2,000

SingleFamily Detached 33%

Single Family Attached 19%

Multi-Family

2005

2004

0

2003

2005

2002

2004

2001

2003

2000

2002

1999

2001

1998

2000

1997

1999

1996

1998

1995

1997

1994

$0 1996

1993

0.0%

1,000

1992

$200

1991

1.0%

1990

2.0%

1989

3.0%

1988

$7

26

4.0%

$9

$8

71

,0 3

5.0%

$1,400

4

Vacancy Rate Turnover Rents

$1

6.0%

The ratio of single-family to multi-family completions was about 1:1

Housing completions totaled about 3,700 units in 2005, down from 4,300 units in 2004 and 5,500 units in both 2002 and 2003 Source; M-NCPPC Research & Technology Center

Vacancy rate for all units – market rate and subsidized, combined.

Source: Montgomery County Office of Landlord-Tenant Affairs

M-NCPPC Research & Technology Center

M-NCPPC Research & Technology Center

Over 77 percent of single family completions were in Clarksburg.

Home sizes increased significantly from 1978 to 2004

Lo we rS en Ke mp Poo eca les Mil vi l/4 Co ll e M a rn e r s rti n Ta sb ko u m a rg Pa rk Di ck ers on Be nn e Go tt sh e n Tr av il a Up h Pa pe r R tuxe oc n kC t As ree k pe nH il l O Da lney ma sc Cl o us ve Po r ly Da toma rn e c sto wn Ga F Be i the the r ai rl a n s sd a /C burg d C it he vy y C Wh has e Ga S il i te O i th ve ak rS er sb pr ur g V ing i ci Ke Nort n h ns ing B et ity h to n/W es d a Ge he at on rm an to Ro w n ck Cl a ville rk sb ur g

1,000 900 800 700 600 500 400 300 200 100 0

Single-Family

Townhouse

1978 to 1989 2,352 GSF

2000 to 2004 3,470 GSF

47.5% Increase

Single-Family Detached

1978 to 1989 1,320 GSF

2000 to 2004 1,822 GSF 38.0% Increase

Single-Family Attached

Condominiums

Multi-Family

Source; M-NCPPC Research & Technology Center. Completions in 2005 by units.

112