================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20543


                                    FORM 10-Q


                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                      FOR QUARTER ENDED September 30, 1998
                                        ------------------


                           COMMISSION FILE NO. 1-11706
                                               -------


                         CARRAMERICA REALTY CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Maryland                                  52-1796339
--------------------------------        --------------------------------------
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
 incorporation or organization)


                   1850 K Street, N.W., Washington, D.C. 20006
               --------------------------------------------------
               (Address or principal executive office) (Zip code)


        Registrant's telephone number, including area code (202) 729-7500
                                                           --------------


                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


            Number of shares outstanding of each of the registrant's
                classes of common stock, as of November 13, 1998:

               Common Stock, par value $.01 per share: 71,760,172
--------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.

                           YES   X     NO
                               -----      -----
================================================================================
<PAGE>


                                      Index

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
Part I: Financial Information

Item 1.  Financial Statements

         Condensed consolidated balance sheets of CarrAmerica Realty Corporation and subsidiaries
         as of September 30, 1998 (unaudited) and December 31, 1997........................................4

         Condensed consolidated statements of operations of CarrAmerica Realty Corporation and
         subsidiaries for the three months ended September 30, 1998
         and 1997 (unaudited)..............................................................................5

         Condensed consolidated statements of operations of CarrAmerica Realty Corporation and
         subsidiaries for the nine months ended September 30, 1998
         and 1997 (unaudited)..............................................................................6

         Condensed consolidated statements of cash flows of CarrAmerica Realty Corporation and
         subsidiaries for the nine months ended September 30, 1998
         and 1997 (unaudited)..............................................................................7

         Notes to condensed consolidated financial statements (unaudited)............................8 to 16

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations........................................................17 to 29

Part II: Other Information

Item 1.  Legal Proceedings................................................................................30

Item 2.  Changes in Securities............................................................................30

Item 3.  Defaults Upon Senior Securities..................................................................30

Item 4.  Submission of Matters to a Vote of Security Holders..............................................30

Item 5.  Other Information................................................................................30

Item 6.  Exhibits and Reports on Form 8-K...........................................................30 to 31
</TABLE>


<PAGE>



                                             Part I


Item 1.  Financial Information

         The information furnished in the accompanying condensed consolidated
balance sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows of CarrAmerica Realty Corporation and
subsidiaries (the Company) reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the aforementioned financial
statements for the interim periods.

         The aforementioned financial statements should be read in conjunction
with the notes to the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.



<PAGE>



                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
                   Condensed Consolidated Balance Sheets As Of
                     September 30,1998 and December 31, 1997
--------------------------------------------------------------------------------

(In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                  September 30,       December 31,
                                                                                      1998                1997
                                                                                      ----                ----
                                                                                   (Unaudited)
<S>                                                                               <C>                     <C>    
Assets Rental property (note 2):
     Land                                                                         $   662,742             557,536
     Buildings                                                                      1,984,599           1,692,389
     Tenant improvements                                                              163,338             131,527
     Furniture, fixtures and equipment                                                 46,137              15,571
                                                                                  -----------         -----------
                                                                                    2,856,816           2,397,023
     Less - accumulated depreciation                                                 (239,500)           (184,266)
                                                                                  -----------         -----------
         Total rental property                                                      2,617,316           2,212,757

Land held for development                                                             113,403              81,647
Construction in progress                                                              398,454             210,829

Cash and cash equivalents                                                              41,557              23,845
Restricted cash and cash equivalents (note 2 and 7)                                    94,063              18,049
Accounts and notes receivable                                                          53,207              38,321
Investments                                                                            69,945              20,128
Accrued straight-line rents                                                            36,937              33,212
Tenant leasing costs, net                                                              32,474              19,473
Deferred financing costs, net                                                          18,920               6,899
Prepaid expenses and other assets, net                                                257,349              78,900
                                                                                  -----------         -----------
                                                                                  $ 3,733,625           2,744,060
                                                                                  ===========         ===========
Liabilities, Minority Interest, and Stockholders' Equity

Liabilities:
     Mortgages and notes payable (note 2)                                           1,602,383           1,025,145
     Accounts payable and accrued expenses                                            114,905              71,112
     Rent received in advance and security deposits                                    41,492              20,151
                                                                                  -----------         -----------
         Total liabilities                                                          1,758,780           1,116,408

Minority interest (note 3)                                                             93,507              74,955

Stockholders' equity (note 4):
     Preferred Stock, $.01 par value, authorized 35,000,000 shares:
     Series A Cumulative Convertible Redeemable Preferred Stock, $.01 par value,
       680,000 shares issued and outstanding at September 30, 1998, and 780,000
       shares issued and outstanding at December 31, 1997, with an aggregate
       liquidation preference of $17.0 million and $19.5 million, respectively.             7                   8
     Series B, C and D Cumulative Redeemable Preferred Stock, outstanding
       8,800,000 shares with an aggregate liquidation preference of $400.0 
       million.                                                                            88                  88
     Common Stock, $.01 par value, authorized 180,000,000 shares, issued and
       outstanding 71,732,456 shares at September 30, 1998 and 59,993,778 
       shares at December 31, 1997.                                                       717                 600
     Additional paid in capital                                                     1,965,434           1,629,214
     Accumulated other comprehensive income                                             1,472                  --
     Cumulative dividends in excess of net income                                     (86,380)            (77,213)
                                                                                  -----------         -----------
         Total stockholders' equity                                                 1,881,338           1,552,697
                                                                                  -----------         -----------

 Commitments and Contingencies (note 6)
                                                                                 $  3,733,625           2,744,060
                                                                                  ===========         ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>



                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
             For the Three Months Ended September 30, 1998 and 1997
--------------------------------------------------------------------------------

(Unaudited and in thousands, except per common share amounts)

<TABLE>
<CAPTION>
                                                                                      1998               1997
                                                                                      ----               ----
<S>                                                                                <C>                    <C>   
Operating revenue:
   Rental revenue:
     Minimum base rent                                                             $  98,127             74,630
     Recoveries from tenants                                                          12,175              9,921
     Parking and other tenant charges                                                  3,355              3,304
                                                                                   ---------           --------
         Total rental revenue                                                        113,657             87,855
   Executive suites revenue                                                           46,860              5,000
   Real estate service income                                                          4,471              3,575
                                                                                   ---------           --------
         Total revenue                                                               164,988             96,430
                                                                                   ---------           --------

Operating expenses:
   Property operating expenses:
    Operating expenses                                                                30,033             23,653
    Real estate taxes                                                                  9,897              7,876
   Interest expense                                                                   19,560             14,275
   Executive suites operating expenses                                                38,563              4,124
   General and administrative                                                          8,379              5,445
   Depreciation and amortization                                                      28,523             20,378
                                                                                   ---------           --------
         Total operating expenses                                                    134,955             75,751
                                                                                   ---------           --------

         Operating income                                                             30,033             20,679
                                                                                   ---------           --------

Other operating income:                                                                             
   Interest Income                                                                     1,391                510
   Equity in earnings of unconsolidated partnerships                                   1,285                314
   Gain on sales of assets (note 5)                                                    6,844                 --
                                                                                   ---------           --------
         Total other operating income                                                  9,520                824
                                                                                   ---------           --------

         Net operating income before income taxes, minority
           interest and extraordinary item                                            39,553             21,503
Income taxes                                                                            (574)                --
                                                                                   ---------           --------
         Net operating income before minority interest
           and extraordinary item                                                     38,979             21,503
Minority interest                                                                     (2,598)            (2,022)
                                                                                   ---------           --------
         Income before extraordinary item                                             36,381             19,481
Extraordinary item - loss on early extinguishment of debt                                 --               (608)
                                                                                   ---------           --------
         Net income                                                                $  36,381             18,873
                                                                                   =========           ========

Basic net income per common share:                                                                  
     Income before extraordinary item                                              $    0.38               0.29
     Extraordinary item - loss on early extinguishment of debt                            --              (0.01)
                                                                                   ---------           --------
         Basic net income per common share                                         $    0.38               0.28
                                                                                   =========           ========
   Diluted net income per share:
     Income before extraordinary item                                              $    0.37               0.29
     Extraordinary item - loss on early extinguishment of debt                            --              (0.01)
                                                                                   ---------           --------
         Diluted net income per share                                              $    0.37               0.28
                                                                                   =========           ========
</TABLE>

See accompanying notes to condensed consolidated financial statements



                                       5
<PAGE>


                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
              For the Nine Months Ended September 30, 1998 and 1997
--------------------------------------------------------------------------------

(Unaudited and in thousands, except per common share amounts)

<TABLE>
<CAPTION>
                                                                                      1998               1997
                                                                                      ----               ----
<S>                                                                               <C>                    <C>    
Operating revenue:
   Rental revenue:
     Minimum base rent                                                            $ 276,199            196,530
     Recoveries from tenants                                                         35,391             26,188
     Parking and other tenant charges                                                 9,360              9,114
                                                                                  ---------           --------
         Total rental revenue                                                       320,950            231,832
   Executive suites revenue                                                          97,169              5,000
   Real estate service income                                                        10,985             11,512
                                                                                  ---------           --------
         Total revenue                                                              429,104            248,344
                                                                                  ---------           --------

Operating expenses:
   Property operating expenses:
    Operating expenses                                                               78,223             60,664
    Real estate taxes                                                                28,858             21,256
   Interest expense                                                                  54,137             37,266
   Executive suites operating expenses                                               82,004              4,124
   General and administrative                                                        22,841             15,777
   Depreciation and amortization                                                     78,402             54,561
                                                                                  ---------           --------
         Total operating expenses                                                   344,465            193,648
                                                                                  ---------           --------

         Operating income                                                            84,639             54,696
                                                                                  ---------           --------

Other operating income:                                                                            
   Interest Income                                                                    3,698              1,603
   Equity in earnings of unconsolidated partnerships                                  3,753                377
   Gain on sales of assets (note 5)                                                  33,030                353
                                                                                  ---------           --------
         Total other operating income                                                40,481              2,333
                                                                                  ---------           --------

         Net operating income before income taxes, minority
           interest and extraordinary item                                          125,120             57,029
Income taxes                                                                           (574)                --
                                                                                  ---------           --------
         Net operating income before minority interest
           and extraordinary item                                                   124,546             57,029
Minority interest                                                                   (13,549)            (5,758)
                                                                                  ---------           --------
         Income before extraordinary item                                           110,997             51,271
Extraordinary item - loss on early extinguishment of debt                                --               (608)
                                                                                  ---------           --------
         Net income                                                               $ 110,997             50,663
                                                                                  =========           ========

Basic net income per common share:                                                                 
     Income before extraordinary item                                             $    1.25               0.88
     Extraordinary item - loss on early extinguishment of debt                           --              (0.01)
                                                                                  ---------           --------
         Basic net income per common share                                        $    1.25               0.87
                                                                                  =========           ========
Diluted net income per share:
     Income before extraordinary item                                             $    1.25               0.87
     Extraordinary item - loss on early extinguishment of debt                           --              (0.01)
                                                                                  ---------           --------
         Diluted net income per share                                             $    1.25               0.86
                                                                                  =========           ========
</TABLE>


See accompanying notes to condensed consolidated financial statements

                                       6
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
              For the Nine Months Ended September 30, 1998 and 1997
--------------------------------------------------------------------------------

 (Unaudited and in thousands)

<TABLE>
<CAPTION>
                                                                                      1998               1997
                                                                                      ----               ----
<S>                                                                                <C>                    <C>   
Cash flows from operating activities:
   Net income                                                                      $  110,997             50,663
                                                                                   ----------          ---------
   Adjustments to reconcile net income to net cash                                                   
     provided by operating activities:
     Depreciation and amortization                                                     78,402             54,561
     Minority interest in income                                                       13,549              5,758
     Equity in earnings of unconsolidated partnerships                                 (3,753)              (377)
     Loss on write-off of assets                                                          605                330
     Extraordinary item loss on early extinguishment of debt                               --                608
     Increase in accounts and notes receivable                                        (14,886)           (16,357)
     Increase in accrued straight-line rents                                           (3,725)            (7,177)
     Additions to tenant leasing costs                                                 (8,654)            (7,977)
     Decrease (increase) in prepaid expenses and other assets                           3,131            (13,602)
     Increase in accounts payable and accrued expenses                                 43,793             21,280
     Increase in rent received in advance and security deposits                        21,341              8,194
                                                                                   ----------          ---------
         Total adjustments                                                            129,803             45,241
                                                                                   ----------          ---------
         Net cash provided by operating activities                                    240,800             95,904
                                                                                   ----------          ---------

Cash flows from investing activities:
   Acquisition of executive suites assets                                            (203,615)           (45,736)
   Additions to rental property                                                       (42,410)           (21,582)
   Acquisitions of rental property                                                   (281,260)          (485,399)
   Additions to land held for development                                            (126,915)           (96,326)
   Additions to construction in progress                                             (283,694)           (91,051)
   Distributions from unconsolidated partnerships                                       4,367              1,439
   Investments in unconsolidated partnerships                                         (50,430)            (2,700)
   Increase in restricted cash and cash equivalents                                   (76,014)            (3,958)
   Proceeds from sale of rental property                                               62,806                 --
                                                                                   ----------          ---------
         Net cash used by investing activities                                       (997,165)          (745,313)
                                                                                   ----------          ---------

Cash flows from financing activities:
   Net proceeds from sales of common and preferred stock                              335,960            541,225
   Net borrowings (repayments) on unsecured credit facility                           388,000            (68,000)
   Proceeds from issuance of unsecured notes                                          200,000            275,000
   Net proceeds from exercise of options                                                   41              1,809
   Repayment of mortgages payable                                                     (21,848)           (16,972)
   Contributions from minority interests                                               13,498              1,360
   Dividends paid                                                                    (120,163)           (74,103)
   Additions to deferred financing costs                                              (14,716)            (5,894)
   Distributions to minority interests                                                 (8,167)            (6,850)
                                                                                   ----------          ---------
         Net cash provided by financing activities                                    772,605            647,575
                                                                                   ----------          ---------
         Effect of currency exchange rate change                                        1,472                 --
                                                                                   ----------          ---------
         Increase (decrease) in unrestricted cash and cash equivalents                 17,712             (1,834)
Unrestricted cash and cash equivalents, beginning of the period                        23,845             27,637
                                                                                   ----------          ---------
Unrestricted cash and cash equivalents, end of the period                          $   41,557             25,803
                                                                                   ==========          =========

Supplemental disclosure of cash flow information:
   Cash paid for interest (net of capitalized interest of $21,408 and $7,850
     for the nine months ended September 30, 1998 and 1997, respectively)          $   58,839             32,347
                                                                                   ==========          =========

Supplemental disclosure of noncash investing and financing activities:
   During the nine month periods ended September 30, 1998 and 1997, the Company funded a portion of the aggregate
     purchase price of its property acquisitions by assuming $11.1 million and $57.6 million of debt and liabilities,
     respectively, and by issuing $10.0 million and $17.6 million, respectively, of Units.
</TABLE>

See accompanying notes to condensed consolidated financial statements



                                       7
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

(1)      Description of Business and Summary of Significant Accounting Policies

         (a)      Business

                  CarrAmerica Realty Corporation (the "Company") is a
                  self-administered and self-managed equity real estate
                  investment trust ("REIT"), organized under the laws of
                  Maryland, which owns, develops, acquires and operates office
                  properties. The Company's office properties are located
                  primarily in 15 suburban markets across the United States.

         (b)      Basis of Presentation

                  The accounts of the Company and its majority-owned
                  subsidiaries are consolidated in the accompanying financial
                  statements. The Company uses the equity method of accounting
                  for its investments in and earnings and losses of
                  unconsolidated partnerships not controlled by the Company.
                  Management of the Company has made a number of estimates and
                  assumptions relating to the reporting of assets and
                  liabilities, revenues and expenses, and the disclosure of
                  contingent assets and liabilities to prepare these financial
                  statements in conformity with generally accepted accounting
                  principles. Actual results could differ from those estimates.

         (c)      Interim Financial Statements

                  The information furnished reflects all adjustments which are,
                  in the opinion of management, necessary to reflect a fair
                  presentation of the results for the interim periods, and all
                  such adjustments are of a normal, recurring nature.

         (d)      Rental Property

                  Rental property is recorded at cost less accumulated
                  depreciation (which is less than the net realizable value of
                  the rental property). Depreciation is computed on the
                  straight-line basis over the estimated useful lives of the
                  assets, as follows:

                  Base Building.............................30 to 50 years
                  Building components.......................7 to 20 years
                  Tenant improvements.......................Terms of the leases
                                                            or useful lives,
                                                            whichever is
                                                            shorter
                  Furniture, fixtures and equipment.........5 to 15 years

                  Expenditures for maintenance and repairs are charged to
                  operations as incurred. Significant renovations are
                  capitalized.

                  The Company reviews its long-lived assets for impairment
                  whenever events or changes in circumstances indicate that the
                  carrying amount of an asset may not be recoverable.
                  Recoverability of assets to be held and used is measured by a
                  comparison of the carrying amount of an asset to future net
                  cash flows expected to be generated by the asset. If such
                  assets are considered to be impaired, the impairment to be
                  recognized is measured by the amount by which the carrying
                  amount of the assets exceed the fair value of the assets.

         (e)      Development Property

                  Land held for development and construction in progress is
                  carried at cost. Specifically identifiable direct and indirect
                  development, construction and external acquisition costs are
                  capitalized including, where applicable, salaries and related
                  costs, real estate taxes, interest and certain
                  pre-construction costs essential to the development of a
                  property.



                                       8
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

         (f)      Tenant Leasing Costs

                  Fees and costs incurred in the successful negotiation of
                  leases have been deferred and are being amortized on a
                  straight-line basis over the terms of the respective leases.

         (g)      Deferred Financing Costs

                  Deferred financing costs include fees and costs incurred to
                  obtain financing and are being amortized over the terms of the
                  respective loans on a basis which approximates the interest
                  method.

         (h)      Goodwill, Real Estate Service Contracts and Other Intangibles

                  Real estate service contracts and other intangible assets
                  represent the purchase price of net assets of real estate
                  service operations acquired and are amortized on the
                  straight-line basis over the expected lives of the respective
                  real estate service contracts. Goodwill, which represents the
                  excess of purchase price over the fair value of net assets
                  acquired in the acquisition of executive suite businesses, is
                  amortized on the straight-line basis over 30 years. The
                  Company assesses the recoverability of these intangible assets
                  by determining whether the balance can be recovered over its
                  remaining life through undiscounted future operating cash
                  flows of the related assets or operations acquired. The amount
                  of impairment loss, if any, is measured as the amount by which
                  the carrying amount of the assets exceeds the fair value of
                  the assets. The assessment of the recoverability of these
                  intangible assets will be impacted if estimated future
                  operating cash flows are not achieved.

         (i)      Fair Value of Financial Instruments

                  The carrying amount of the following financial instruments
                  approximates fair value because of their short-term maturity:
                  cash and cash equivalents; accounts and notes receivable;
                  accounts payable and accrued expenses.

         (j)      Revenue Recognition

                  The Company reports base rental revenue for financial
                  statement purposes straight-line over the terms of the
                  respective leases. Accrued straight-line rents represent the
                  amount that straight-line rental revenue exceeds rents
                  collected in accordance with the lease agreements. Management,
                  considering current information and events regarding the
                  tenants' ability to fulfill their lease obligations, considers
                  accrued straight-line rents to be impaired if it is probable
                  that the Company will be unable to collect all rents due
                  according to the contractual lease terms. If accrued
                  straight-line rents associated with a tenant are considered to
                  be impaired, the amount of the impairment is measured based on
                  the present value of expected future cash flows. Impairment
                  losses, if any, are recorded through a loss on the write-off
                  of assets. Cash receipts on impaired accrued straight-line
                  rents are applied to reduce the remaining outstanding balance
                  and as rental revenue, thereafter.

                  The Company earns real estate service revenue for certain
                  properties it manages, leases and develops for third parties.
                  Executive suites revenue represents rental income from
                  executive suites customers and income from various services
                  provided to these customers, such as, telephone and
                  administrative support. Such revenue is recognized as earned.

         (k)      New Accounting Pronouncements

                  In June 1997, the Financial Accounting Standards Board (FASB)
                  issued SFAS No. 130, "Reporting Comprehensive Income," which
                  requires an enterprise to display comprehensive income and its
                  components in a financial statement to be included in an
                  enterprise's full set of financial statements. Comprehensive
                  income represents a measure of all changes in equity of an
                  enterprise that result from recognized transactions and other
                  economic events for the period other than transactions with



                                       9
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

                  owners in their capacity as owners. Comprehensive income
                  includes net income and such items as foreign currency items
                  and certain unrealized gains and losses. For the three and
                  nine month periods ended September 30, 1998, foreign currency
                  translation adjustments were $685 and $1,472, respectively,
                  net of tax. Therefore, comprehensive income was $37,066 and
                  $112,469, respectively, for the three and nine month periods
                  ended September 30, 1998.

                  In June 1997, the Financial Accounting Standards Board issued
                  Statement of Financial Accounting Standards No. 131 (FAS No.
                  131), "Disclosure about Segment of an Enterprise and Related
                  Information." FAS No. 131 requires the Company to present
                  certain information about operating segments and related
                  information, including geographic and major customer data, in
                  its annual financial statements and in condensed financial
                  statements for interim periods. The Company is required to
                  adopt the provisions of this statement during fiscal year 1998
                  and plans to implement the provisions of this statement at
                  December 31,1998. Management is currently determining the
                  necessary additional disclosures, if any.

                  In June 1998, the FASB issued SFAS No. 133 "Accounting for
                  Derivative Instruments and Hedging Activities", which requires
                  that an entity recognize all derivatives as either assets or
                  liabilities in the statement of financial position and measure
                  those instruments at fair value. This statement is effective
                  for all fiscal quarters of fiscal years beginning after June
                  15, 1999. The Company has not yet determined the impact of
                  this pronouncement, if any.

         (l)      Income and Other Taxes

                  The Company qualifies as a REIT under Sections 856 through 860
                  of the Internal Revenue Code of 1986, as amended. A REIT will
                  generally not be subject to federal income taxation on that
                  portion of its income that qualifies as REIT taxable income to
                  the extent that it distributes at least 95 percent of its
                  taxable income to its shareholders and complies with certain
                  other requirements. Accordingly, no provision has been made
                  for federal income taxes for the Company and certain of its
                  subsidiaries in the accompanying consolidated financial
                  statements.

                  Certain subsidiaries, organized as partnerships, of the
                  Company are subject to District of Columbia franchise taxes.
                  Franchise taxes are recorded as general and administrative
                  expenses in the accompanying consolidated financial
                  statements.

                  CarrAmerica Development, Inc. ("CarrAmerica Development"), the
                  Company's development subsidiary, Carr Real Estate Services,
                  Inc. ("Carr Services, Inc."), the Company's real estate
                  service subsidiary, OmniOffices, Inc. ("OmniOffices"), and
                  OmniOffices (UK) Limited ("Omni-UK"), the Company's executive
                  suites subsidiaries, file separate tax returns and are subject
                  to federal, state and local income taxes as well as certain
                  foreign taxes. The Company has adopted the asset and liability
                  method of accounting for income taxes for these subsidiaries.
                  Under the asset and liability method, deferred tax assets and
                  liabilities are recognized for the future tax consequences
                  attributable to temporary differences between the financial
                  statement carrying amounts of existing assets and liabilities
                  and their respective tax bases and to operating loss and tax
                  credit carryforwards. Deferred tax assets and liabilities are
                  measured using enacted tax rates expected to apply to taxable
                  income in the years in which those temporary differences are
                  expected to be recovered or settled. The effect on deferred
                  tax assets and liabilities of a change in tax rates is
                  recognized in income in the period of the enactment date.

         (m)      Hedging Transactions

                  From time to time, the Company enters into interest rate lock
                  and collar agreements that are designed to hedge against the
                  impact of interest rate fluctuations on certain of the
                  Company's existing and probable future long-term debt
                  instruments. Because these agreements qualify for hedge
                  accounting treatment, any gains or losses are recognized as
                  adjustments to interest expense over the lives of the
                  underlying debt instruments. For hedge agreements that are
                  associated with anticipated future debt instruments, gains or
                  losses are deferred until those debt instruments are entered
                  into. If the Company determines it is no longer probable that
                  the Company will enter into an anticipated debt instrument,
                  any related deferred gains or losses are recognized in the
                  current period.



                                       10
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

          (n)     Per Share Data and Dividends

                  Effective December 31, 1997, the Company adopted the
                  provisions of SFAS No. 128 "Earnings Per Share." SFAS No. 128
                  supersedes APB No. 15 and specifies computation, presentation
                  and disclosure requirements for EPS and requires restatement
                  of prior years' comparative EPS amounts. The following is a
                  reconciliation of the numerators and denominators of the basic
                  and diluted EPS computations for income before extraordinary
                  item:

<TABLE>
<CAPTION>
                                                          Three Months                          Three Months
                                                          ------------                          ------------
                                                    Ended September 30, 1998              Ended September 30, 1997
                                                    ------------------------              ------------------------
                                                Income                      Per       Income                     Per
                                               (000's)        Shares       Share      (000's)       Shares      Share
                                             (Numerator)   (Denominator)   Amount   (Numerator)  (Denominator)  Amount
                                             ---------------------------------------------------------------------------
                                     
                 <S>                           <C>            <C>          <C>       <C>             <C>         <C>   
                 Basic EPS                     $ 27,418       71,665       $0 .38    $ 16,792        57,834      $ 0.29
                 Effect of Dilutive                                                               
                   Securities:                                                                    
                   Stock Options                                  80                                    214      
                 Units in Carr Realty, L.P.       1,234        4,774                       --            --
                                                -------     --------                 --------        ------
                 Diluted  EPS                  $ 28,652       76,519       $0 .37    $ 16,792        58,048      $ 0.29
                                               ========     ========                 ========        ======
</TABLE>                                                              

                  Income before extraordinary item has been reduced by preferred
                  stock dividends of $8,963 and $2,689 for the three month
                  periods ending September 30, 1998 and 1997, respectively.

<TABLE>
<CAPTION>
                                                         Nine Months                          Nine Months
                                                         -----------                          -----------
                                                  Ended September 30, 1998              Ended September 30, 1997
                                                  ------------------------              ------------------------
                                                Income                      Per       Income                     Per
                                               (000's)        Shares       Share      (000's)       Shares      Share
                                             (Numerator)   (Denominator)   Amount   (Numerator)  (Denominator)  Amount
                                             ---------------------------------------------------------------------------

                 <S>                           <C>              <C>        <C>       <C>             <C>         <C>   
                 Basic EPS                     $ 84,358         67,504     $1.25     $ 47,059        53,689      $ 0.88
                 Effect of Dilutive                                                               
                   Securities:                                                                    
                   Stock Options                                   154                                  197      
                                               --------         ------               --------        ------
                 Diluted  EPS                  $ 84,358         67,658     $1.25     $ 47,059        53,886      $ 0.87
                                               ========         ======               ========        ======
</TABLE>

                  Income before extraordinary item has been reduced by preferred
                  stock dividends of $26,639 and $4,212 for the nine month
                  periods ending September 30, 1998 and 1997, respectively.

                  The effects of units and Series A Preferred Stock are not
                  included in the computation of diluted EPS for a given period
                  if their effect is antidilutive.

         (o)      Cash Equivalents

                  For the purposes of reporting cash flows, the Company
                  considers all highly liquid investments with a maturity of
                  three months or less at the time of purchase to be cash
                  equivalents.

         (p)      Accumulated Other Comprehensive Income

                  The financial statements of Omni-UK, a foreign subsidiary,
                  have been prepared in the respective local currency and
                  translated into U.S. dollars based on the current exchange
                  rate at the end of the period for assets and liabilities and
                  at an average exchange rate for the period on the statement of
                  operations. Translation adjustments have no effect on net
                  income and are reflected in Stockholders' Equity as
                  accumulated other comprehensive income.

                                       11
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

         (q)      Reclassifications

                  Certain reclassifications of the prior quarter and December
                  31, 1997 amounts have been made to conform to the current
                  period's presentation.



(2)      Mortgages, Unsecured Notes and Credit Facilities

         The Company's mortgages payable, unsecured notes and credit facilities
         are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                              September 30,         December 31,
                                                                   1998                 1997
                                                                   ----                 ----

<S>                                                             <C>                 <C>    
                  Fixed rate mortgages                          $   579,883            590,645
                  Unsecured credit facilities                       547,500            159,500
                  Senior unsecured notes                            475,000            275,000
                                                                -----------         ----------
                                                                $ 1,602,383          1,025,145
                                                                ===========         ==========
</TABLE>

         Mortgages payable are collateralized by certain rental properties and
         generally require monthly principal and/or interest payments. Mortgages
         payable mature at various dates from December 1998 through July 2019.
         The weighted average interest rate of mortgages payable was 8.2% at
         September 30, 1998 and 8.1% at December 31, 1997. In compliance with
         the terms of the mortgage instrument, a mortgage payable of $27.4
         million at September 30, 1998 is held by Carr Redmond Corporation, a
         wholly-owned subsidiary of the Company, which owns the Redmond East
         office campus.

         The Company has a $450.0 million unsecured credit facility with Morgan
         Guaranty Trust Company of New York (Morgan), as agent for a group of
         banks. At September 30, 1998, the credit facility bore interest, as
         selected by the Company, at either (i) the higher of the prime rate or
         the Federal Funds Rate for such day or (ii) an interest rate equal to
         90 basis points above the 30 day London Interbank Offered Rate (LIBOR).
         The Company has predominately selected interest rates equal to 90 basis
         points above the 30 day LIBOR rate for initial draws and upon the
         expiration of current LIBOR contracts. The credit facility matures in
         August 2001.

         OmniOffices also has a $200.0 million unsecured credit facility with
         Morgan, as agent for a group of banks. At September 30, 1998, the
         credit facility bore interest, as selected by OmniOffices, at either
         (i) the higher of the prime rate or the Federal Funds Rate for such day
         or (ii) an interest rate equal to 90 basis points above the 30 day
         LIBOR. OmniOffices has predominately selected interest rates equal to
         90 basis points above the 30 day LIBOR rate for initial draws and upon
         the expiration of current LIBOR contracts. The credit facility matures
         in August 2001. The facility is unconditionally guaranteed by the
         Company.




                                       12
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

         The annual maturities of debt as of September 30, 1998 are summarized
as follows (in thousands):

                  1998                                      $ 22,211
                  1999                                        30,838
                  2000                                        49,403
                  2001                                       648,794 (1,2)
                  2002                                        42,646
                  2003 & thereafter                          808,491 (3)
                                                          ----------
                                                          $1,602,383
                                                          ==========

                      (1)  Includes $448 million outstanding as of September 30,
                           1998 under the Company's $450 million unsecured line
                           of credit.

                      (2)  Includes $99.5 million outstanding as of September
                           30, 1998 under OmniOffices' $200 million unsecured
                           line of credit.

                      (3)  Includes $475 million of senior unsecured notes, $150
                           million of which matures in 2004, $100 million of
                           which matures in 2005, $125 million of which matures
                           in 2007, and $100 million of which matures in 2008.

         Restricted cash and cash equivalents include escrow deposits required
         by lenders to be used for future building renovations or tenant
         improvements, escrow deposits for the acquisition of executive suites
         assets and collateral for letters of credit.

(3)      Minority Interest

         In conjunction with the formation of the Company and its majority-owned
         subsidiary, Carr Realty, L.P., persons contributing interests in
         properties to Carr Realty, L.P. had the right to elect to receive
         either common stock of the Company or Units in Carr Realty, L.P. In
         addition, the Company has acquired certain assets since its formation
         by issuing distribution paying Units and non-distribution paying Units
         of Carr Realty, L.P. and CarrAmerica Realty, L.P. The non-distribution
         paying Units are not entitled to any distributions until they
         automatically convert into distribution paying Units at various dates
         in the future. Each distribution paying Unit, subject to certain
         restrictions, may be redeemed for either one share of common stock or,
         at the option of the Company, cash equal to the fair market value of a
         share of common stock at the time of the redemption. When a Unitholder
         redeems a distribution paying Unit for a share of common stock or cash,
         minority interest is reduced and the Company's investment in Carr
         Realty, L.P. or CarrAmerica Realty, L.P., as the case may be, is
         increased. During the three and nine month periods ended September 30,
         1998, 10,421 and 24,897 distribution paying Units, respectively, of
         Carr Realty, L.P. and CarrAmerica Realty, L.P., were redeemed for
         common stock of the Company.

         The following table sets forth the common stock and preferred stock
         which is convertible into common stock of the Company and Units of Carr
         Realty, L.P. and CarrAmerica Realty, L.P. (in thousands):

<TABLE>
<CAPTION>
                                                                           Convertible          Distribution        Non-Distribution
                                                   Common Stock          Preferred Stock        Paying Units          Paying Units
                                                    Outstanding            Outstanding           Outstanding          Outstanding
                                                    -----------            -----------           -----------          -----------

              <S>                                   <C>                     <C>                   <C>                    <C>
              Outstanding as of:
              September 30, 1998                    71,732                    680                 6,005                  540
              December 31, 1997                     59,994                    780                 5,699                  540

              Weighted average for the three
              months ended:
              September 30, 1998                    71,665                    741                 6,012                  540
              September 30, 1997                    57,834                  1,041                 5,460                  540

              Weighted average for the nine
              months ended:
              September 30, 1998                    67,504                    767                 5,988                  540
              September 30, 1997                    53,689                  1,505                 5,279                  540
</TABLE>


                                       13
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

         Minority interest in the accompanying consolidated financial statements
         relates primarily to holders of Units.


(4)      Preferred Stock

         The Company is authorized to issue up to 35,000,000 shares of Preferred
         Stock. On October 25, 1996, the Company issued 1,740,000 shares of
         Series A Cumulative Convertible Redeemable Preferred Stock ("Series A
         Preferred Stock") at $25 per share. Dividends for the Series A
         Preferred Stock are cumulative from the date of issuance and are
         payable quarterly in arrears in an amount per share equal to the
         greater of (1) $1.75 per share per annum, or (2) the cash dividend paid
         on the number of shares, or portion thereof, of the Company's common
         stock into which a share of Series A Preferred Stock is convertible.
         The Series A Preferred Stock has a liquidation preference of $25 per
         share. After April 25, 1997, each share of Series A Preferred Stock
         became convertible, at the option of the holder, into one share of the
         Company's common stock, subject to certain conversion adjustments. As
         of September 30, 1998, 1,060,000 shares of Series A Preferred Stock had
         been converted into the Company's common stock. After October 25, 1999,
         each outstanding share of Series A Preferred Stock is redeemable at the
         Company's option, at $25 per share, plus accrued and unpaid dividends.

         As of September 30, 1998, the following additional preferred stock
         issued by the Company was outstanding:

<TABLE>
<CAPTION>
                                                                                  Liquidation
                                        Shares             Issue Date             Preference          Dividend Rate
            -------------               ------             ----------             ----------          -------------

               <S>                     <C>                <C>                       <C>                    <C>  
               Series B                8,000,000           August 1997              $  25.00               8.57%
               Series C                6,000,000          November 1997             $  25.00               8.55%
               Series D                2,000,000          December 1997             $  25.00               8.45%
</TABLE>

         Series C and D shares listed above are Depositary Shares, each
         representing a 1/10 fractional interest in a share of preferred stock.
         Dividends for the Series B, C and D shares are cumulative from the date
         of issuance and are payable quarterly in arrears on the last day of
         February, May, August and November of each year. These preferred shares
         are redeemable at the option of the Company not prior to the following
         dates:

                  Series B - August 12, 2002
                  Series C - November 6, 2002
                  Series D - December 19, 2002

(5)      Gain on Sale of Assets

         The Company has disposed of certain assets that are inconsistent with
         its long-term strategic or return objectives or where market conditions
         for sale are favorable. The proceeds of the sales were redeployed into
         other office properties (utilizing tax-deferred exchanges where
         possible). During the first nine months of 1998, the Company disposed
         of two operating properties and land that was being held for
         development. The Company recognized a gain totaling $33.0 million on
         these dispositions.

(6)      Commitments and Contingencies

         At September 30, 1998, the Company is contingentally liable on letters
         of credit amounting to approximately $6.5 million for various
         completion escrows and on performance bonds amounting to approximately
         $11.8 million to ensure completion of required public improvements on
         its construction projects.

         On June 22, 1998, the Company entered into an interest rate hedge
         agreement in the notional amount of $200.0 million at a rate of 9.5% in
         order to hedge against the impact that interest rate fluctuations would
         have on the interest rate attainable on the Company's line of credit.
         As of September 30, 1998, unrealized gain/loss on the agreement was
         zero.


                                       14
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

         The Company has entered into the following forward treasury agreements.
         The Company entered into these agreements in order to hedge against the
         impact that interest rate fluctuations would have on debt instruments
         the Company plans to issue in the future.

<TABLE>
<CAPTION>
                                                                                         Unrealized               Unrealized
                       Date                     Notional                                    Loss                     Loss
                        of                       Amount         10-Year Treasury          @ 9-30-98               @ 11-12-98
                     Agreement                (in millions)         Bill Rate           (in millions)            (in millions)
                     ---------                -------------     ----------------        -------------            -------------
                               
                <S>                             <C>                   <C>                   <C>                    <C>   
                September 2, 1998               $  50.0               5.898%                $ 5.7                  $  4.3
                September 2, 1998                  25.0               5.788                   2.6                     1.9
                September 2, 1998                  25.0               5.647                   2.4                     1.7
                September 2, 1998                  25.0               5.566                   2.2                     1.5
                August 27, 1998                    75.0               5.128 (1)               4.5                     2.3
                                                                                        ------------             -------------
                          Total                                                             $17.4                  $ 11.7
                                                                                        ============             =============
</TABLE>

                   (1) This is tied to Treasury maturing 2/15/06.

(7)      Subsequent Events

         From October 1 to November 14, 1998, the Company acquired two office
         properties. The Company paid $36.2 million in cash to purchase the
         properties. These acquisitions added to the Company's holdings as
         follows:

                                                  # of              Square
                          Region               Buildings             Feet
                          ------               ---------             ----

                  Pacific Region                    1              105,000
                  Mountain Region                   1              133,000
                                              -------------      -----------
                           Total                    2              238,000
                                              =============      ===========

         In April 1998, the Company sold 5,000,000 shares of common stock to
         Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
         resulting in net proceeds to the Company of approximately $147 million,
         in what is commonly known as a "forward equity sale" transaction. In
         connection with that transaction, the Company entered into an agreement
         with Merrill Lynch under which the parties agreed to adjust the number
         of shares of common stock issued to Merrill Lynch (or the aggregate
         purchase price paid for such shares) based upon the proceeds received
         by Merrill Lynch upon a resale of the shares by April 1999 in relation
         to the amount originally paid by Merrill Lynch ($150 million), plus a
         forward accretion component and less dividends paid on the shares. The
         final settlement under the agreement will occur no later than April
         1999, although Merrill Lynch has the right to cause an earlier
         settlement if the market price of the Company's common stock declines
         below certain levels. At monthly intervals up until the final
         settlement, CarrAmerica is required to deposit into escrow either cash
         or additional shares of common stock if the market price of the
         Company's common stock declines. As a result of declines in the market
         price of the Company's common stock, the Company deposited $39.3
         million in cash with Merrill Lynch over various times between April
         1998 and October 5, 1998.

         On October 5, 1998, the Company and Merrill Lynch entered into an
         amendment to the agreement pursuant to which the Company paid to
         Merrill Lynch the $39.3 million currently on deposit, and in connection
         therewith the aggregate settlement amount under the agreement was
         reduced from $150 million to $112 million (i.e, the purchase price
         adjustment mechanism takes effect if the aggregate proceeds received by
         Merrill Lynch from the sale of the 5,000,000 shares is less than or
         greater than $112 million), plus a forward accretion component and less
         dividends paid on the shares. The effect of this amendment is to permit
         the Company to benefit from the increase in the market price of its
         common stock over $22.40, but also subjects the Company to the risk
         that it may have to deliver additional shares or return a portion of
         the purchase price if there is a decrease in the market price of its
         common stock below $22.40. The final settlement under the agreement
         remains no later than April 1999.


                                       15
<PAGE>

                 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

         In October 1998, the Company sold $150 million in two-year unsecured
         notes at a rate of 6.625%.



                                       16
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

Item 2.           Management's Discussion And Analysis of Financial Condition
                  And Results of Operations

         The following discussion is based primarily on the Consolidated
Financial Statements of CarrAmerica Realty Corporation and its subsidiaries (the
"Company") as of September 30, 1998 and December 31, 1997, and for the three and
nine months ended September 30, 1998 and 1997. The comparability of the periods
is significantly impacted by acquisitions made during 1998 and 1997. As of
September 30, 1997, the Company owned 230 properties.
This number grew to 288 as of September 30, 1998.

         This information should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto. These condensed
consolidated financial statements include all adjustments which are, in the
opinion of management, necessary to reflect a fair statement of the periods
presented, and all such adjustments are of a normal, recurring nature.

Results of Operations - Three Months Ended September 30, 1998 and 1997

Operating Revenue. Total operating revenue increased $68.6 million, or 71.1%, to
$165.0 million for the three months ended September 30, 1998 as compared to
$96.4 million for the three months ended September 30, 1997. The increase in
revenue was primarily attributable to a $25.8 million and a $42.8 million
increase in rental revenue and other operating revenue, respectively. The
Company experienced net growth in its rental revenue as a result of its
acquisitions, and development properties placed in service net of dispositions,
which together contributed approximately $23.5 million of additional rental
revenue in the three month period ended September 30, 1998. Rental revenue from
properties that were fully operational throughout both periods increased by
approximately $3.2 million primarily due to increased occupancy and rental rate
increases. Other operating revenue increased by $42.8 million, or 498.6%, for
the three months ended September 30, 1998 to $51.3 million as compared to $8.5
million for the three months ended September 30, 1997, primarily as a result of
the executive office suites revenue related to the Company's acquisitions of
executive suite businesses.

Operating Expenses. Total operating expenses increased $59.2 million for the
three months ended September 30, 1998, or 78.2%, to $135.0 million as compared
to $75.8 million for the three months ended September 30, 1997. The net increase
in operating expenses was attributable to a $8.5 million increase in property
operating expenses, a $5.3 million increase in interest expense, the addition of
$34.4 million in executive office suites operating expenses, a $2.9 million
increase in general and administrative expenses, and an $8.1 million increase in
depreciation and amortization. Property operating expenses increased primarily
as a result of property acquisitions, with property operating expenses from
properties that were fully operational in both periods increasing approximately
$.6 million. The increase in the Company's interest expense is primarily related
to borrowings necessary to fund acquisitions and development commitments. The
addition of executive office suites operating expenses is a result of the
acquisition of executive suite businesses. The increase in general and
administrative expenses is predominately a result of the addition of new staff
to implement the Company's business strategy and the write-off of approximately
$1.1 million of costs associated with abandoned acquisitions. The increase in
depreciation and amortization is predominately a result of depreciation and
amortization on the Company's real estate and executive suite acquisitions.

Other Operating Income. Other operating income increased $8.7 million for the
three months ended September 30, 1998, to $9.5 million as compared to $.8
million for the three months ended September 30, 1997, primarily due to a gain
recognized on the disposition of 189,000 square feet of office space, earnings
from the Company's additional investments in unconsolidated partnerships and the
interest income earned on increased cash balances.



                                       17
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

Net Income. Net income of $36.4 million was earned for the three months ended
September 30, 1998 as compared to $18.9 million during the three months ended
September 30, 1997. The comparability of net income between the two periods is
impacted by the acquisitions the Company made and the other changes described
above.


Results of Operations - Nine Months Ended September 30, 1998 and 1997

Operating Revenue. Total operating revenue increased $180.8 million, or 72.8%,
to $429.1 million for the nine months ended September 30, 1998 as compared to
$248.3 million for the nine months ended September 30, 1997. The increase in
revenue was primarily attributable to an $89.1 million and a $91.7 million
increase in rental revenue and other operating revenue, respectively. The
Company experienced net growth in its rental revenue as a result of its
acquisitions, and development properties placed in service net of dispositions,
which together contributed approximately $84.8 million of additional rental
revenue in the nine month period ended September 30, 1998. Rental revenue from
properties that were fully operational throughout both periods increased by
approximately $6.9 million, primarily due to rental rate increases. Other
operating revenue increased by $91.7 million, or 555.0%, for the nine months
ended September 30, 1998 to $108.2 million as compared to $16.5 million for the
nine months ended September 30, 1997, primarily as a result of the executive
office suites revenue earned on the Company's acquisitions of executive suite
businesses.

Operating Expenses. Total operating expenses increased $150.9 million for the
nine months ended September 30, 1998, or 77.9%, to $344.5 million as compared to
$193.6 million for the nine months ended September 30, 1997. The net increase in
operating expenses was attributable to a $25.2 million increase in property
operating expenses, a $16.9 million increase in interest expense, the addition
of $77.9 million in executive office suites operating expenses, a $7.1 million
increase in general and administrative expenses, and a $23.8 million increase in
depreciation and amortization. Property operating expenses increased primarily
as a result of property acquisitions, with property operating expenses from
properties that were fully operational in both periods increasing approximately
$1.3 million. The increase in the Company's interest expense is primarily
related to borrowings necessary to fund acquisitions and development
commitments. The addition of executive office suites operating expenses is a
result of the acquisition of executive suite businesses. The increase in general
and administrative expenses is predominately a result of the addition of new
staff to implement the Company's business strategy and the write-off of
approximately $1.8 million of costs associated with abandoned acquisitions. The
increase in depreciation and amortization is predominately a result of
depreciation and amortization on the Company's real estate and executive suite
acquisitions.

Other Operating Income. Other operating income increased $38.2 million for the
nine months ended September 30, 1998, to $40.5 million as compared to $2.3
million for the nine months ended September 30, 1997, primarily due to the gain
recognized on the disposition of 456,000 square feet of office space, earnings
from the Company's additional investments in unconsolidated partnerships, and
the interest income earned on cash balances.

Net Income. Net income of $111.0 million was earned for the nine months ended
September 30, 1998 as compared to $50.7 million during the nine months ended
September 30, 1997. The comparability of net income between the two periods is
impacted by the acquisitions the Company made and the other changes described
above.

Cash Flows. Net cash provided by operating activities increased $144.9 million,
or 151.1%, to $240.8 million for the nine months ended September 30, 1998 as
compared to $95.9 million for the nine months ended September 30, 1997,
primarily as a result of the acquisitions made and development placed in service
by the Company. Net cash used by investing activities increased $251.9 million,
to $997.2 million for the nine months ended September 30, 1998 as compared to
$745.3 million for the nine months ended September 30, 1997, primarily as a
result of capital deployed by the Company for acquisitions of office properties,
executive suite businesses, land held for future development and investments in
construction in progress. Net cash provided by financing activities increased
$125.0 million, to $772.6 million for the nine months ended September 30, 1998
as compared to $647.6 million for the nine months ended September 30, 1997,
primarily as a result of borrowings on the unsecured credit facility, and
proceeds from sales of common stock and unsecured bonds net of dividends paid to
the common and preferred stockholders.


                                       18
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

Liquidity And Capital Resources

         The Company seeks to create and maintain a capital structure that will
enable it to diversify its capital sources and thereby allow the Company to
obtain additional capital from a number of different sources, including
additional equity offerings of common and/or preferred stock, public and private
debt financings, and, where appropriate, asset dispositions. Management believes
that the Company will have access to the capital resources necessary to expand
and develop its business, to fund its operating and administrative expenses, to
continue debt service obligations, to pay dividends in accordance with REIT
requirements, to acquire additional properties and land as market conditions
permit, and to pay for construction in progress in both the short and long term.

         The Company has three investment grade ratings. Duff & Phelps Credit
Rating Co. (DCR) and Standard & Poors (S&P) have each assigned their BBB rating
to prospective senior unsecured debt offerings of the Company and their BBB-
rating to prospective cumulative preferred stock offerings of the Company.
Moody's Investor Service (Moody's) has assigned its Baa3 rating to prospective
senior unsecured debt offerings of the Company and its Ba2 rating to prospective
cumulative preferred stock offerings of the Company.

         The Company's total indebtedness at September 30, 1998 was $1.602
billion, of which $547.5 million, or 34.2%, bears a LIBOR-based floating
interest rate. Currently, the unsecured credit facilities bear interest at 90
basis points over LIBOR on the $450 million facility and the $200 million
facility. The Company's mortgages payable fixed rate indebtedness bears an
effective weighted average interest rate of 8.2% at September 30, 1998 and has a
weighted average term to maturity of 4.6 years. Based upon the Company's total
market capitalization at September 30, 1998 of $3.809 billion (the common stock
price was $22.88 per share; the total shares of common stock, convertible
preferred stock and Units outstanding was 78,957,151 and the aggregate
liquidation value of the cumulative redeemable preferred stock was $400
million), the Company's debt represented 42.1% of its total market
capitalization. As of November 13, 1998, the Company had $353.5 million
outstanding under the unsecured credit facilities, leaving $296.5 million for
draw.

         Rental revenue, executive suites revenue and real estate service
revenue have been the principal sources of capital to fund the Company's
operating expenses, debt service and capital expenditures, excluding
nonrecurring capital expenditures. The Company believes that these sources of
revenue will continue to provide the necessary funds for its operating expenses
and debt service. The Company also requires capital to invest in its existing
portfolio of operating assets for major capital projects such as large-scale
renovations, routine capital expenditures and deferred maintenance on certain
properties recently acquired and tenant related capital expenditures, such as
tenant improvements and allowances and leasing commissions.

         Additionally, the Company and it's subsidiaries (including CarrAmerica
Development) will require a substantial amount of capital for development
projects currently underway and planned for the future. As of September 30,
1998, the Company had approximately 5.0 million square feet of office space in
63 development projects underway which is expected to require a total investment
by the Company of approximately $767 million. As of September 30, 1998, the
Company had expended $399 million, or 52.0 percent of the total expected
investment.

         The Company's subsidiaries also have various capital needs.
Specifically, OmniOffices is currently developing approximately 20 executive
office suite centers. The total cost to complete these projects is approximately
$26.8 million, of which approximately $15.5 million was expended as of September
30, 1998. In addition, OmniOffices currently is considering several acquisitions
of existing executive office suite centers, although no binding agreements have
been executed. Future cash needs of OmniOffices are expected to be met by draws
on the OmniOffices line of credit facility. As this subsidiary continues to
grow, the Company may in the future elect to dispose of part or all of its
equity interest in OmniOffices, including through a distribution of stock in
OmniOffices to the Company's stockholders, but no decision with respect to any
such disposition has been made at this time.



                                       19
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

         Finally, the Company may need additional capital to satisfy its
obligations under the agreement entered into with Merrill Lynch in connection
with the Company's "forward equity sale" transaction, described in more detail
in note 7 to the Company's Condensed Consolidated Financial Statements above.

         Historically, management has primarily met the Company's capital
requirements by accessing the public equity and debt markets. However, because
of certain unfavorable conditions currently existing in the public equity and
debt markets, the Company does not believe that these markets are currently
providing the Company with the most attractive sources of capital. If conditions
in the public equity or debt markets improve, the Company will evaluate the cost
of capital raised in such markets to determine if it is the most attractive
capital available to the Company at the time. However, there can be no assurance
that conditions will improve in the near term.

         In response to the current conditions in the equity and debt markets,
the Company plans to address its cash needs through utilization of the Company's
line of credit, refinancing select assets, prudent use of joint ventures and the
disposition of certain assets. Currently, the Company has 25 assets under
contract for sale primarily in the Northern California, Dallas and Atlanta
markets. In addition, the Company has 6 properties under letter of intent for
sale. These properties are expected to produce net proceeds of approximately
$188 million. Due to the uncertainties in the disposition process, there can be
no assurances that these sales will close or that they will achieve the expected
net proceeds.

         If (i) the debt and equity capital markets do not improve, (ii) the
Company is unable to raise the expected net proceeds from dispositions of
properties, and (iii) the Company is unable to obtain capital from other
sources, the Company believes that it would continue to have sufficient funds to
continue to pay its operating and debt service expenses, its regular quarterly
dividends and to meet the necessary capital requirements with respect to its
existing portfolio of operating assets. However, the Company's ability to
continue to fund all of its current development projects could be materially
adversely affected. If the Company determined that it was in the best interests
of the Company to continue to fund all of its current development projects, the
Company may have to access either the public equity or debt markets, which, at
that time, may not be the most attractive source of capital.

         Net cash provided by operating activities was $240.8 million for the
nine months ended September 30, 1998, compared to $95.9 million for the nine
months ended September 30, 1997. The increase in net cash provided by operating
activities was primarily a result of acquisitions made and development placed in
service by the Company. The Company's investing activities used approximately
$997.2 billion and $745.3 million for the nine months ended September 30, 1998
and 1997, respectively. The Company's investment activities included the
acquisitions of office buildings, executive office suites businesses, and land
held for future development and additions to construction in process of
approximately $895.5 million for the nine months ended September 30, 1998, as
compared to $718.5 million in acquisitions during the same period in 1997.
Additionally, the Company invested approximately $42.4 million and $21.6 million
in its existing real estate assets for the nine months ended September 30, 1998
and 1997, respectively. Net of distributions to the Company's stockholders and
minority interests, the Company's financing activities provided net cash of
$900.9 million and $728.5 million for the nine months ended September 30, 1998
and 1997, respectively. For the nine months ended September 30, 1998, the
Company raised $335.9 million through the sale of common stock which was used to
repay amounts outstanding under its unsecured credit facility and to fund
acquisitions. The Company also drew amounts from its unsecured credit facilities
during 1998 to finance its acquisitions and other investing activities. For the
nine months ended September 30, 1998, the Company's net borrowings on its
unsecured credit facility were approximately $388.0 million.

         Rental revenue and real estate service revenue have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding non-recurring capital expenditures. The Company
believes that rental revenue and real estate service revenue will continue to
provide the necessary funds for its operating expenses and debt service.


                                       20
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

         The Company's dividends are paid quarterly. Amounts accumulated for
distribution are primarily invested by the Company in short-term investments
that are collateralized by securities of the United States Government or certain
of its agencies.

Year 2000 Compliance

         The Year 2000 issue results from a programming convention in which
computer programs use two digits rather than four to define the applicable year.
Software and hardware may recognize a date using "00" as the year 1900, rather
than the year 2000. Such an inability of computer programs to recognize a year
that begins with "20" could result in business or building system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities.

         The Company has undertaken a comprehensive program to address the Year
2000 issue. In the second quarter of 1998, the Company expanded its program and
appointed a Year 2000 Steering Committee to manage centrally its Year 2000
compliance program (known internally as "Project 2000"). The Steering Committee
includes representatives of senior level management representing a wide array of
the organization. The Steering Committee is charged with overseeing the
Company's comprehensive action plan designed to address Year 2000 issues.

         The Company's Steering Committee has engaged the independent consulting
firm of Computer Technology Associates, Inc. ("CTA") to serve as the Project
Manager for Project 2000. The project is organized into two areas of
concentration: (i) Property Operations Embedded Systems and (ii) Internal
Business Operations Technology. The Property Operations segment of the program
focuses primarily on equipment and systems present in the Company's operating
properties that may contain embedded microcontroller technology (such as
elevators and HVAC systems). The Internal Business Operations segment focuses
primarily on the Company's information technology, operating systems (such as
such as billing, accounting and financial reporting systems) and certain systems
of the Company's major vendors and material service providers. As described
below, Project 2000 involves (i) the assessment of the Year 2000 problems that
may affect the Company, (ii) the development of remedies to address the problems
discovered in the assessment phase, (iii) the testing of such remedies and (iv)
the preparation of contingency plans to deal with the potential failure of
important and critical systems.

         Assessment. During the course of its assessment phase, the Company
continues to identify substantially all of the major components of its property
and business operations systems which may be vulnerable to the Year 2000 issue.
In terms of Property Operations, the Company is conducting a comprehensive
inventory of all the buildings' systems and equipment. Systems are ranked (0-3)
based upon each systems' importance to the properties' operations. Those systems
classified as level 2 or 3 (the highest levels of importance) are compared to
CTA's existing embedded systems database to determine the status of Year 2000
compliance if it is not already known by the Company. If relevant information is
not contained in the existing database, the system is then identified for
processing through vendor management coordinated by CTA. Vendor management
involves concentrated communication with the vendor in an attempt to determine
the status of a systems Year 2000 compliance and any available remedies. As of
the third quarter of 1998, inventory of the Company's operating properties was
substantially complete (approximately 98%). Assessment of property operations is
scheduled for completion in the fourth quarter of 1998.


                                       21
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

         In terms of Internal Business Operations Technology, team leaders have
been selected from each business unit and market office to assist in identifying
software, hardware and external interfaces which may be vulnerable to Year 2000
issues. Inventory of both core business units and all market offices is expected
to be completed by the end of the fourth quarter of 1998. The Company's primary
billing and accounting software is currently undergoing a routine application
upgrade expected to be complete by the end of the fourth quarter of 1998. The
vendor of the software has received the Information Technology Association of
America (ITAA) 2000 Certification and represents that the system is Year 2000
ready, and the Company expects to test the system during the first quarter of
1999. In addition, during the third quarter of 1998, the Company continued
communicating with other significant hardware, software and other material
services providers, requesting them to provide the Company with detailed,
written information concerning existing or anticipated Year 2000 compliance of
their systems insofar as the systems relate to such parties' business activities
with the Company. The Company expects that it will complete its distribution of
these inquiries by the end of the fourth quarter of 1998.

         Remediation and Testing Phase. Based upon the results of its assessment
efforts, the Company will undertake remediation and testing activities. The
Company intends to complete this phase by the end of the third quarter of 1999.
The activities conducted during the remediation and testing phase are intended
to provide assurance from both the Property Operation and the Internal Business
perspectives that critical and important applications, systems and equipment
will be substantially Year 2000 compliant on a timely basis. In this phase, the
Company will first evaluate applications, systems and equipment. If a potential
Year 2000 problem is identified, the Company will take steps to attempt to
remediate the problem and, where applicable, test to confirm that the
remediating changes are effective and have not adversely affected the
functionality of that application. After the various applications, system
components and equipment have undergone remediation and testing phases, the
Company, where applicable, will conduct integrated testing for the purpose of
demonstrating functional integrated systems operations.

         Contingency Plans. The Company intends to develop contingency plans to
handle its most reasonably likely worst case Year 2000 scenarios, which it is in
the process of identifying. The Company intends to complete its determination of
worst case scenarios after it has received and analyzed responses to
substantially all of the inquiries it has made of third parties. The Company
expects to complete contingency plans by the end of the third quarter of 1999.

         Costs Related to the Year 2000 Issue. To date, the Company, has
incurred approximately $.3 million in costs for its Year 2000 program. The
Company currently estimates that it will incur additional costs, which are not
expected to exceed approximately $4.3 million, to complete its Year 2000
compliance work. Of such additional costs, approximately $1.5 million are
expected to be incurred during 1998 and approximately $2.8 million are expected
to be during 1999. The Company believes that a portion of these costs may be
recoverable from tenants but has not determined at this time the extent to which
such recovery can be realized.

         Risks Related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the Year 2000 issue
and the success or failure of the Company's efforts described above cannot be
known until the year 2000. Failure by the Company and its major vendors, other
material service providers and material clients to address adequately their
respective Year 2000 issues in a timely manner (insofar as such issues relate to
the Company's business) could have a material adverse effect on the Company's
business, results of operations and financial condition.



                                       22
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

Other Matters

         Effective March 19, 1998, the Company has adopted the Emerging Issues
Task Force's Issue 97-11, "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions." Issue 97-11 states that internal costs from acquiring
operating property should be expensed as incurred. Costs that have been
capitalized in the Company's financial statements from January 1, 1998 through
March 19, 1998 amounted to $.7 million. The Company believes that this will not
have a material effect on the Company's operations.

Funds From Operations

         The Company believes that funds from operations is helpful to investors
as a measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures and to fund other cash needs. In
accordance with the final National Association of Real Estate Investment Trusts
(NAREIT) White Paper on Funds From Operations as approved by the Board of
Governors of NAREIT on March 3, 1995, funds from operations represents net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring or sales of
property, plus depreciation and amortization of assets uniquely significant to
the real estate industry and after adjustments for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect funds from operations on the same basis. The
Company calculates its Funds From Operations by combining the Funds From
Operations from its real estate operations, calculated in accordance with
NAREIT's definition of Funds From Operations, and the earnings before
depreciation, amortization and deferred taxes ("EBDADT") of the Company's
executive suite business, excluding operating losses from centers under
development. The Company's funds from operations may not be comparable to funds
from operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds from operations does not
represent net income or cash flow generated from operating activities in
accordance with generally accepted accounting principles and, as such, should
not be considered an alternative to net income as an indication of the Company's
performance or to cash flow as a measure of liquidity or the Company's ability
to make distributions.


                                       23
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

         The following table provides the calculation of the Company's Funds
From Operations ("FFO"):


<TABLE>
<CAPTION>
 (in thousands)                                                     Three Months Ended         Nine Months Ended
                                                                       September 30,              September 30,
                                                                   --------------------       --------------------
                                                                     1998         1997          1998         1997
                                                                     ----         ----          ----         ----

<S>                                                                <C>           <C>           <C>          <C>   
 Net income before minority interest and extraordinary item        $ 38,979      21,503        124,546      57,029
                                                                                            
 Adjustments to derive funds from operations:                                               
     Add:                                                                                   
       Depreciation and amortization                                 28,382      19,543         77,306      51,881
       Losses associated with executive suites centers under                                
         development                                                  1,410          --          2,952          --
       Deferred taxes                                                   248          --            248          --
     Deduct:                                                                                
       Minority interests' (non Unitholders) share                                          
         of depreciation and amortization and net income                (60)       (379)          (255)       (965)
       Gain on sale of assets                                        (6,844)         --        (32,450)       (353)
                                                                   --------    --------       --------    --------
 FFO before allocations to the minority Unitholders                  62,115      40,667        172,347     107,592
 Less:  FFO allocable to the minority Unitholders                    (3,677)     (3,276)       (11,565)     (9,376)
                                                                   --------    --------       --------    --------
 FFO allocable to CarrAmerica Realty Corporation                     58,438      37,391        160,782      98,216
 Less:  Preferred stock dividends (1)                                (8,963)     (2,689)       (26,639)     (4,212)
                                                                   --------    --------       --------    --------
 FFO attributable to common shareholders                           $ 49,475      34,702        134,143      94,004
                                                                   ========    ========       ========    ========
</TABLE>


         (1) For the three months ended September 30, 1998 and 1997, included
         are dividends of $345 and $341, respectively, of Series A Preferred
         Stock which are convertible into common shares. For the nine months
         ended September 30, 1998 and 1997, included are dividends of $1,067 and
         $1,864, respectively, of Series A Preferred Stock which are convertible
         into common shares.

     Changes in funds from operations are largely attributable to changes in net
income between the periods, as previously discussed.


                                       24
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

Building And Lease Information

The following table sets forth certain information about each operating property
owned by the Company as of September 30, 1998:

<TABLE>
<CAPTION>
                                                Company's         Net
                                                Effective       Rentable
                                                Property          Area         Percent     # of
Property                                        Ownership   (square feet)(1)  Leased(2)  Buildings
--------                                        ---------   ----------------  ---------  ---------

<S>                                                 <C>         <C>                <C>      <C>
Consolidated Properties

SOUTHEAST REGION
Downtown Washington, D.C.:
   International Square                             100.0%      1,014,537          93.4%     3
   1730 Pennsylvania Avenue                         100.0         229,292          99.3      1
   2550 M Street                                    100.0         187,931          97.4      1
   1775 Pennsylvania Avenue (3)                     100.0         143,981          99.1      1
   900 19th Street                                  100.0         100,907         100.0      1
   1747 Pennsylvania Avenue                          89.7 (4)     151,864          94.4      1
   1255 23rd Street                                  75.0 (5)     305,237          92.5      1
Suburban Washington, D.C.:
   One Rock Spring Plaza (3)                        100.0         205,298         100.0      1
   Tycon Courthouse                                 100.0         416,195          99.2      1
   Three Ballston Plaza                             100.0         302,875         100.0      1
   Sunrise Corporate Center                         100.0         260,253         100.0      3
   Parkway One                                      100.0          87,842         100.0      1
Suburban Atlanta:
   Veridian                                         100.0         190,781          85.5     22
   Glenridge                                        100.0          64,052          76.3      1
   Century Springs West                             100.0          94,893          98.0      1
   Holcomb Place                                    100.0          72,823          96.7      1
   DeKalb Tech                                      100.0         163,159          81.2      5
   Midori                                           100.0          99,900         100.0      1
   Crestwood                                        100.0          88,186          92.0      1
   Parkwood                                         100.0         151,296          64.8      1
   Lakewood                                         100.0          80,338          95.3      1
   The Summit                                       100.0         179,085         100.0      1
   Triangle Parkway                                 100.0          82,102         100.0      3
   2400 Lake Park                                   100.0         100,491          93.1      1
   680 Engineering Drive                            100.0          62,154         100.0      1
   Embassy Row                                      100.0         465,858          94.7      3
   Waterford Center                                 100.0          82,161          85.1      1
   Spalding Ridge                                   100.0         128,233          92.3      1
Boca Raton:
   Peninsula Plaza                                  100.0         160,081          92.6      1
   Presidential Circle                              100.0         279,227          84.3      1
                                                                ---------          ----     --

     Southeast Region Subtotal                                  5,951,032          93.9     63

PACIFIC REGION
Southern California,
Orange County/Los Angeles:
   Scenic Business Park                             100.0         139,012         100.0      4
   Harbor Corporate Park                            100.0         148,598          95.4      4
   Plaza PacifiCare                                 100.0         104,377         100.0      1
   Katella Corporate Center                         100.0          79,917          97.4      1
   Warner Center                                    100.0         342,866          89.3     12
   South Coast Executive Center                     100.0         161,310          92.9      2
   Warner Premier                                   100.0          61,553         100.0      1
   Westlake Corporate Center                        100.0          72,282          89.1      2
   Von Karman                                       100.0         103,713         100.0      1
   2600 W. Olive                                    100.0         145,474          95.7      1
   Bay Technology Center                            100.0         107,481         100.0      2
   Alton Deere Plaza                                100.0         181,196          99.5      6
</TABLE>


                                       25
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Company's         Net
                                                Effective       Rentable
                                                Property          Area         Percent     # of
Property                                        Ownership   (square feet)(1)  Leased(2)  Buildings
--------                                        ---------   ----------------  ---------  ---------

<S>                                                 <C>           <C>             <C>       <C>
Southern California,
San Diego:
   Del Mar Corporate Plaza                          100.0%        123,142         100.0%     2
   Wateridge Pavilion                               100.0          62,194         100.0      1
   Lightspan                                        100.0          64,800         100.0      1
   Towne Center Technology Park II                  100.0          62,367         100.0      1
   Palomar Oaks Technology Park                     100.0         170,358         100.0      6
   Century Park II                                  100.0         198,306         100.0      3
Northern California,
San Francisco Bay Area:
   CarrAmerica Corporate Center                     100.0         994,930         100.0      6
   Sunnyvale Research Plaza                         100.0         126,000         100.0      3
   Rio Robles                                       100.0         368,178         100.0      7
   Valley Business Park II                          100.0         166,928         100.0      6
   Bayshore Centre                                  100.0         195,249         100.0      2
   Rincon Centre                                    100.0         201,178         100.0      3
   Valley Centre II                                 100.0         212,082         100.0      4
   Valley Office Centre                             100.0          68,731          97.2      2
   Valley Centre                                    100.0         102,291         100.0      2
   Valley Business Park I                           100.0          67,784         100.0      2
   3745 North First Street                          100.0          67,582         100.0      1
   3571 North First Street                          100.0         116,000         100.0      1
   Mission Plaza                                    100.0         102,687         100.0      2
   North San Jose Technology Park                   100.0         299,233         100.0      4
   Foster City Technology Center                    100.0          66,869         100.0      2
   150 River Oaks                                   100.0         100,024         100.0      1
   Amador/Rinconada                                 100.0         134,611         100.0      3
   Amador III                                       100.0          82,944         100.0      1
   Arroyo Center                                    100.0         104,741         100.0      2
   San Mateo I                                      100.0          70,000         100.0      1
   San Mateo II and III                             100.0         141,404          97.2      2
   900-910 East Hamilton                            100.0         351,811         100.0      2
   Hacienda West                                    100.0         205,724          95.6      2
   Sunnyvale Technology Centre                      100.0         165,520         100.0      5
   Baytech Business Park                            100.0         300,000         100.0      4
   Golden Gateway Commons                           100.0         269,405         100.0      3
   Techmart Commerce Center (3)                     100.0         259,596          98.7      1
   995 Benecia Avenue                               100.0          36,344         100.0      1
   Oakmead West A-C                                 100.0         202,655         100.0      3
   Santa Clara Technology Park                      100.0         178,132         100.0      3
Northern California,
Sacramento:
   1860 Howe Avenue                                 100.0          98,992          87.6      1
   University Office Park                           100.0         122,288          86.8      2
   Capital Corporate Center                         100.0          94,561          94.5      5
Suburban Portland:
   RadiSys Corporate Headquarters                   100.0          80,525         100.0      1
   RadiSys II                                       100.0          45,655         100.0      1
Suburban Seattle:
   Redmond East                                     100.0         397,948          94.5     10
   Willow Creek                                     100.0          96,179         100.0      1
   Canyon Park Business Center                      100.0         246,565         100.0      6
   Canyon Park Commons                              100.0          95,290         100.0      1
   Willow Creek Corporate Center                    100.0         208,656         100.0      4
   Redmond Hilltop B & C                            100.0          90,880         100.0      2
                                                                ---------         -----    ---

     Pacific Region Subtotal                                    9,665,118          98.5    166
</TABLE>


                                       26
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Company's         Net
                                                Effective       Rentable
                                                Property          Area         Percent     # of
Property                                        Ownership   (square feet)(1)  Leased(2)  Buildings
--------                                        ---------   ----------------  ---------  ---------

<S>                                                 <C>           <C>             <C>        <C>
CENTRAL REGION
Austin, Texas:
   Great Hills Plaza                                100.0%        135,333         100.0%     1
   Balcones Center                                  100.0          75,761          77.6      1
   Park North                                       100.0         132,744          93.4      2
   City View Centre                                 100.0         136,183         100.0      3
   Riata 4                                          100.0          91,538          93.6      1
   Tower of the Hills                               100.0         166,099          98.1      2
Suburban Chicago:
   Parkway North                                    100.0         507,839          99.9      2
   Unisys                                           100.0         359,633          93.0      2
   The Crossings                                    100.0         296,624          98.7      2
   Bannockburn I & II                               100.0         209,860         100.0      2
   Bannockburn IV                                   100.0         108,469         100.0      1
   Summit Oaks                                      100.0          91,626          92.7      1
Dallas, Texas:
   Greyhound                                        100.0          92,890         100.0      1
   Search Plaza                                     100.0         152,790          95.5      1
   Quorum North                                     100.0         115,845          88.2      1
   Quorum Place                                     100.0         179,303          93.9      1
   Cedar Maple Plaza                                100.0         113,011          96.1      3
   Tollhill East & West                             100.0         241,337          93.0      2
   Two Mission Park                                 100.0          77,731          90.8      1
   Citymark                                         100.0         207,397          93.5      1
   5000 Quorum                                      100.0         160,122          87.5      1
                                                                ---------         -----     --

     Central Region Subtotal                                    3,652,135          95.5     32

MOUNTAIN REGION
Southeast Denver:
   Harlequin Plaza                                  100.0         329,070         100.0      2
   Quebec Court I & II                              100.0         287,294         100.0      2
   Greenwood Center                                 100.0          75,866          97.2      1
   Quebec Center                                    100.0         106,849          90.2      3
   Panorama Corporate Center I                      100.0         100,881         100.0      1
   Panorama II                                      100.0         100,916          96.7      1
Phoenix, Arizona:
   Camelback Lakes                                  100.0         199,149          99.8      2
   Pointe Corridor IV                               100.0         178,745          93.6      1
   Highland Park                                    100.0          78,093          76.2      1
   The Grove at Black Canyon                        100.0         104,187          95.2      1
   US West                                          100.0         532,506         100.0      4
Salt Lake City, Utah:
   Sorenson Research Park                           100.0         285,144          98.8      5
   Wasatch Corporate Center                         100.0         178,098         100.0      3
                                                               ----------         -----     --

     Mountain Region Subtotal                                   2,556,798          97.9     27
                                                               ----------         -----     --

TOTAL CONSOLIDATED PROPERTIES:                                 21,825,083                  288
WEIGHTED AVERAGE                                               ----------                  ---
                                                                                   96.7%
                                                                                   ----
</TABLE>


                                       27
<PAGE>


           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Company's         Net
                                                Effective       Rentable
                                                Property          Area         Percent     # of
Property                                        Ownership   (square feet)(1)  Leased(2)  Buildings
--------                                        ---------   ----------------  ---------  ---------

<S>                                                <C>        <C>                <C>        <C>
Unconsolidated Properties
Downtown Washington, D.C.:
   1717 Pennsylvania Avenue                        50.0%(6)      184,446          100.0%     1
   AARP Headquarters                               24.0 (7)      477,394           99.9      1
   Bond Building                                   15.0 (8)      162,097          100.0      1
   Willard Office/Hotel                             5.0 (9)      242,787           98.9      1

Suburban Washington, D.C.:
   Booz-Allen & Hamilton Building                  50.0 (10)     222,989          100.0      1
                                                              ----------          -----      -

TOTAL UNCONSOLIDATED PROPERTIES:                               1,289,713                     5
WEIGHTED AVERAGE                                              ----------                     -
                                                                                   99.7%
                                                                                   ----

ALL OPERATING PROPERTIES
TOTAL:                                                        23,114,796
                                                              ==========
WEIGHTED AVERAGE                                                                   96.8%
                                                                                   ====
</TABLE>

----------
(1)  Includes office and retail space but excludes storage space.
(2)  Includes space for leases that have been executed and have commenced as of
     September 30, 1998.
(3)  The Company owns the improvements on the property and has a leasehold
     interest in all of the underlying land. 
(4)  The Company holds a general and limited partner interest in a partnership
     that owns the property.
(5)  The Company holds a 50% joint venture interest in the joint venture that
     owns this property and a 50% joint venture interest in another joint
     venture, which holds the remaining 50% interest in the joint venture that
     owns the property. As a result of preferential rights to annual
     distributions from another venture, the Company will receive distributions
     of less than 75% (but in no event less than 50%) of the total amount
     distributed with respect to this property in each year until the
     preferential distribution requirements are satisfied, but will receive 100%
     of any subsequent distributions during the year until its aggregate
     distributions equal 75% of the cumulative distributions with respect to the
     property since inception of the partnership. Thereafter, the Company will
     receive 75% of the distributions made during the year with respect to the
     property. Upon sale of the property, the Company will receive 75% of the
     distributions until the Company receives its preference amount, 50% until
     the remaining venturer receives its preference amount, and 75% of the
     distributions thereafter.
(6)  The Company holds a 50% interest in the limited liability company that owns
     the property and serves as the entity's managing member.
(7)  The Company holds an effective 24% interest in the property by virtue of a
     48% general partner interest in a partnership that owns a 50% general
     partner interest in the property.
(8)  The Company holds an effective 15% interest in the property by virtue of a
     30.6% limited partner interest in a partnership that has a 49% limited
     partner interest in the property.
(9)  The Company holds an effective 5% interest in the property by virtue of a
     7.85% limited partner interest in a partnership that owns, through a
     subsidiary, a 63.7% limited partner interest in the property. The
     partnership in which the Company holds an interest owns the improvements on
     the property and has a leasehold interest in the underlying land.
(10) The Company holds a 50% joint venture interest, and is the managing
     venturer.


                                       28
<PAGE>


           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations of the Company
--------------------------------------------------------------------------------

         The following table sets forth a schedule of the lease expirations for
leases in place as of September 30, 1998 in each of the next ten years beginning
with 1998 and thereafter for the 288 operating office properties whose results
are consolidated in the financial statements of the Company, assuming that no
tenants exercise renewal options:

<TABLE>
<CAPTION>
                                                       Net Rentable Area        Percent of Leased
                                                          Subject to              Square Footage
                                   Year                    Expiring                Represented
                                 of Lease                 Leases (1)               by Expiring
                                Expiration               (square feet)                Leases
                                ----------               -------------                ------

                         <S>                              <C>                          <C> 
                         1998                             1,164,000                    5.5%
                         1999                             2,165,000                   10.3
                         2000                             2,704,000                   12.8
                         2001                             2,792,000                   13.2
                         2002                             2,945,000                   14.0
                         2003                             3,145,000                   14.9
                         2004                             1,580,000                    7.5
                         2005                               880,000                    4.2
                         2006                             1,255,000                    5.9
                         2007 and thereafter              2,469,000                   11.7
</TABLE>
----------------------
(1)  Excludes 726,000 square feet of space that was vacant as of September 30,
     1998.

         Building and Lease Information. The following table sets forth certain
lease-related information for the consolidated operating properties presented in
order to show downtown Washington, D.C. operating properties separate from other
operating properties. The table presents leases that commenced during the twelve
month period from October 1, 1997 to September 30, 1998, excluding the leases
for operating properties that were executed prior to the date of acquisition:

<TABLE>
<CAPTION>
                                                     Calculated on a Weighted Average Basis
                               ----------------------------------------------------------------------------------
                                                Tenant            Base
                                Total        Improvements &       Rent                                  Leasing
                               Square            Cash             per       Lease       Abatements     Commission
                                Feet         Allowances per      Square    Life in          in         Per Square
Type of Lease                  Leased         Square Foot         Foot      Years         Months          Foot
-------------                  ------         -----------         ----      -----         ------          ----
Operating Properties,
Downtown
Washington, D.C.
(9 Properties)
---------------------------
<S>                            <C>            <C>              <C>          <C>           <C>           <C>    
Office                         361,879        $  4.48          $ 30.96      5.5           0.5           $  0.58
Retail                          15,403          27.12            29.67      7.5           2.3              1.96
                              --------
Total/Weighted Average         377,282           5.40            30.91      5.6           0.6              0.64
                              ========        =======          =======      ===           ===           =======

New leases or expansion                   
  space                        229,807        $  6.70          $ 30.07      6.1           1.0           $  1.05
Renewals of existing
  tenants' space               147,475           3.38            32.21      4.8           0.0              0.00
                              --------   
Total/Weighted Average         377,282           5.40            30.91      5.6           0.6              0.64
                              ========        =======          =======      ===           ===           =======





















---------------------------
Operating Properties,
Other Than Downtown
Washington, D.C.
(279 Properties)
---------------------------
Office                         5,004,336      $  5.19          $ 17.04      5.4           0.2           $  1.93
Retail                            23,454         5.96            12.67      6.9           0.0              0.05
                              ----------
Total/Weighted Average         5,027,790         5.19            17.02      5.4           0.2              1.92
                              ==========      =======          =======      ===           ===           =======

New leases or expansion
  space                        3,437,461      $  6.67          $ 17.19      5.3           0.4           $  2.51
Renewals of existing
  tenants' space               1,590,329         1.98            16.66      5.8           0.0              0.66
                              ----------
Total/Weighted Average         5,027,790         5.19            17.02      5.4           0.2              1.92
                              ===========     =======          =======      ===           ===           =======
</TABLE>

                                       29
<PAGE>


                                     Part II

OTHER INFORMATION
-----------------

Item 1.    Legal Proceedings

                  None

Item 2.    Changes in Securities

                  None

Item 3.    Defaults Upon Senior Securities

                  None

Item 4.    Submission of Matters to a Vote of Security Holders

                  None

Item 5.    Other Information

                  None

Item 6.    Exhibits and Reports on Form 8-K

           (a.)   Exhibits

                  10.1  Fourth Amended and Restated Revolving Credit Agreement
                        dated as of August 27, 1998 by and among CarrAmerica
                        Realty Corporation, Carr Realty, L.P., CarrAmerica
                        Realty, L.P., Morgan Guaranty Trust Company of New York,
                        J.P. Morgan Securities Inc., Commerzbank
                        Aktiengesellschaft, New York Branch, NationsBank, N.A.,
                        PNC Bank, National Association, Bank of America National
                        Trust and Savings Association, Societe Generale, a
                        French Banking Corporation, acting through its Southwest
                        Agency, and the other banks listed therein.

                  10.2  Amended and Restated Revolving Credit Agreement dated as
                        of August 27, 1998 by and among OmniOffices, Inc.,
                        Morgan Guaranty Trust Company of New York, J.P. Morgan
                        Securities Inc., Commerzbank Aktiengesellschaft, New
                        York Branch, NationsBank, N.A., PNC Bank, National
                        Association, Bank of America National Trust and Savings
                        Association, Societe Generale, a French Banking
                        Corporation, acting through its Southwest Agency, and
                        the other banks listed therein.

                  10.3  Amended and Restated Guaranty Agreement dated as of
                        August 27, 1998 made by CarrAmerica Realty Corporation
                        in favor of Morgan Guaranty Trust Company, as bank and
                        lead agent.

                  10.4  Indenture, dated as of October 1, 1998, by and among
                        CarrAmerica Realty Corporation, as primary obligor,
                        CarrAmerica Realty, L.P., as guarantor, and Bankers
                        Trust Company, as trustee (incorporated by reference to
                        Exhibit 4.1 to the Company's Form 8-K filed on October
                        2, 1998).

                  10.5  Amendment Agreement to Purchase Price Adjustment
                        Agreement dated July 8, 1998 by and between CarrAmerica
                        Realty Corporation and Merrill Lynch, Pierce, Fenner &
                        Smith Incorporated.

                  10.6  Amendment Agreement to Purchase Price Adjustment
                        Agreement dated October 5, 1998 by and between
                        CarrAmerica Realty Corporation and Merrill Lynch,
                        Pierce, Fenner & Smith Incorporated.

                                       30
<PAGE>



                  27.1  Financial Data Schedule - Nine Months Ended
                        September 30, 1998.

                  27.2  Financial Data Schedule - Nine Months Ended
                        September 30, 1997.

           (b.)   Reports on Form 8-K

                  a.    Current Report on Form 8-K filed on July 1, 1998
                        regarding Historical Summaries of Operating Revenue and
                        Expense for the year-ended December 31, 1997 for
                        Sunnyvale Technology Park and Golden Gate Commons, and
                        Historical Summaries of Operating Revenue and Expense
                        for the three months ended March 31, 198 and the year
                        ended December 31, 1998 for Checkfree Corporate Campus
                        and Hacienda West.

                  b.    Current Report on Form 8-K/A filed on July 8,1998
                        regarding the proforma condensed consolidated balance
                        sheet (unaudited) at March 31, 1998.

                  c.    Current Report on Form 8-K filed on August 6, 1998
                        regarding certain supplemental data included in the
                        Company's press release, dated August 6, 1998.

                  d.    Current Report on Form 8-K filed on September 25, 1998
                        regarding the Historical Summaries of Operating Revenue
                        and Expense for the year-ended December 31, 1997 for
                        Citymark Tower.

                  e.    Current Report on Form 8-K filed on September 29, 1998
                        regarding the proforma condensed consolidated balance
                        sheet (unaudited) at June 30, 1998 and proforma
                        condensed consolidated statements of operations
                        (unaudited) for the six months ended June 30, 1998 and
                        the year ended December 31, 1997 relating to the
                        Company.


                                       31
<PAGE>


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


CARRAMERICA REALTY CORPORATION




/s/ Thomas A. Carr                           
----------------------------------------------
Thomas A. Carr, President and
Chief Executive Officer




/s/ Brian K. Fields                         
----------------------------------------------
Brian K. Fields, Chief Financial Officer




Date:    November 16, 1998





                                       32
<PAGE>


                                  Exhibit Index


<TABLE>
<CAPTION>
Exhibit         Description                                                                     Page
-------         -----------                                                                     ----

<S>             <C>                                                      
10.1            Fourth Amended and Restated Revolving Credit Agreement dated as
                of August 27, 1998 by and among CarrAmerica Realty Corporation,
                Carr Realty, L.P., CarrAmerica Realty, L.P., Morgan Guaranty
                Trust Company of New York, J.P. Morgan Securities Inc.,
                Commerzbank Aktiengesellschaft, New York Branch, NationsBank,
                N.A., PNC Bank, National Association, Bank of America National
                Trust and Savings Association, Societe Generale, a French
                Banking Corporation, acting through its Southwest Agency, and
                the other banks listed therein.

10.2            Amended and Restated Revolving Credit Agreement dated as of
                August 27, 1998 by and among OmniOffices, Inc., Morgan Guaranty
                Trust Company of New York, J.P. Morgan Securities Inc.,
                Commerzbank Aktiengesellschaft, New York Branch, NationsBank,
                N.A., PNC Bank, National Association, Bank of America National
                Trust and Savings Association, Societe Generale, a French
                Banking Corporation, acting through its Southwest Agency, and
                the other banks listed therein.

10.3            Amended and Restated Guaranty Agreement dated as of August 27,
                1998 made by CarrAmerica Realty Corporation in favor of Morgan
                Guaranty Trust Company, as bank and lead agent.

10.4            Indenture, dated as of October 1, 1998, by and among CarrAmerica
                Realty Corporation, as primary obligor, CarrAmerica Realty,
                L.P., as guarantor, and Bankers Trust Company, as trustee
                (incorporated by reference to Exhibit 4.1 to the Company's Form
                8-K filed on October 2, 1998).

10.5            Amendment Agreement to Purchase Price Adjustment Agreement dated
                July 8, 1998 by and between CarrAmerica Realty Corporation
                and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

10.6            Amendment Agreement to Purchase Price Adjustment Agreement dated
                October 5, 1998 by and between CarrAmerica Realty Corporation
                and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

27.1            Financial Data Schedule - Nine Months Ended September 30, 1998.

27.2            Financial Data Schedule - Nine Months Ended September 30, 1997.
</TABLE>