Q2 Office Demand a Mixed Bag for D.C. Area

One of the strongest office markets in the country for the last few years, Metropolitan Washington, D.C., is holding its own, but there are some signs of trouble, according to a second quarter report by real estate services firm CB Richard Ellis Inc. While demand indicators are positive in the

One of the strongest office markets in the country for the last few years, Metropolitan Washington, D.C., is holding its own, but there are some signs of trouble, according to a second quarter report by real estate services firm CB Richard Ellis Inc. While demand indicators are positive in the District of Columbia and Northern Virginia, vacancies are on the upswing in Suburban Maryland. The numbers in the District of Columbia continue to reaffirm the strength of the city’s office market. The average vacancy rate in the second quarter decreased from a first quarter figure of 6.79 percent to 6.6 percent, and the city experienced positive net absorption totaling 358,991 square feet. In Northern Virginia, a slight increase in the average vacancy rate–from 11.14 to 11.77–belies the stability of the market, which absorbed over 702,800 square feet. “The construction pipeline is pretty positive for Northern Virginia,” Marianne Swearingen, research manager with CBRE, told CPN today. “It has actually stabilized the market because properties are being built specifically for companies. And the way the market has gone, developers have started to hold back on plans if the can, so there’s a more balanced pipeline in Northern Virginia.” Additionally, in both D.C. and Northern Virginia, average rents continued to rise, growing from $50.38 to $50.84 and from $30.66 to $31.34, respectively. The picture in Suburban Maryland, however, is not as rosy. Limited leasing by the federal government, a longtime leading tenant in the area, and lackluster emplo yment growth are among the factors that contributed to a slowdown over the last three months. The area’s vacancy rate went from a first quarter figure of 10.46 percent to 11.38 percent, and net absorption was a negative 735,644 square feet. What the next quarter will bring may not be as positive for the greater D.C. market as it was during the first half of the year. “D.C. and Suburban Maryland are near peak construction, but the pre-leasing commitments at this point are not that high,” Swearingen said. “So that’s one of the main uncertainties–where demand will come from for new product. And along with that demand trend, we’re also seeing in all three markets high levels of renewals. With all of the economic uncertainties, as well as construction and moving costs, it makes a lot of sense for businesses to stay where they are.” More tenants appear to be downsizing, too. “Companies are reevaluating space, consolidating from multiple locations to maybe one or two, invariably recognizing that they don’t need as much space as they’d taken.”