Industries Commercial Real Estate

Washington, D.C. office market remains stalled

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The Washington region’s commercial office market remained stalled in the third quarter, with no foreseeable momentum in the future, according to Jones Lang LaSalle’s Q3 office research. The few tenants in the market are choosing the newest buildings available, and some landlords are courting tenants with expirations as far out as 2017.

“Do not expect the usual suspects ― the federal government, contractors and law firms ― to get the Washington region market out of this slump. Organic growth is going to have to come from another source,” JLL’s Managing Director Creighton Armstrong said in a statement.  “This is, and will remain, a tenant’s market for the time being – particularly for tenants seeking less than 25,000 square feet. The lack of a long-term federal budget, combined with approaching sequestration and ‘fiscal-cliff,’ will perpetuate the current malaise, no matter who is in the White House or Congress come November. ”

The report says new construction appears to be the most sought after by tenants in the market. One trophy building that delivered in the district during the first half of 2012 and four trophy projects currently under construction are almost 70 percent pre-leased.

Scott Homa, vice president research for Jones Lang LaSalle, noted a growing disparity in second-generation office buildings versus the new ones.  “To compete with newer and more efficient buildings, owners of commodity properties are offering record levels of free rent and tenant improvement allowances,” he said.

According to the Q3 reports, transaction activity was concentrated in renewals, consolidations and contractions. However, a few areas of organic growth by non-traditional users of office space – such as technology, media and higher-education groups – helped to partially offset the contraction in the third quarter. Georgetown University signed the largest private sector lease, a 91,000-square-foot deal at 650 Massachusetts Ave., NW, where the school will house an expanding graduate education program.

Key Washington region market statistics:Total office vacancy in Washington, D.C. stands at 15 percent versus 16.8 percent for Northern Virginia, while average office rents are $35.51 per square foot in D.C., versus $31.15 in Northern Virginia.



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