Washington Metropolitan Area Office Market
|Average Asking Rent (Price/SF)||$40.75|
|Vacancy Rate (%)||16.6%|
|Net Absorption (SF)||-780,728|
Office space demand in the Washington metro area was negative overall during the third quarter and down from the previous quarter. Market activity remained slow due to limited movement during the ongoing pandemic, which forced many tenants to continue remote work; however, some tenants returned to offices, and jobs lost during the early months of the pandemic continued to come back. The third quarter saw negative 780,728 square feet of net absorption in the region, with all three substate areas registering negative totals, led by the District of Columbia with negative 518,401 square feet. Net absorption registered negative 219,117 square feet in Suburban Maryland and negative 43,210 square feet in Northern Virginia. At 16.6%, the region’s overall vacancy rate was up 10 basis points from the previous quarter and up 50 basis points from the rate recorded one year ago. Based on current economic conditions and office market fundamentals, Newmark expects the region-wide office market vacancy rate to rise to approximately 18.2% by the end of third-quarter 2022.Download Washington Metropolitan Area Office Market Report 3Q20
District of Columbia Office Market
|Average Asking Rent (Price/SF)||$57.38|
|Vacancy Rate (%)||15.0%|
|Net Absorption (SF)||-518,401|
The District of Columbia experienced weakening office leasing metrics during
the third quarter of 2020, with negative net absorption and lower asking rents. The impact of the COVID-19 pandemic on the economy and office market remained significant as many tenants paused their searches for office space, slowing market activity considerably. Vacancy remained even with last quarter, a result of slow leasing velocity and delayed move-ins but helped by the fact that there was no new office space that delivered during the quarter. Two notable construction projects will deliver over the next few months. One is 250 M Street SW, a 227,948-square-foot office building in the Capitol Riverfront submarket. The property is 100.0% pre-leased to the District Department of Transportation and will deliver in the first quarter of 2021. Additionally, 699 14th Street NW, a 137,797-square-foot office property in the East End submarket, will be completed. The building is currently 0.0% pre-leased and will also deliver during the first quarter of 2021.
Suburban Maryland Office Market
|Average Asking Rent (Price/SF) || $28.78|
|Vacancy Rate (%)||15.0%|
|Net Absorption (SF)|| -219,117|
Suburban Maryland’s office demand continued to soften during the third quarter of 2020 with negative 219,117 square feet of quarterly absorption, bringing year-to-date net absorption to negative 540,798 square feet. As a continued result of disruption related to COVID-19, market activity was modest, with limited leasing activity and few notable tenant moves. The overall vacancy rate registered 15.0% at the end of the third quarter, an increase of 40 basis points from the previous quarter but level with a year ago. Asking rental rates ended the third quarter of 2020 at $28.78/SF, an increase of 2.5% from $28.09/SF in the third quarter of 2019. While it may seem counterintuitive that asking rents increased despite negative demand for space, market forces often take a while to adjust, and it is likely effective rents will be flat to declining over the next year as owners increase concessions to lure tenants in an environment of tepid demand.
Northern Virginia Office Market
|Average Asking Rent (Price/SF)|| $33.80|
|Vacancy Rate (%)|| 18.6%|
|Net Absorption (SF)||-43,210|
Demand had remained positive in the second quarter of 2020 despite the pandemic, but further effects on demand for office space in Northern Virginia became evident in the third quarter, as negative 43,210 square feet was absorbed. Gross leasing during this period also slowed, and a majority of new leases executed during the third quarter were comprised of renewals and extensions. The most significant lease of the quarter was by the United States Postal Service, which renewed 115,747 square feet at 1735 North Lynn Street in Rosslyn. Overall vacancy ended the third quarter at 18.6%, an increase of 10 basis points from the prior quarter and up 30 basis points from one year ago. Average overall asking rents increased 1.3% from one year ago to $33.80/SF. However, effective rents remain under downward pressure as concessions are elevated.