DC Office Availability Stabilizes for First Time Since 2019
While many people expected Labor Day to be a turning point for the office market in Washington, D.C., the holiday came and went without much happening, as the delta variant has pretty much caused most return-to-the-office plans to be thrown out the window.
Two recent office reports examining the third quarter of 2021 reveal that the District’s real estate market outlook has become hard to predict.
Despite this unexpected bump in the road, deal velocity in the District was strong this quarter, improving upon an active second quarter, according to a third-quarter report from Colliers.
In fact, leases saw a substantial uptick, with about 3 million square feet of new leases signed, well above the five-year quarterly average of 2.2 million square feet, according to Savills’ third-quarter report.
That was largely driven by a massive lease for the U.S. Securities and Exchange Commission, which signed a 1.2 million-square-foot deal at 60 New York Avenue NE. Some significant government renewals include the Federal Emergency Management Agency’s 301,384-square-foot lease at 500 C Street, SW; and the U.S. Department of Veterans Affairs re-upping for 217,000 square feet at 1800 G Street, NW.
Despite those three deals, the private sector was responsible for seven of the top 10 leases done in the quarter, though many were renewals, per Colliers.
Dentons, a law firm, renewed its 126,876-square-foot lease at 1900 K Street, NW, while Morning Consult, a global data intelligence agency, expanded to 63,934 square feet at 1025 F Street NW. Another notable deal was Sterne Kessler Goldstein & Fox re-upping its 72,000 square feet at 1101 K Street, NW.
Asking rents stayed steady at $56.22 per square foot, ending a three-quarter trend of decreases, according to Colliers.
Turning to new construction, approximately 3.2 million square feet of office product is underway in D.C., including Signal House in the Capitol Hill submarket and the Historic National Bank of Washington office conversion in the East End, both of which are expected to deliver in the fourth quarter.
The upshot is that availability has stabilized for the first time this past quarter, per Savills.
Availability surged for seven straight quarters, especially through the pandemic, but it has finally leveled off in the third quarter, holding flat quarter-over-quarter, according to Devon Munos, research director for the mid-Atlantic and Southeast regions at Savills.
Meanwhile, sublease availability, which had risen to a record high of 3.4 million square feet by the end of 2020, has lowered to 3 million square feet this quarter due in part to companies taking space off the market.
The Savills report shows overall asking rents at $55.82 per square foot at the end of the third quarter, just a bit higher from $55.62 year -ver-year. Class A asking rents are now averaging $59.67 per square foot.
The report concludes that “a shrinking development pipeline may help availability remain stable or wane in the near-term to midterm.”
Keith Loria can be reached at Kloria@commercialobserver.com.