Occupancy Grows in DC’s Trophy Office Buildings
Office leasing in Washington, D.C., was pretty bleak in 2022, but the city’s top-tier properties were an exception.
Occupancy in D.C.’s Class A buildings grew by 756,000 square feet in 2022, according to JLL (JLL).
Within that, the majority (53 percent, or 399,000 square feet) went to so-called trophy buildings, which are office properties that command between $75 and $90 per square foot, according to JLL.
Trophy buildings took the majority of leased space even though D.C. has three times more Class A space than trophy space. The surge appears driven primarily by large-block leasing by law firms generating the most positive absorption for trophy buildings.
Among those were Williams & Connolly moving into the firm’s new 300,000-square-foot space at 680 Maine Avenue SW at The Wharf, and Wiley Rein moving into 166,000 square feet at Tishman Speyer’s new trophy office property at 2050 M Street.
“We expect trophy buildings to continue achieving healthy levels of absorption,” JLL wrote in its report. “With only one new trophy building under construction in D.C., supply will remain constrained.”
Class B and C buildings saw 1.7 million square feet of occupancy loss in 2022, with vacancy rates increasing 20 percent for both classes of buildings during the fourth quarter of 2022 — the highest quarterly jump in vacancies in decades, according to JLL.
In the last quarter of the year, the total vacancy of all office properties notched 18.9 percent for Q4, marking a 60 basis point increase from the previous quarter and the highest vacancy rate since the start of the pandemic.
In terms of volume, D.C. experienced 563,293 square feet of direct occupancy loss in the fourth quarter, primarily driven by WeWork vacating three spaces totaling 324,500 square feet. The absorption numbers have ranged between 75,000 and 175,000 square feet the previous five quarters, and Q4 saw the second-lowest quarterly absorption since the start of the pandemic.
However, there are currently 14 office buildings in D.C. slated for multifamily conversion. If all go through, it would remove 2.8 million square feet of space from the office inventory, reducing overall vacancy to 16.7 percent, according to JLL.
Leasing activity for the fourth quarter was quiet, with only 966,000 square feet of deals signed. Though the number of leases has held steady compared to the previous three years during Q4, the average lease size dropped to its lowest level in that timeframe at 9,700 square feet.
Only 19 leases signed in all of 2022 were for spaces 50,000 square feet or larger, which represents the lowest volume of large-block leases signed annually in over a decade.
Keith Loria can be reached at Kloria@commercialobserver.com.