D.C. Office Vacancy Hits Yet Another Record High in Q2: CBRE

Number of foreclosures already past 2023’s total, report says.

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Record-high office vacancy in Washington, D.C.? Welcome to the new normal. 

The rate of empty office space in the District rose to an all-time high of 22.4 percent this past quarter, according to a new market report from CBRE (CBRE). That’s up 80 basis points from the first quarter of this year.

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The District recorded over 537,000 square feet of negative absorption this quarter as well, marking five straight years of quarterly negative rates. The federal government accounted for nearly half of the recent occupancy loss, per CBRE, due to the General Services Administration’s recent mandate to cut the federal government’s national office footprint

A direct consequence of that negative absorption rate is the amount of office foreclosures happening in D.C. lately as landlords struggle to find tenants. The number of such foreclosures this year has already soared past 2023’s total, per CBRE. 

The evidence of office distress in D.C. is legion, with default notices, foreclosures and building auctions becoming seemingly more common lately than political staffer happy hours.

Gross leasing activity remained consistent quarter-over-quarter at about 2.1 million square feet, more than half of which was driven by the government, while asking rents stayed flat at $58.70 per square foot per year. Yet renewals accounted for much of that volume, some 63 percent, while downsize leases accounted for a healthy chunk of the rest. 

The GSA’s newly signed lease for the Commodity Future Trading Commission led the pack on the downsizing front, trading 288,000 square feet in Downtown D.C.’s Lafayette Center for 147,000 square feet at 355 E Street SW, also known as Patriots Plaza III, a few blocks south of the National Mall. Lafayette Center transferred to special servicing last month as a result of its anchor tenant ditching the complex. 

The Federal Housing Finance Agency renewed its lease at 400 Seventh Street NW, signing for just over 377,000 square feet, while the D.C. Department of Human Services renewed a 333,658-square-foot lease at 64 New York Avenue NE.

The demand for high-quality office remains the submarket’s bright spot in D.C., particularly from law firms — most recently in the form of Cozen O’Connor’s 66,000-square-foot lease just a few blocks from the White House last month. 

Yet trophy space supply is hardly a match for that demand at the moment. Of the 95 buildings in D.C. featuring over 50,000 square feet, just 16 are considered trophy and Class A-plus, per CBRE. Of that 16, only six have top-down availability.

The District likely won’t see much new trophy space supply anytime soon, either. Office construction this past quarter was the lowest level on record as high interest rates continue to stifle new developments, per CBRE. Woof.

Skanska USA Commercial Development delivered the only office building this past quarter — the $216 million, 334,000-square-foot complex at 1700 M Street NW. Stonebridge and Rockefeller Group’s redevelopment of Metro’s former headquarters at 600 Fifth Street NW is meanwhile the only office building currently under construction in the District, with expected delivery in 2026. 

Nick Trombola can be reached at ntrombola@commercialobserver.com.