Suburban Maryland Office Market Report

Suburban Maryland Office Market

Demand for office space in Suburban Maryland continued to soften during the first quarter of 2021. Net absorption totaled positive 415,211 square feet, but this positive demand was due to the completion of the new United States Citizenship and Immigration Services (USCIS) headquarters in Suitland. This delivery represents net new demand for Suburban Maryland, as the agency was previously located in the District. As a continuing 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 15.4% at the end of the first quarter, an increase of 30 basis points from the previous quarter and an increase of 170 basis points from a year ago. Vacancy ticked up even with positive absorption because of the delivery of 7272 Wisconsin Avenue in Bethesda; only about 30% of that 358,000-square-foot building was occupied during the first quarter. The average asking rental rate ended the first quarter at $29.08/SF, an increase of 2.3% from $28.42/SF in the first quarter of 2020. While it may seem counterintuitive that asking rents continued to increase despite negative demand for space, the construction pipeline and recently delivered product includes high-quality space with asking rates that match the quality, which boosts the average asking rent. By contrast, effective rents are declining as concessions rise to lure tenants in an environment of tepid demand.