Washington Metro Area Office Market Reports

Washington Metropolitan Area Office Market

The Washington metro area’s office market fundamentals tightened in the fourth quarter of 2022. While return-to-office momentum was not particularly robust this fall, it is ticking upward, and pent-up demand has been loosening among tenants. Quarterly net absorption measured positive 504,274 square feet in the fourth quarter of 2022, representing the largest quarterly occupancy gain since before the pandemic. While this gain is a welcomed sight for a challenged market, year-end net absorption highlighted the region’s softness, measuring negative 984,465 square feet. Overall vacancy fell by 10 basis points since the prior quarter to 19.6% in the fourth quarter of 2022. The extended duration of the pandemic appears to be wearing on asking rents, which had been increasing, or at least holding value, for much of the last two years. Average asking rents are up 0.6% from one year ago, but have contracted by 0.1% from the prior quarter, measuring $42.07/SF in the fourth quarter of 2022.

District of Columbia Office Market

The District’s office market slightly tightened in the fourth quarter as occupancy expansion and inventory contraction worked in concert to provide modest downward pressure on vacancy. Net absorption measured 200,465 square feet in the fourth quarter of 2022. This marks the District’s largest quarterly net occupancy gain in three years. Leasing activity has increased modestly over the last six months. Although leasing remains low relative to historical expectations, pent-up demand is loosening and the slow but steady return of workers to offices is encouraging companies to reengage in real estate planning. Average asking rents have been trending downward over the last six months and are currently tied with the lowest average rates recorded since 2019.

Suburban Maryland Office Market

Suburban Maryland’s office market recorded net absorption of negative 9,042 square feet on the quarter. Instances of large occupancy losses were limited in the quarter, which enabled the market to see improvements, resulting in net-neutral quarterly absorption. The overall vacancy rate held steady at 18.8%. Concurrently, in the last year, vacancy has increased by 200 basis points. The average asking rental rate measured $30.96/SF, an increase of 2.0% from fourth-quarter 2021, but only 0.7% from last quarter. Soft, but relatively steady market fundamentals in Suburban Maryland should gradually tighten in the first half of 2023 as tenants further adapt, though recessionary pressures may prolong the soft conditions as tenants brace for continued uncertainty. Suburban Maryland’s construction pipeline increased from last quarter, measuring about 6.0% of inventory, yet 2023 is unlikely to see many deliveries.

Northern Virginia Office Market

Net absorption measured 312,851 square feet in the fourth quarter of 2022, offsetting the occupancy losses incurred earlier in the year. Year-to-date absorption measured 209,689 square feet, marking the first time since the start of the pandemic that Northern Virginia ended the year with positive absorption. Positive quarterly occupancy resulted in a slight reduction in vacancy, which decreased 10 basis points from the last quarter, to 21.0%. However, overall vacancy remained steady during 2022, increasing only 50 basis points over the last 12 months. Average asking rents appreciated 1.7% over the last 12 months, reaching a record high of $35.08/SF. Leasing activity remained relatively strong during the fourth quarter, however, there is a continued lack of equitable distribution of this activity across all Northern Virginia’s submarkets. Leasing activity was supported by the US Patent and Trademark Office (PTO) renewal of 1.6 million square feet, and Boeing’s headquarters relocation to Arlington.