Washington Metro Area Office Market Reports

Washington Metropolitan Area Office Market

Washington’s office market fundamentals continued to soften in the third quarter. Quarterly net absorption measured negative 394,615 square feet in the third quarter of 2022, representing a relative improvement from the second quarter. Despite the overarching trend of flight-to-quality in the urban core, the District measured the largest quarterly occupancy losses at negative 252,305 square feet. New construction deliveries were a strong driver of occupancy in the region in the first half of 2022. However, low demand has significantly decreased new project starts, leading to a shrinking development pipeline. Vacancy continued to rise in the third quarter, increasing by 130 basis points over the last 12 months, to 19.7%. Despite the region’s elevated vacancy and supply and demand imbalance, average asking rents continue to hold value. Average asking rents have increased 0.9% over the last year, to $42.09/SF. In the third quarter, Class A and B rents measured $45.96/SF and $37.65/SF, respectively.

District of Columbia Office Market

The District’s office market softened in the third quarter as market fundamentals continue to be heavily steered by slow leasing. Net absorption measured negative 252,305 square feet in the third quarter of 2022, its most negative level since third-quarter 2021. However, flight-to-quality trends continue to benefit Class A occupancy. In the third quarter, Class A net absorption measured 126,911 square feet, while Class B and C net absorption measured negative 379,216 square feet. Quarterly vacancy increased 20 basis points from second-quarter 2022 to 18.5%. The District’s construction pipeline, excluding renovations and owner-occupied developments, measured 580,083 square feet, unchanged from the prior quarter and at its lowest level in decades. Average asking rents in the third quarter of 2022 measured $56.74/SF, a $0.02 decrease from last quarter and a $0.17 decrease from one year ago.

Suburban Maryland Office Market

Suburban Maryland’s office market recovery softened in the third quarter of 2022. Net absorption totaled negative 197,341 square feet on the quarter, about half of the contraction registered in the second quarter. Few examples of net positive occupancy enabled the accumulation of significant negative net absorption. The overall vacancy rate registered 18.9% at the end of the third quarter, an increase of 100 basis points from second quarter, due to Marriott’s relocation, and an increase of 240 basis points from a year ago. The average asking rental rate measured $30.75/SF, an increase of 3.5% from the third quarter of 2021. Suburban Maryland’s construction pipeline shrank to its lowest level since 2017, measuring 414,746 square feet in the third quarter of 2022. The pipeline is approximately 36.7% preleased, indicating potential vacancy increases in the coming quarters.

Northern Virginia Office Market

Net absorption measured 55,031 square feet in the third quarter, offsetting some of the occupancy lost in the previous quarter. Year-to-date net absorption measured negative 121,938 square feet. Positive quarterly occupancy resulted in a slight reduction to vacancy, which decreased 10 basis points from last quarter to 21.1%. However, over the last 12 months, vacancy has increased by 80 basis points. Average asking rents appreciated by 1.0% over the last 12 months, reaching $34.90/SF. Leasing activity has been on the rise through the third quarter, but this activity is not equitably distributed among all Northern Virginia’s submarkets. Leasing activity was supported by large footprint renewals in the third quarter and was headlined by Hilton’s 220,000 square-foot renewal at 7930 Jones Branch Drive. This was the second largest lease signed in Northern Virginia since the start of the pandemic.