Washington Metropolitan Area Office Market
- Net absorption for the region totaled negative 1.2 million square feet during Q1 2024, with all three metro area markets experiencing net negative demand. Overall vacancy expanded to 21.0%, up 40 basis points over the quarter and 140 basis points year-over-year. Availability also expanded, ending Q1 2024 at 25.4%, an increase of 40 basis points quarter-over-quarter and 170 basis points year-over-year. Major first-quarter transactions were comprised entirely of lease renewals, with the top three transactions occurring within the District, while the next two transactions occurred in Northern Virginia. After one delivery during the quarter, the office construction pipeline ended Q1 2024 at 2.0 million square feet. The building that delivered was 915 Meeting Street in North Bethesda, which was 45% preleased at the time of delivery.
District of Columbia Office Market
The District of Columbia experienced 81,000 SF of negative net absorption during Q1 2024. This led to the vacancy rate increasing slightly, ending Q1 2024 at 20.3%, up 10 basis points quarter-over-quarter and 140 basis points year-over-year. The District of Columbia’s development pipeline remains historically low, with no deliveries during Q1 2024 and only two properties under construction totaling 736,000 SF. 17XM is a 336,000-square-foot office building under construction in the CBD and 600 Fifth is a 400,000-square-foot office building under construction in the East End. Overall, asking rents dipped slightly to begin 2024. Class A rents were the cause of this, as they decreased 3.4% quarter-over-quarter, while Class B rents increased 0.4% quarter-over-quarter. The longer-term trend, however, shows that both Class A and Class B rents have remained relatively flat since 2019.
Suburban Maryland Office Market
- Suburban Maryland’s net absorption totaled negative 335,788 square feet during the fourth quarter to bring 2023’s annual absorption total to negative 620,884 square feet.
- No transactions larger than 30,000 square feet were signed during the quarter, however, a handful of moderate-sized new leases were completed, signaling tenants’ confidence in making long-term real estate decisions while also weighing future space needs and hybrid work models.
- In past cycles, asking rents have adjusted downward to account for depressed demand; however, asking rents have largely held value since the onset of the pandemic. Sublease asking rents have been holding relatively flat for much of the last three years, which more visibly exhibits the impact of low demand.
- The building boom that has occurred in Suburban Maryland over the past five years is waning, with only three projects remaining under construction. One project delivered in Suburban Maryland during the fourth quarter: Alexandria Center at 9808 Medical Center Drive in North Rockville. The property was 56% preleased upon delivery. With demand continuing to moderate, limited new supply and strong preleasing will help ease rising vacancy.
Northern Virginia Office Market
- Northern Virginia’s net absorption totaled negative 474,998 square feet during the fourth quarter to bring 2023’s annual absorption total to a negative 1.7 million square feet.
- While Class B rents saw a slight decline over the past year, Class A rents have seen positive movement, increasing 2.0% year-over-year. This is indicative of the bifurcation of office user demand. Trophy and Class A space is outperforming, while Class B and Class C rates will continue to drop or remain stagnant in the face of limited demand.
- Northern Virginia was home to a majority of the metro area’s major fourth-quarter lease transactions, with a handful of larger new leases signed during the quarter, signaling tenants’ confidence in long-term real estate decisions.
- 2023 saw no office deliveries in Northern Virginia, a market that has averaged 1.6 million square feet of deliveries over the past 20 years. A slowdown in office deliveries and the lack of new speculative office construction will be advantageous in helping to balance supply with waning demand.