Washington Metropolitan Area Office Market
- Net absorption in the third quarter of 2023 totaled negative 600,000 square feet. Despite this significant amount of negative net absorption, it was the least amount of negative net absorption in a third quarter since 2019.
- Rent growth has begun to creep back up over recent quarters after stagnating since 2021, increasing 0.3% year-over-year.
- The region’s labor market is currently tied for the 3rd lowest unemployment rate among all large U.S. metros. Washington, D.C.’s metro unemployment rate is 120 basis points below the national rate.
- The number of office-using jobs has rebounded and even exceeded pre-pandemic levels. Total office-using job totals are currently 2.3% greater than office employment in summer 2019 and 7.0% greater than the pandemic-induced employment trough in April 2020.
District of Columbia Office Market
- The vacancy rate increased to 19.7% in the third quarter of 2023, up 30 basis points quarter-over-quarter and 60 basis points year-over-year. The lack of new speculative office construction is advantageous in helping to balance supply with waning demand.
- Average asking rents measured $56.27/SF in the third quarter of 2023, an increase of $0.44 quarter-over-quarter. This is the first quarter of positive rent movement after the market experienced four straight quarters of rent decline.
- Leasing activity improved from the second quarter of 2023 despite an ongoing period of lower activity. The NoMa submarket was most active during the quarter, containing the three largest transactions which totaled over one million square feet.
- The Business/Professional and Government industries remain the top regional industries, constituting almost half of the employees in the region. With both industries being large office-users, this provides optimism for the stability of the office market going forward.
Suburban Maryland Office Market
- After the market experienced three straight years of negative net absorption from 2020-2022, the market has experienced over 200,000 square feet of positive net absorption in 2023.
- Vacancy tightened 50 basis points to 18.1% after the market saw a historically high vacancy rate of 18.6% during the second half of 2022.
- Although most markets saw rents flatten over the past few years, Suburban Maryland performed exceptionally well in this regard. Since 2020, Suburban Maryland has seen positive rent growth of at least 2.0% each year and ended Q3 2023 12.1% higher than the beginning of 2020. This growth could be attributed to an increase in demand with tenants relocating from high-cost urban areas to low-cost suburban areas.
- There are three properties totaling 415,000 square feet of space under construction in the market. These properties are spread out in the market, located within Silver Spring, North Bethesda, and Rockville.
Northern Virginia Office Market
- Negative absorption continues to pile on, as the market experienced 185,000 square feet of negative net absorption during the quarter. This marks the third straight quarter of negative net absorption, creating a total of almost 1.3 million square feet of negative net absorption during 2023.
- Vacancy and rents both increased year-over-year. Vacancy increased 50 basis points to a historical high of 21.3%. Average asking rents ended the quarter near the all-time high at $35.34 per square foot, up $0.39 year-over-year, although down $0.14 quarter-over-quarter.
- There were five properties totaling 1.1 million square feet under construction to end Q3 2023. This marked the fourth consecutive quarter with no new buildings delivering or breaking ground.