DC Office Tenants Downsized by 24% on Average in Q3

The Washington, D.C., workplace market continued to see a slowdown in leasing within the third quarter of 2022, with a bit greater than 1 million sq. toes of leasing exercise, down from 1.6 million sq. toes in Q2 and 1.8 million sq. toes a yr earlier. 

Savills famous that whereas this might be attributed to a typical seasonal drop in deal quantity, macroeconomic points resembling a possible recession, geopolitical considerations and the elevated use of hybrid office methods have all mixed to create uncertainty. 

Tammy Shoham, analysis director for JLL, famous that there’s an enormous distinction between older and newer buildings. Properties developed since 2015 noticed a achieve of 144,000 sq. toes throughout the third quarter, pushed primarily by relocations into newly developed Class An area.

“Market efficiency of newer vs. older workplace buildings demonstrates a flight to high quality,” Shoham acknowledged in JLL’s Q3 workplace report. “For Class A and trophy market, workplace buildings delivered since 2015 command rents 23 % increased than these delivered earlier than 2015.” 

Plus, tenants who signed in Q3 lowered their leased footprint on common by 23.6 %, in accordance with JLL.

Colliers’ Q3 report famous there have been no leases signed that totaled greater than 100,000 sq. toes and simply two that had been greater than 50,000 sq. toes.

The 2 greatest leases had been each federal businesses. The biggest was U.S. Customs and Border Safety renewing 99,515 sq. toes at 90 Ok Avenue Northeast within the NoMa submarket. The second largest was the Monetary Business Regulatory Authority signing for 68,030 sq. toes at 1700 Ok Avenue NW, with legislation agency Van Ness Feldman’s 45,000-square-foot lease at 2000 Pennsylvania Avenue NW coming in third.

Asking rental charges remained comparatively secure throughout the third quarter, in accordance with Colliers, dipping by 10 cents to finish the quarter at $55.41 per sq. foot. Nonetheless, concession packages remained close to report ranges, the agency’s report stated.

Emptiness, in the meantime, continued to rise within the third quarter, attributable to detrimental absorption. Colliers famous emptiness elevated by 40 foundation factors within the third quarter and 80 foundation factors from the beginning of yr, ending this quarter at 17.8 %. 

The lone workplace constructing delivered in Q3 was the 111,455-square-foot 3950 Wisconsin Avenue NW — a part of Roadside Improvement’s Metropolis Ridge mission, in accordance with CBRE. Worldwide Baccalaureate has preleased your complete constructing and can relocate from suburban Maryland to occupy the house, although it’s itemizing half of the house on the sublease market.

5 workplace buildings stay below development within the District, with three scheduled to ship by yr’s finish: 610 Water Avenue SW, 14 Ridge Sq. NW and 1401 Massachusetts Avenue NW.

Sublease leasing exercise in Q3 displayed a higher lower in demand with simply 42,000 sq. toes leased, a drop from 99,000 sq. toes final quarter, Savills stated in its report. 

Keith Loria may be reached at Kloria@commercialobserver.com.