Demand for office space in the Washington region is among the top in the country, with asking rent in the District now the highest in the nation, according to a new report, but slowed development has skewed demand.
The District reached its highest office demand in 10 years for the three months ending Sept. 30, and suburban Maryland posted nearly double its historical rate, according to a commercial real estate report from Cassidy Turley. Northern Virginia’s demand was equal to its 10-year quarterly average.
In total, the metro area filled
more than 2.1 million square feet of office space during the third quarter — second only to New York City — thanks to the addition of more than 35,000 jobs.
The District took most of that, and closed on a net 1.3 million square feet of leased space, which drove vacancy rates down almost a full percentage point from the previous quarter to 10.8 percent. The Securities and Exchange Commission signed a 900,000-square-foot lease, accounting for 70 percent of the space.
Asking rent in D.C. rose to $48.96 per square foot, surpassing New York City as the most expensive in the nation.
But that won’t last, as D.C. has enjoyed a buffer from the economic downturn compared with the rest of the nation, economists say.
“The government is looking at downsizing both procurement and overall spending,” said Richard Clinch, a director with the University of Baltimore’s Jacob France Institute.
“That engine of growth is being removed from the economy as the national government stops printing money and spending it,” he said. “As a result, things will look worse a year or two down the road because we’re looking at a real problem of adjustment.”
The next few years also will be one of few new buildings, the report said.
In the suburbs, no new buildings opened and just two broke ground. Rent dropped slightly during the third quarter with Maryland averaging $26.49 per square foot, and Northern Virginia’s rent was $29.46.
The District opened up
just 363,000 square feet of new space, which also contributed to the historically high fill rate, the report said.
A continued slowdown in development is required to help the region play catchup over the next few years as vacancy rates are still 2 to 4 percentage points above their historical levels of between 8 and 11 percent in the Washington area.
“Over the next two years minimal supply will enter the market, although strong demand from the public and private sectors is needed to continue absorbing excess supply that entered the market over the past four years,” the report said.
