With a roughening economy and rents rising throughout the region, the amount of available commercial office space in the metro area jumped by nearly a third in the last quarter of 2007.
“What we saw was a delay in decision making,” said Rick Rome, executive managing director at tenant brokerage firm Studley’s D.C. office.
“It goes against the backdrop for concerns of a recession … Tenants have been hesitant to sign new leases,” he added.
In the District, available square footage leaped 77.1 percent, while Northern Virginia and suburban Maryland saw 21.3 percent and 16 percent increases in available space, respectively. Overall there was a 31.3 percent increase in space. Rome predicts the trend will reverse in the first quarter of 2008 as companies sign new leases and may move into bigger spaces.
According to research firm Delta Associates, the region’s net absorption rate — that is, the percentage of space leased in existing buildings and those being constructed — was down from 2006, from 6.8 million square feet to 5.4 million square feet in 2007. Vacancy rates climbed from 8.5 percent to 9.1 percent. However, there was also more space under construction in 2007, up to 20.6 million square feet from 16.8 million. One indicator of a sour commercial market is decreased rents, but Studley’s research arm released a report indicating the asking rents in the metro area rose 9.8 percent from the third quarter, and 11.4 percent from the fourth quarter of 2006 overall.
Rental price changes in specific areas varied greatly though. The central business district in D.C. saw a 15.6 percent increase in the fourth quarter of 2007, while the West End faced a 2 percent decline. Overall D.C. saw a 7.3 percent drop in rents.
“The D.C. market shows stronger activity and viability than Northern Virginia,” Rome said.
Higher rents have caused some tenants to move to Northern Virginia, Rome said, where increases are moderate, with an overall jump of 3.1 percent. Arlington County had a 0.8 percent rent increase in the fourth quarter; Fairfax County, a 4.6 percent increase; Alexandria, a 3.9 percent increase; and Loudoun, Stafford and Prince William, a 6.2 percent spike. Most areas outside of the District are seeing more of a “softening” in the commercial market, but Tysons is still “vibrant,” Studley reported.
Montgomery County rental rates increase 4.4 percent, but Prince George’s County spiked 7.8 percent.
