In the D.C. region, as in the country as a whole, businesses watching their budgets are wary of large expansion projects.
Economic concerns have “translated into a slower projected need for real estate” among employers, who will just “renew [their leases] and see how the economy unfolds,” said Rob Hartley, research manager for the Washington and Baltimore markets for CB Richard Ellis.
Developers are slowing down in response.
They’re “not starting projects or might besitting on projects in the pipeline … until market performance improves,” said Elizabeth Norton, director of research for the Mid-Atlantic at Alexandria-based Delta Associates.
Last year, during the first quarter, construction commenced on 5.7 million square feet of office space in the metro region. During the first quarter of 2008, building began on only 831,000 square feet, according to a report released this week by Delta Associates.
On a faintly positive note, the net amount of space absorbed by companies actually increased during the first quarter, from 796,000 square feet during the fourth quarter of 2007 to 1.1 million square feet in the first quarter of 2008. This, however, is still well below the 2 million-square-foot average dating back to 1980, according to Delta Associates.
Most of the absorption, about 924,000 square feet, took place in Northern Virginia, where the Corporate Executive Board leased a 633,000-square-foot building in Arlington.
Washington’s vacancy rate rose from 9.1 percent at the end of 2007 to 9.7 percent in the first quarter of 2008, according to Delta Associates. Still, Washington is “faring better than the nation,” said Norton, noting an average U.S. vacancy rate of 11.3 percent.
With vacancy rates rising, rents are not increasing tremendously — only 0.4 percent overall in the first quarter.
But the conditions vary by subregion. D.C. and Northern Virginia inside the Beltway had a 1 percent rent increase during the first quarter, while suburban Maryland only saw a 0.4 percent increase. Rents for Northern Virginia locations outside the Beltway had a 0.9 decrease, according to Delta Associates.
“2008 will be pretty anemic,” said Hartley, who predicts an upswing by mid-2009 for the entire region.
