The cost of renting office space in downtown Washington and Northern Virginia rose last year, but incentives — usually in the form of free rent or other concessions — became more popular, a sign that the region is being hurt by the nation’s economic slowdown.
Office rents, including the rent rate, operating expenses, real estate taxes and electricity costs, rose an average of 9.4 percent in downtown Washington, while climbing 8.2 percent in Northern Virginia, according to a recent report by tenant broker Studley. The report did not include any locations in Maryland.
“D.C. is not immune” to economic difficulties, said David Lipson, executive vice president and director in Studley’s Washington office. “It’s protected but not immune.”
In downtown Washington, total rent rose to $64 per square feet, and concessions — which are calculated based on a 10-year financing period — rose by 4.3 percent to $60 per square foot in 2007. In Northern Virginia, concessions jumped 40 percent to $70 per square foot, while rent climbed to $36.25. This is the second year that incentives climbed in both areas.
“We’ve seen a lot more concessions,” confirmed Dianne Ludden, managing director of asset management for America’s Capital Partners in the firm’s Herndon office. The concessions are given mainly outside the Beltway, as the District’s commercial market is more “insulated” from economic trouble, Ludden said.
Still, downtown Washington is the second-most expensive business district in the nation, behind midtown New York, at $104.55 per square foot. Of the 16 largest suburban markets in the country, Northern Virginia is the seventh-most expensive. Fairfield County, Conn., at $48 per square foot, is the most expensive.
Concessions increased an average 7.4 percent across 17 of the largest central business districts in metropolitan areas, the first overall increase since 2004.
More willingness by landlords to give incentives presents opportunities for some tenants, but not all, Lipson said. Larger tenants, seeking more than 50,000 square feet, have “limited options” in downtown Washington, as space on that scale is still tight, Lipson said. Availability rate in Washington stood at 11.6 percent in 2007, lower than the 14.4 national average.
Smaller tenants, while they may not see a wholesale drop in rent, can negotiate for more incentives throughout the District, Lipson said.
In Northern Virginia, where the availability rate is 13.5 percent, companies of all sizes are having an easier time finding space.
