2019-07-02_DTZ戴德梁行_Office_Q2_2019_Washington,D.C._2页_384kb

Washington, D.C. Real Estate Market Summary Q2 2019

Core Content Overview

This report provides a detailed analysis of the economic and real estate market conditions in the Washington, D.C. metropolitan area during the second quarter of 2019, highlighting employment trends, vacancy rates, net absorption, and key leasing and sales transactions. It also includes an outlook for the remainder of 2019.

Economic Indicators

• D.C. Metro Employment:
  • Q2 2018: 3.30 million
  • Q2 2019: 3.33 million
  • 12-Month Forecast: ↑
• D.C. Metro Unemployment:
  • Q2 2018: 3.4%
  • Q2 2019: 3.3%
  • 12-Month Forecast: ↓
• U.S. Unemployment:
  • Q2 2018: 3.9%
  • Q2 2019: 3.6%
  • 12-Month Forecast: ↓

Key Insight: Despite the downward revision in job growth due to the 2018/2019 government shutdown, the labor market remains tight with a regional unemployment rate of 3.3%. Job growth in the second quarter was driven by Professional and Business Services, Leisure and Hospitality, and Retail.

Market Indicators

• Vacancy Rate:
  • Q2 2018: 14.0%
  • Q2 2019: 13.9%
  • 12-Month Forecast: ↑
• YTD Net Absorption (sf):
  • Q2 2018: 390,000
  • Q2 2019: 817,000
  • 12-Month Forecast: ■ (No change)
• Under Construction (sf):
  • Q2 2018: 3.6 million
  • Q2 2019: 2.9 million
  • 12-Month Forecast: ↓
• Average Asking Rent (gross, $psf/year):
  • Q2 2018: $55.01
  • Q2 2019: $54.61
  • 12-Month Forecast: ↑

Key Insight: The market saw an increase in vacancy due to new construction, but net absorption remained positive. The average asking rent slightly declined, though it is expected to rise in the long term.

Market Overview

• Vacancy Increase:
  • 1 million sf of vacant space was added in Q2 2019, increasing the overall vacancy rate to 13.9%.
  • The East End and West End/Georgetown submarkets saw the highest vacancy rates at 15.7% and 17.2%, respectively.
• Key Properties:
  • 655 New York Avenue, NW: Delivered with 64% vacancy.
  • 150 M Street, NE: Delivered entirely vacant, adding 522,550 sf.
  • Capitol Crossing's 200 Massachusetts Avenue, NW: WeWork signed the largest new lease of 111,273 sf.
• Legal Sector Activity:
  • Kirkland & Ellis: Relocated and reduced its footprint by 22%.
  • King & Spalding: Renewed 147,000 sf of space, shrinking by 23%.
  • Miles & Stockbridge: Expanded by 42% into new space.
  • Goodwin Procter & Winston & Strawn: Expanded into under-construction properties.
• Government Renewals:
  • The U.S. Securities and Exchange Commission renewed 1.3 million sf across its NoMa locations, contributing to strong gross leasing activity.

Key Insight: While the legal sector initially leaned out, there's a trend of firms taking back space, and government renewals have supported leasing activity.

Outlook

• New Construction:
  • 1.9 million sf of space is scheduled to deliver by year-end, with only 50% preleased.
  • This could add another 1 million sf of vacant space to the market.
• Net Absorption:
  • Expected to remain steady, with demand fundamentals still strong.
  • The market is on pace to surpass its 10-year annual absorption average of 915,000 sf.
• Trophy and Class A+ Vacancy:
  • These high-quality submarkets have lower vacancy rates compared to the overall market.
  • Capitol Riverfront had the lowest vacancy rate at 10.9%, indicating strong demand for quality space.

Key Insight: The market is expected to face increased vacancy due to new supply, but demand for quality space (Trophy and Class A+) remains resilient.

Key Lease Transactions Q2 2019

Key Sales Transactions Q2 2019

Summary of Key Trends

• Vacancy Rates: Increased due to new construction, but quality submarkets remain tight.
• Net Absorption: Positive, with the district on track to exceed its 10-year annual average.
• Leasing Activity: Strong government renewals offset some of the vacancy, but new leasing activity is lower than the quarterly average.
• Legal Sector: Showed a shift from right-sizing to expansion, indicating a recovery in demand.
• Rental Rates: Slightly declined in Q2 2019, but expected to rise in the long term.
• Construction: New supply continues to impact vacancy, with significant projects in Capitol Hill, NoMa, and the CBD.

Conclusion

The Washington, D.C. real estate market experienced a mix of challenges and opportunities in Q2 2019. While the government shutdown affected job growth, the labor market remains strong. Vacancy rates have risen due to new construction, but demand for quality space is holding up better than the overall market. The legal sector is showing signs of recovery, with firms expanding after initial downsizing. The market outlook remains cautiously optimistic, with potential for increased vacancy but strong fundamentals in key submarkets.