2019-07-02_DTZ戴德梁行_Office_Q32018_Washington,D.C._2页_379kb

Washington, D.C. Office Market Q3 2018 Summary

Core Content

The Washington, D.C. office market in Q3 2018 experienced a mix of growth and challenges, marked by changes in employment, vacancy rates, and rental prices. The market saw a slight increase in employment, with the D.C. Metro region surpassing its annual historical average for the fourth consecutive year. However, the District of Columbia itself saw a decrease in federal government jobs, which were partially offset by job growth in the Financial and Professional & Business Services sectors.

The overall office market in D.C. saw a small increase in vacancy, rising from 12.3% in Q3 2017 to 14.1% in Q3 2018. This was driven by government consolidations and legal sector mergers, which contributed to a significant amount of vacancy in the CBD and East End submarkets. Despite this, the Uptown submarket saw a notable reduction in vacancy due to a new lease signed by The Whittle School & Studios at 4000 Connecticut Avenue, NW, which helped to reduce the vacancy rate from nearly 35% to around 20%.

New leasing activity reached a record high of 2,019,895 square feet in Q3 2018, with the Whittle School lease being the standout deal. This increase in leasing activity, however, did not offset the continued supply of new office space, which led to a decline in the overall gross rental rate. The drop in rental rates was a first since 2014, with a YOY decrease of 1.0% or about $0.55 per square foot on a full service basis.

Key Market Indicators

Submarket Analysis

Key Lease Transactions Q3 2018

• 4000 Connecticut Avenue, NW – 666,202 sf, The Whittle School, New Lease – Uptown
• 2101 L Street, NW – 61,061 sf, Greenberg Traurig, Renewal/Contraction – CBD
• 1441 L Street, NW – 54,907 sf, Spaces, Prelease – East End
• 2001 K Street, NW (South) – 53,728 sf, Clifford Chance, Renewal – CBD
• 2000 K Street, NW – 50,892 sf, Ankura Consulting, Expansion – CBD

Key Sales Transactions Q3 2018

• Washington Harbour (3000 & 3050 K Street, NW) – 562,105 sf, Principal / Global Holdings Management, Price: $415,000,000 / $738 psf – West End/Georgetown
• 2099 Pennsylvania Avenue, NW – 208,656 sf, Paramount / CommonWealth Partners, Price: $220,000,000 / $1,054 psf – CBD
• Jefferson Building (1225 19thStreet, NW) – 73,168 sf, Invesco / Marcus Partners, Price: $41,900,000 / $573 psf – CBD

Outlook

The office market in Washington, D.C. faces ongoing supply-side challenges due to a significant amount of under-construction space, particularly in the Class A category. These developments are expected to be completed and leased over the next 24-36 months, potentially increasing supply and putting downward pressure on rental rates. Additionally, tenants are becoming more proactive in seeking space, even for smaller requirements, as they anticipate market conditions to soften further.

Construction delays and increased material costs, including tariffs on steel, are expected to affect new supply in the near future. However, the market remains attractive for investors due to the potential for long-term value and the continued demand for office space in the region.