WASHINGTON — The District’s office vacancy rate rose after the recession, in part from big law firms merging and relocating to brand new or redeveloped, but smaller office spaces, but some firms are finding that they overshot their downsizing.
And the big ones are taking space back.
“They downsized on average in their initial transactions by about 20 percent overall, but the larger ones have taken back space over the course of the last two to three years,” said Nate Edwards, vice president of Cushman & Wakefield.
“The big names that have recently exercised expansions in their new space — Covington & Burling, Arnold & Porter, Venable, and Cleary Gottlieb — have all expanded, some to the point where they are at the same amount of space prior to moving,” Edwards said.
Law firms are the second largest overall renters of office space in the District, behind the federal government, and they are also the tenants that pay the highest rents.
Cushman & Wakefield also expects more consolidation.
“There still is expected to be in 2018 and 2019 more merger and acquisition activity in the law firm sector that will potentially add some more distress to existing owners of law firm, high-end class A and trophy office space.”
The preference of high-profile firms to relocate to buildings that are new or have had large-scale renovations will increase vacancy rates in D.C.’s core sub-markets through 2020, he said.
The disruptive new way to work is helping to backfill D.C.’s older office vacancies.
“Co-working, like WeWork or MySpace of firms like that have made inroads and have started to take down large blocks of space,” Edwards said.
Capitol Riverfront has the lowest office vacancy rate in the District, at just 6.9 percent in the fourth quarter of 2017, compared to a District-wide office vacancy rate of 12.4 percent.
Both the West End and Georgetown, and the Central Business District have office vacancy rates of less than 10 percent.