DC office vacancy rises, fueling landlord concessions

WASHINGTON — D.C. developers may be moving ahead of demand, according to a quarterly report from real estate firm Colliers International.

It notes that while office rents held steady in the second quarter and there was positive, but modest, absorption in the D.C. market, the office vacancy rate across the metro area jumped to 14.7 percent last quarter.

In the District itself, more than 1.6 million square feet of new office space was delivered in the second quarter — greater than the sum of the prior five quarters. The office vacancy rate in the District itself was 12.9 percent in the second quarter, up from 12.1 percent a year earlier.

“Previously-voiced concerns about the impact of new supply are becoming a reality,” Colliers noted in its quarterly report.

Average asking rates held steady at $48.30 per share foot. Average Class A asking rates stood at $61.40 per square foot in the second quarter, but were up to $5 per square foot higher in core locations of the Central Business District and East End.

Landlords are responding to the growing supply of new office space competing with existing office stock.

“D.C. reports the most generous tenant incentive packages among the major U.S. office markets,” Colliers said. “With a further 4.8 million square feet of Class A space underway in the District, landlords will have to drop rents or increase incentives to remain competitive.”

The report also said it is a challenge to estimate where effective rents stand for existing product.

Construction also is elevated in Tysons Corner, at 1.6 million square feet, but that includes the 1-million-square-foot new headquarters for Capital One, which is expected by the end of this year.

The biggest lease in D.C. in the second quarter was investment firm The Carlyle Group with a 200,000-square-foot lease at 1001 Pennsylvania Ave. N.W.

And co-working spaces continue to absorb vacant D.C. office space, with four co-working firms signing leases totaling 192,000 square feet.

San Francisco retains the title of the most expensive office market in the U.S., at an average of $88.11 per square foot, or almost double the average office rent in Washington.

Jeff Clabaugh

Jeff Clabaugh has spent 20 years covering the Washington region's economy and financial markets for WTOP as part of a partnership with the Washington Business Journal, and officially joined the WTOP newsroom staff in January 2016.

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