Office leasing in DC falls to lowest level since Great Recession

The pandemic’s effect on commercial real estate leasing demand has been noticeable in Washington, D.C., with leasing activity falling to its lowest level since the 2008 Great Recession last quarter.

Commercial real estate firm CBRE said that among private-sector tenants, leasing volume last quarter was down 55% from the 2018-2019 quarterly average, the lowest such level in 12 years.

Counting all office space leasing, including the federal government, third quarter leases in the District totaled 1.6 million square feet, down 40% from the typical quarterly average.

Companies are not renewing leases or subleasing space they no longer want or need at a pace that is significantly higher than normal.

CBRE said the District recorded 177,000 square feet of negative absorption in the third quarter, bringing the year-to-date occupancy loss to 779,000 square feet. Smaller tenants — those leasing space under 10,000 square feet — were most affected during the third quarter, returning a combined 150,000 square feet of office space to the market.

Subleasing activity — companies with committed leases for space they no longer need, and looking for other companies to fill it — has increased 10% since the onset of the pandemic. The rate of subleasing has doubled since the end of the second quarter, with an average of 7,000 square feet currently being added to the market each day.

The District’s overall office vacancy rate reached a post-recession high of 15.4% during the third quarter, led by a 22.9% vacancy rate in Capitol Hill and 18.1% in East End.

NoMa had the lowest third quarter office vacancy rate at 8.6%.

Technology companies remain a bright spot, contributing 152,000 square feet of leasing activity during the quarter. Tech firms have accounted for 641,000 square feet of net new leasing in D.C. this year, behind only coworking space tenants.

The federal government, through the General Services Administration, signed five leases in the District last quarter, totaling 629,000 square feet, accounting for 45% of all third quarter leases. That was offset by 380,000 square feet of leased office space lost in the first half of the year, mostly because of the Federal Communications Commission’s consolidation into its new 45 L St., NE headquarters, and the National Institute of Food and Agriculture’s move to Kansas City.

Adding pressure to the softening demand for office space and an already high vacancy rate in the District is 600,000 square feet of brand new office space that has delivered vacant during the first half of the year.

“As offices slowly begin to reopen and signs of increased touring activity emerge, leasing activity may likely improve run the coming quarters. However, many tenants may choose to continue working from home, delaying leasing activity into 2021,” CBRE said.

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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