Record office occupancy loss and record high vacancy in D.C.

D.C.’s office market continued to soften in the first quarter of this year, with the largest single-quarter occupancy loss on record.

Commercial real estate services firm CBRE reports 1.1 million square feet of negative net absorption, the difference between space that was newly leased and newly vacated. It was driven by a couple of big relocations, as well as downsizing by coworking space tenants and office space given back by small tenants, exacerbated by the delivery of 300,000 square feet of vacant space in new construction.

Small tenants, those leasing under 10,000 square feet, contributed a quarter million square feet of occupancy loss in the first quarter, and a total of 600,000 square feet since the pandemic began, according to CBRE data.

The office vacancy rate in the District rose to a record 17.4% last quarter. A total of 3.2 million square feet of office space remains on the sublease market, up 24% from a year earlier.

The office vacancy rate in D.C. is the highest in Capitol Hill, at 31.9%. It is the lowest in NoMa, at just 8.6%.

Average office rents decreased for the fourth consecutive quarter in D.C.

CBRE does note an increase in touring activity by perspective office building tenants compared to prior quarter, which could indicate leasing activity picks up as businesses continue to reopen.

The federal government remains the largest office leasing tenant in the District, accounting for 45% of the market as of the first quarter, followed by nonprofits, at 17% of office space, and law firms at 13%.

Vacancies aren’t any better outside of the District. CBRE says the office vacancy rate in Northern Virginia last quarter was 20.2%. The steepest declines in office occupancy last quarter in Northern Virginia were in Fairfax County. The Tysons and Herndon submarkets accounted for more than 80% of the loss.

The office vacancy rate in the first quarter in suburban Maryland was 16.4% After three consecutive quarters of negative net office lease absorption, the suburban Maryland office market actually posted 680,000 square feet of occupancy growth last quarter, but it was driven almost entirely by the U.S. Citizenship and Immigration Services, which consolidated from several locations in D.C. and Virginia to its new 575,000 square foot headquarters in Prince George’s County’s Branch Avenue submarket.

The D.C. region’s elevated office vacancy rate comes at a time when much more newly constructed office space is coming online.

In a separate report, Commercial Cafe reports the Washington metro is the eighth-most active office market this year, with more than 3.2 million square feet of new office space expected to deliver this year, though it does not break down this year’s delivery by projects that are preleased and those opening as speculative properties with no committed tenants to part or all of the space.

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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