The Suburban Maryland market had slow leasing activity during the first quarter with just three deals signed over 20,000 square feet. Surprisingly the second largest deal of the quarter came from a sector that had suffered greatly throughout the pandemic. Shared office provider, Industrious, leased 40,914 square feet at 909 Rose Avenue in the Pike and Rose development. While there was a lack of large deals signed in the market, smaller leases under 20,000 square feet did show a recovery from the previous quarters. The medical/life sciences sector was well represented in leasing activity.
Supply & Demand
Over a million square feet delivered in the first quarter of 2021 in the Suburban Maryland market, highlighted by the delivery of the U.S. Citizen and Immigration Services (CIS) headquarters in the Branch Avenue Corridor. The 574,767 square foot building will be fully occupied by the agency, who relocated from five separate locations in the District. 7272 Wisconsin also delivered in the first quarter adding 362,643 square feet of trophy quality space to the Bethesda submarket. Enviva, WeWork, Fox 5, Proshares, and UBS Financial Services all preleased space, delivering 89 percent pre-committed. Equally interesting was the delivery 9950 Medical Center Drive which was originally slated to be the new headquarters for Autolus. At the end of the quarter, it was announced they would be backing out of the deal. However, TCR2 announced the same day that they would be taking the recently available space showing just how competitive the life sciences market is.
Net absorption was 523,493 square feet during the quarter largely from two notable moves out of the District into Suburban Maryland (CIS and Fox 5). This was the largest increase in demand since the fourth quarter of 2012 and well above the 5-year quarterly average of 41,025 square feet.
Overall average direct asking rental rates for Suburban Maryland increased $0.36 to end the first quarter at $28.90 per square foot, establishing a new high-water mark. All three classes of product saw an increase in asking rents with class A seeing the largest, increasing $0.56 cents to end the quarter at $30.36 per square foot. The increase in rents demonstrates ownership’s willingness to give larger concession packages in lieu of lowering face rents to attract tenants. Good credit tenants can expect to see strong tenant improvement allowances and rental abatement on new leases.
Despite strong demand, the overall vacancy rate rose 20 basis points due to the delivery of new inventory. The overall vacancy rate ended the first quarter of 2021 at 16.1 percent. This is the first time it has been over that threshold since the third quarter of 2016.