Leasing velocity in the second quarter of 2021 picked up significantly from the previous quarter, posting seven leases signed over 20,000 square feet compared to just three in the first quarter. The Consumer Product Safety Commission’s five-year renewal at 4330 East-West Highway was the largest deal of the quarter totaling 126,266 square feet. The Life sciences/Medical sector unsurprisingly continued to be well represented in the top deals for the market. MaxCyte, Renal Treatment Centers Mid-Atlantic, and Capital Digestive Care all signed leases over 20,000 square feet with several other companies signing smaller leases as well.
Supply & Demand
After the delivery of over a million square feet in the first quarter, the majority coming from the new U.S. Citizen and Immigrations Services headquarters, the second quarter saw no deliveries in Suburban Maryland. With the delivery of considerable product the previous quarter, the total space under construction during the second quarter was the lowest it had been since the third quarter of 2018, with 1.6 million square feet underway. Of that 1.6 million square feet under construction, nearly half of that comes from the new Marriott headquarters which is scheduled to be delivered in late 2022, resulting in little available space in new product coming to the market in the coming years.
While the year started off with positive absorption, the second quarter saw demand drop, returning 461,699 square feet of vacant space to the market. This was primarily in the Class B market which registered 377,812 square feet of negative absorption, however, Class A absorption was also negative with 120,630 square feet returned.
Rental rates continued to rise during the second quarter to $29.00 after setting a record last quarter. Rents in all three classes increased with Class A rents rising the most, increasing by $0.30 to end the quarter at $30.66 per square feet on a full-service basis. Montgomery County’s overall average asking rents continue to be significantly higher than Prince Georges’ County’s at $30.76 and $22.62, respectively.
Vacancy continued to increase on the heels of negative demand rising by 30 basis points to end the quarter at 16.6 percent. This marks a 230 basis point increase from the same period three years ago in 2018. Vacancy grew the most in the Class B market which increased by 100 basis points from the first quarter of 2021 to end the second quarter at 16.1 percent.