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Suburban Maryland Office Report Q3 2021

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After a strong second quarter of leasing velocity the third quarter saw a significant decrease. Just two leases over 20,000 square feet signed, the largest being Northpond Ventures at 7500 Old Georgetown Road in Bethesda. Eight deals were signed over 10,000 square feet compared to twelve the previous quarter. Of the top ten deals signed only one was a renewal. If there is </div><div>a silver lining in the lack of deal velocity, it is that two of those top leases were expansions creating net new demand for the market. There was one lease over 10,000 square feet in the life sciences sector which has been the biggest growth driver in the market. Three leases over 10,000 square feet were signed in the technology sector, which bodes well for the market as it is expected to be a source of growth nationally. 

Supply & Demand

The third quarter had 174,640 square feet of new product deliver to the market. This was the delivery of the new REGENXBIO facility which brought the year-to-date new supply to 1.2 million square feet. This compares to last year where only 333,663 square feet delivered by the end of the third quarter. Nearly 1.6 million square feet was under construction at the end of the third quarter, over half of which is attributed to the new Marriott Headquarters in Bethesda.

Although the previous quarter saw over 461,699 square feet of negative absorption, the third quarter saw positive demand with 179,892 square feet absorbed. This was primarily in the Class A market which registered 217,415 square feet positive of absorption. Meanwhile the Class B market conveyed 82,753 square feet of negative absorption during the quarter.

Rental Rate

Rental rates rose during the third quarter ending at $29.43, compared $29.00 last quarter. Both Class A and combined Class B/C product rates have increased from the previous quarter. Class A rents rose the most, increasing $0.24 to end the quarter at $30.90 per square foot. Montgomery County’s overall average asking rents continued to be significantly higher than Prince George’s County’s rates at $32.39 and $23.13, respectively. Both rates increased from the previous quarter.

Vacancy

There was a 10-basis point drop in vacancy during the quarter, ending at 16.5 percent. This rate is 130 basis points higher than this time last year. The vacancy rate decreased in Class A product, dropping from 18.1 percent to 18.0 percent during the quarter. The combined Class B/C product ended at 15.2 percent, a 10-basis point increase from the previous quarter. 

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Suburban Maryland Office Report Q3 2021

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