The impact from COVID-19 continued into the fourth quarter. Suburban Maryland had no deals that were over 100,000 square feet during the quarter. The largest lease was executed by Walker and Dunlop when they signed for 60,000 square feet at 7272 Wisconsin Ave in the Bethesda submarket. Deal velocity continued to be slow with just seven leases signed over 10,000 square feet.
Suburban Maryland did not see considerable activity from the life sciences sector it had in the previous quarters. Just one deal over 10,000 square feet was in the life science/healthcare sector, signed by Adventist Health System. Many of the leases signed in previous quarters in this industry were already being negotiated pre-pandemic, however, it is expected that this will be important to the health and growth of the Suburban Maryland market in the coming years.
Demand & Supply
The market registered negative net absorption of more 400,000 square feet for the second consecutive quarter. Fourth quarter demand fell 422,974 square feet. This brought the 2020 annual absorption to negative 941,025 square feet, the lowest demand in more than 10 years.
During the fourth quarter, 111,276 square feet of space was added to the inventory. The only delivery in the market was 4600 River Road in the College Park submarket. Cybrary had pre-leased 27,819 square feet on the fourth floor.
Vacancy & Rental Rates
The overall vacancy rate increased 60 basis points during the quarter to end the year at 15.9 percent. This is up 140 basis points from the start of the year. Overall vacancy rates in all three classes of space increased with Class A seeing the largest jump, rising 80 basis points to end the quarter at 17.3 percent. Overall vacancy in Class B and Class C space increased by 20 and 60 basis points, respectively.
Direct average rental rates decreased $0.10 during the fourth quarter to end the year at $28.54. This, however, is above rate at the end of 2019 when it was $27.97 per square foot. Decreases in direct average asking rates were seen in both Class A and B space while Class C space increased slightly.