The Suburban Maryland office market continued its trend of positive demand for the second quarter in a row. Seven deals over 20,000 square feet were signed during the fourth quarter. Notable leases were signed by Choice Hotels International at 915 Meeting Street in the North Bethesda submarket who leased 105,000 square feet, and a 35,792 square foot renewal at 20250 Century Drive in the Germantown submarket by Viavi Solutions. The markets vacancy rates have decreased, and rental rates have increased during the quarter. With Marriott’s new headquarters at 7750 Wisconsin Avenue expected to deliver in early 2022, there will most likely be a decrease in vacancy next quarter as the company relocates from their old location which will be converted into a senior living facility.
Supply & Demand
The fourth quarter had no new product deliver to the market and at the end of the quarter, nearly 1.7 million square feet was under construction compared to 2.4 million a year ago. One building broke ground,1600 Rockville Pike, a 240,000 square foot building in the Rockville submarket. Like the previous quarter, the fourth quarter also saw positive demand with 47,274 square feet absorbed. This was due to Class A product which registered 78,650 square feet of positive demand. Meanwhile, the combined Class B and C market conveyed 31,376 square feet of negative absorption during the quarter. Overall absorption for the year totaled 180,220 square feet, however, without the U.S. Citizenship and Immigration Services move to their new headquarters from DC earlier this year, absorption would have been negative.
Rental rates rose during the fourth quarter ending at $29.75 per square foot, compared to $29.43 last quarter. Class A rates decreased $0.01, while Class B/C rates have increased from the previous quarter. The combined Class B/C asking rents increased by $0.71 to end the quarter at $28.38 per square foot. Montgomery County’s overall average asking rents continued to be significantly higher than Prince George’s County’s rates at $31.29 and $23.31 per square foot, respectively. Both rates saw increases from the same time last year.
There was a 20 basis point drop in overall vacancy during the quarter, ending at 16.3 percent. This rate is 50 basis points higher than this time last year. The Class A vacancy rate fell from 18.0 percent to 17.8 percent during the quarter. The Class A vacancy rate started the year at 17.2 percent but was down from the peak of 18.1 percent which occurred during the second quarter of 2021. The combined Class B/C product ended the quarter at 14.9 percent, a decrease of 30 basis points from the third quarter. This is up from the start of the year when combined Class B/C product vacancy was 14.5 percent.