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Washington DC Office Report Q3 2020

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Market News

  • As the effects of COVID-19 pushed into the third quarter of 2020, the impact on the Washington DC, market became more pronounced. Deal velocity continued to be anemic with the government sector being the only tenant consistently closing deals.  
  • Only one lease was signed over 100,000 square feet in the District. DC’s Department of General Services signed a lease at 3924 Minnesota Ave NE for 239,800 square feet in early August. Microsoft signed the largest private sector deal when they renewed at 901 K Street NW for 57,363 square feet. 

Demand & Supply

  • The correlation between COVID-19 and negative absorption in the market was further cemented as the District registered just under 450,000 square feet of negative demand. Most of the space coming back to the market happened in small to medium blocks. No product type was spared; Class A space which has typically had positive demand gave back 167,963 square feet of space this quarter. This was a reversal from the trend that averaged over 380,000 square feet of absorption per quarter for the last three years.
  • The delivery of 2100 L Street NW was the only new product that came to market in the third quarter. The 190,000-square-foot building’s anchor tenant is the international law firm Morrison & Foerster, whose initial lease was for just over 81,000 square feet but then exercised an expansion option that brought their total footprint to a little over 100,000 square feet.
  • At the end of the quarter, 2.6 million square feet of office product was under construction. Several projects have pushed back delivery dates and nearly all new groundbreakings are on hold at this time. At 2.6 million square feet, it is the least the District has had under construction since 2015. Owners are likely to be wary of starting any large-scale development projects without pre-leases to justify such an endeavor.

Vacancy Rates

  • With 448,393 square feet returned to the market in the third quarter, the overall vacancy rate increased 30 basis points to end at 15.2 percent. This is the ninth straight quarter overall vacancy for the District has increased and the first time in over 20 years that the vacancy rate was above 15 percent. Sublet space has been coming to the market at a faster pace than the past couple of quarters, which has helped accelerate the increase in the overall vacancy rate.
  • Direct average asking rents remained flat in the third quarter ending at $57.15 per square foot on a full-service basis. Face rents have been the one thing throughout the pandemic that have remained relatively stable. We are seeing an increase in owner’s willingness to negotiate the concession packages rather than face rents in most occasions.

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Washington DC Office Report Q3 2020

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