The third quarter of 2022 saw the typical summer slowdown resulting in fewer executed leases. There were no leases signed in the third quarter over 100,000 square feet and just two signed over 50,000 square feet. The largest lease signed in the third quarter was the renewal of the United States Customs and Border Protection at 90 K Street, NE in the NoMa submarket. The Financial Industry Regulatory Authority (FINRA) signed for 68,030 square feet at 1700 K Street, NW and Van Ness Feldmen signed for 45,000 square feet at 2000 Pennsylvania Avenue, NW. While the total number of leases signed over 10,000 square feet was similar to the previous quarter it was below the first quarter of 2022 total and was less than the average number per quarter done in 2021.
Supply & Demand
Just one building delivered in the third quarter of 2022 bringing year-to-date deliveries to just under 1.3 million square feet. 2100 Pennsylvania Avenue NW, a 480,000 square foot trophy building and new home to WilmerHale, delivered 65 percent pre-leased. Boston Properties signed a 75-year ground lease with George Washington University and tore down an aging building to develop a new trophy quality building. With this delivery, total construction in the District ended the quarter with just over a million square feet underway.
Demand in the third quarter was negative 141,297 square feet, bringing year-to-date to negative 189,043 square feet. While negative, it is nowhere near where the District was at the same time in 2021 where net absorption was negative 2.7 million square feet after the first three quarters. After three quarters of positive absorption Class A demand was negative, returning 105,945 square feet. However, year-to-date net absorption in Class A space remains positive at 247,228 square feet.
Asking rental rates have remained relatively stable during the third quarter decreasing by $0.10 to end the quarter at $55.41 per square foot. Class B rents increased during the quarter while Class A and C rents decreased by $0.26 and $0.43, respectively. While rental rates have decreased, concession packages remained near record levels.
Vacancy in the third quarter continued to rise, caused by negative absorption and the delivery of new product to the market. Overall vacancy increased by 40-baisis points in the third quarter and 80-basis points from the start of year, ending this quarter at 17.8 percent. Vacancy increased in Class A
and Class B space while remaining the same in Class C. The slowdown in new development coupled with an increase in planned office-to-residential conversions may help dampen the rate of future vacancy increases.