It’s still a tenant’s market in Washington, D.C., and Northern Virginia
Tenants are still in the driver’s seat in the Northern Virginia and Washington, D.C., commercial real estate markets. In fact, companies willing to commit to long-term leases can lock in some of the most favorable terms in the last three real estate cycles in Northern Virginia, according to a report released Monday.
The Savills Effective Rent Index (SERI) looks at rental rate trends for prime Class A office properties in the nation’s major central business districts and selected suburban markets. Using completed transactions, it tracks what tenants truly pay, (the tenant effective rent) for top-tier office space. Savills figures reflect negotiated terms, including lease concessions and operating-expense information.
Some of the key takeaways from this year’s study:
Tenant effective rent rose by 3.2 percent to $47.33 per square foot in 2014. This is below the peak of $55.47 per square foot in 2008 and the weakest growth for a major U.S. central business district last year.
The report blamed what it called “anemic” private-sector, office-using employment and a decline in federal government employment growth that curbed demand for office space.
Landlords, in turn, were willing to entertain early lease restructures that involved tenants giving back unneeded space and/ or rental rate adjustments in exchange for extended lease terms.
2015 outlook: Zero to 5 percent increase
Tenant effective rent averaged $28.57 per square foot, a year-on-year increase of 12.5 percent, but still below the peak of $31.23 per square foot in 2011.
Leasing volume during 2014 was driven primarily by early renewals and lease restructures. Northern Virginia still has a lot of excess space, so tenants considering relocations have options.
2015 outlook: Zero to 5 percent growth