Washington-area commercial real estate market sees modest growth in second quarter

Published July 1, 2014 by Robert Powell, III

The Washington, D.C., area saw modest commercial real estate growth in the second quarter, according to preliminary research reports by CBRE Group.

“The trend toward more efficient, consolidated, and sustainable workplaces is here to stay.  But with an improved economic forecast and the resulting market stabilization, we’re seeing noticeable spurts of touring activity, as well as a rising demand from nonprofits, and technology and business services,” John Germano, executive managing director of CBRE’s Washington-Baltimore region, said in a statement.

The second quarter saw rising demand for services by nonprofits and associations in the District of Columbia.  More tenants seeking 10,000 square feet or more came to the market as well, CBRE said.

The D.C. market also experienced 393,000 square feet of negative absorption and a slight rise in vacancy to 11.3 percent, in large part because of Intelsat’s relocation from a 475,000-square-foot Uptown headquarters to Tysons Corner.

The impact of this move was lessened by tenants who expanded their footprint or relocated to D.C., CBRE said.

The commercial real estate company expects significant increase in Northern Virginia office market sales activity because a growing number of investors are seeking a yield outside the urban core.  More than 15 properties are currently on the market with a large business park soon to follow, the company said. Four buildings totaling 1.2 million square feet were delivered during the second quarter with a preleasing rate of 73 percent.  Another 2.3 million square feet is under construction.

Demand, however, has been unable to keep pace with the supply of vacant blocks of space, CBRE reports.  Northern Virginia experienced 275,752 square feet of negative absorption and an increase in vacancy rate by 70 basis points. Several tenants reduced their footprints and gave back space, while the delivery of four office buildings also added 324,302 square feet of vacant space to the market.

Tenants occupying less than 15,000 square feet continue to be the most active and accounted for nearly three-quarters of the deals signed in the second quarter, although that figure was as high as 85 percent in the first quarter, CBRE said. The two largest move-ins of the quarter were Intelsat’s relocation to Tysons Corner and the CIA’s move to Dulles Discovery IV in the Route 28 South submarket.