DC 2Q 2017 Market Summary.Indd
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Washington, D.C. Quarterly Market Report 2nd Quarter 2017 lpcwashingtondc.com Washington, D.C. Leasing & Table of Contents Market Research Metropolitan D.C. Market Overview .....................................3 John Marvin Jones Senior Vice President Washington, D.C. Quarterly Overview .................................5 Managing Director [email protected] | 202.513.6709 Washington D.C. Top Sales ..................................................... 8 Washington D.C. Top Ten Leases ......................................... 9 Elaine Clancy Senior Vice President [email protected] | 202.513.6721 Market Spotlight, 2Q 2017: Geoff Kieff er CBD .........................................................................................10 Senior Vice President gkieff [email protected] | 202.513.6718 East End ................................................................................. 11 Adam Biberaj CBD / East End | Class A .................................................. 12 Senior Vice President CBD / East End | Class B ................................................. 13 [email protected] | 202.513.6736 Southwest ............................................................................14 Robert Hines Senior Vice President West End / Georgetown ...................................................15 [email protected] | 202.513.6706 Capitol Hill / NoMa ...........................................................16 Merrill Turnbell Capitol Riverfront .............................................................. 17 Senior Vice President [email protected] | 202.513.6713 John Olson Senior Vice President Tysons Corner .....................................................................13 [email protected] | 202.513.6730 Terry Amling Senior Vice President [email protected] | 202.513.6708 Joe Mehok Director of Research [email protected] | 202.513.6735 2 Metropolitan D.C. Market Overview 2nd Quarter 2017 Overall Market Summary The Washington, DC Metropolitan commercial real estate market is comprised of approximately 412.8 million square feet of rentable offi ce space located in the District of Columbia, Northern Virginia, and Suburban Maryland. feet (63% pre-leased). No buildings were delivered The total vacancy rate increased to 15.4% in the in the second quarter. second quarter, up from 15.0% at the end of the fi rst quarter. The market recorded -518,562 square feet There were twenty-fi ve sale transactions in the fi rst of net absorption in the second quarter, a notable quarter, totaling $1.72 billion. The largest sale was drop from the 1,395,421 square feet absorbed in the 1919 N. Lynn Street - Waterview Tower in Arlington, fi rst quarter. VA trading for $460,000,000 ($711 psf). Leasing activity totaled approximately 6.8 million Average asking rental rates increased $0.32 to square feet in transactions signed. The largest lease $36.63 per square foot, Full Service. executed was by Amazon Web Services for 400,677 square feet at 13200 Woodland Park Road - One From May 2016 - May 2017 the DC Metropolitan Dulles Tower in Herndon, VA. area had a net increase of 48,300 jobs (42,000 private sector, 6,300 government) representing 1.5% Three buildings, totaling 476,500 square feet, broke growth, while the unemployment rate decreased ground (2 DC, 1 VA, 0 MD); increasing the metro to 3.6%. The DC Metro is ranked 11th nationally in area’s development pipeline to 10,089,021 square unemployment. Metro DC VA MD Area (YTD) Direct Vacancy 10.5% 15.5% 15.1% 14.6% (2Q 2017) Total Vacancy 11.4% 16.3% 15.7% 15.4% (2Q 2017) Total Net Absorption 876,859 277,731 SF 353,145 SF 245,983 SF (YTD 2017) SF Leasing Activity 4.5 M SF 6.4 M SF 1.6 M SF 12.5 M SF (YTD 2017) 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 3 1530 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 Metropolitan D.C. Market Overview 2nd Quarter 2017 Outlook The Washington D.C. Metropolitan market Looking ahead, the private sector will continue softened slightly as vacancy increased and the to be the primary driver for employment in region recorded negative net absorption in the Washington, DC Metropolitan area; with the second quarter (YTD absorption remained the Professional & Business Services industry positive, however). The market experienced leading the way. Uncertainty among the some positive trends in the second quarter Federal agencies concerning budgets and as well with an uptick in leasing activity, staffi ng, coupled with agency consolidations/ asking rents, and sales. Regional employment downsizing, should continue to aff ect GSA experienced 1.5% of growth YOY ending May leasing throughout 2017. While vacancy 2017, primarily driven by the private sector, decreased in Northern Virginia and pre-leasing specifi cally the Professional and Business is strong market-wide, the DC metro area Services industry. The unemployment rate should remain a tenant’s market through 2017. decreased to 3.6%; ranking the DC Metro area Aggressive landlords will continue to off er 11th in unemployment nationally (among cities of generous concessions and initiate capital 1 million+ people). improvements to remain competitive. 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 4 1530 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 Washington, D.C. 2nd Quarter 2017 Market Summary 2Q 2017 1Q 2017 2Q 2016 The Washington, DC offi ce market consists of 784 buildings over 25,000 square feet, totaling approximately 144.1 million square feet of rentable Direct 10.5% 10.2% 10.3% space. Vacancy As of May 2017, the unemployment rate for the District of Columbia increased to 6.0%, while the Total 11.4% 10.9% 11.0% Washington, DC Metropolitan area decreased Vacancy to 3.6% (ranking 11th nationally). The national unemployment rate decreased to 4.4%. Net The DC Metropolitan area gained 48,300 net new 107,687 170,044 268,454 jobs from May 2016-May 2017, representing 1.5% Absorption (SF) growth. Professional & Business Services lead the private sector with 15,600 new jobs; while the Leasing Government added 6,300. 2.2 M 2.3 M 2.1 M Activity (SF) The largest public sector lease executed this quarter was a renewal by the GSA for the Department of Education for 314,243 square feet at Under 5.0 M 4.6 M 3.3 M 550 12th Street, SW - Potomac Center South. Construction (SF) Washington Gas signed the largest private sector lease with a 70,056-square-foot transaction at U/C Percent 53% 49% 39% 1000 Maine Avenue, SW - The Wharf. Pre-Leased There were eight sale transactions in DC, totaling $566,261,000. The largest sale was Unizo Holdings purchasing 1325 G Street, NW and 1341 G Street, Deliveries (SF) 0 0 200,000 NW - The Colorado Building for $259,000,000 ($588 psf). Asking Rental Rates $52.30 $51.74 $51.23 Vacancy Rate (PSF, Full Service) The total vacancy rate in the District increased to $566 M $840 M $371 M 11.4% at the end of the second quarter, totaling Sales Volume approximately 16.4 million square feet of vacant space. Unemployment 3.6% 3.9% 3.6% The Class A total vacancy rate increased to 13.2%, DC Metro Area while Class B total vacancy decreased to 8.6%. Sublet vacancy remained fl at at 0.8% at the end of the second quarter, totaling approximately 1.2 million square feet. 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 5 1530 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 Washington, D.C. 2nd Quarter 2017 Net Absorption & Deliveries | Net Absorption | Vacancy Rate Leasing 6 14 5 12 The Washington, DC market recorded 107,687 4 10 square feet of net absorption in the second (%) Rate Vacancy quarter; totaling 277,731 square feet absorbed YTD 3 8 2017. The 10-year average for net absorption in the District is 1.0 million square feet absorbed per year. SF (Millions) 2 6 1 4 Contributing to the positive absorption this quarter included the Federal Bureau of Prisons moving 0 2 into 115,341 square feet at 901 D Street, SW. -1 0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 The Central Business District (CBD) market posted Deliveries Net Absorption Total Vacancy Rate -73,533 square feet of net absorption in the second quarter; totaling -138,756 square feet absorbed YTD 2017. Deliveries | Under Construction The East End market posted -40,438 square feet 8 of net absorption in the second quarter; totaling 72,769 square feet absorbed YTD 2017. 6 A total of 2,215,681 square feet of leases were executed in the second quarter, bringing the YTD 2017 total to 4,471,486 square feet leased. The 10- 4 year average for leasing activity in DC is 9.7 million square feet annually. SF (Millions) 2 The largest lease executed this quarter was a renewal by the GSA - Department of Education 0 for 314,243 square feet in the Southwest market; '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 all other leases in the Top Ten ranged between Deliveries Under Construction 96,000 to 38,000 square feet. Leasing Activity Construction 15 Fourteen buildings were under construction in Washington, DC at the end of the second quarter, 12 totaling 4,992,917 square feet (53% pre-leased). Pre-leasing remained strong at 70% in the core 9 markets of the CBD and East End, while the rest of the DC market improved to 39% pre-leased. 6 SF (Millions) Two buildings broke ground; 1301 Pennsylvania 3 Avenue, NW - One Freedom Plaza (283,500 sf, 68% pre-leased to Kirkland & Ellis) and 1 M Street, 0 SE (130,000 sf, 81% pre-leased to the National '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Association of Broadcasters). 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 6 1530 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 Washington, D.C. 2nd Quarter 2017 Construction (cont’d) Sales Volume Buildings expected to deliver in 2017 include; 800 6 Maine Avenue, SW (220,000 sf, 56% pre-leased) and 700 Pennsylvania Avenue, SE (232,450 sf, 31% 5 pre-leased).