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Both the DowntownDC BID area and DC recorded lower office vacancy and higher rental rates in the second quarter, according to Cushman and Wakefield. The BID area vacancy rate dipped to 9.9% from 10.3% in the first quarter. It fell to 11.5% from 12.6% for DC. Although the vacancy rate hasn’t returned to 2008 levels, it continued to drop from the 2009 peak.
It will take 1,600 office jobs to decrease the vacancy rate to 10%, and nearly 4,500 office jobs to get it to 8%, in the BID. DC needs more than 12,000 to 20,500 jobs to do so—about 4,000 less than the first quarter. Lenders historically finance speculative buildings when the vacancy rate is at 8% and 10%.
So how does DC compare to surrounding areas? Much better. The Northern Virginia market is still mixed, with markets closer to DC faring better than far-out ones. Rosslyn and Tysons’ rents rose proportionally as much as or more than the BID, slightly closing the price differential between the markets and decreasing the cost incentive for tenants to leave DC for Virginia. The Suburban Maryland market had increased vacancy rates and decreased prices and is still in flux despite improvements seen last year.
Meanwhile, office sales picked up in all markets, with DC averaging between $350 and $600 per square foot (SF), Northern Virginia between $275 and $350 per SF and Suburban Maryland between $250 and $325 per SF.
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