After Economic Uncertainty, Little Change is Good for DC Office Market

2012 may not be the best in store for the Washington, D.C. office market, but it is not shaping up to be the worst, either. The 102-million-square-foot office market started 2012 on a careful note. After some trepidation as 2011 closed, with observers waiting to see if federal government cutbacks would seriously impede the market, occupancy at least remained steady in the first quarter and rents made some modest gains. Reis forecasts some rental growth, and generally stable occupancy.

Occupancy

Reis Reports a 9.4% Q1 2012 vacancy rate for general purpose, multi-tenant office space in D.C., unchanged from the prior quarter, up 20 basis points over the year. An unchanged rate can be considered a good sign for D.C. as it endures the current economic uncertainty regarding the federal budget. Reis forecasts the rate to finish 2012 at 9.3%.

Supply and Demand

Net absorption in the D.C. office market was positive during the first quarter at 29,000 square feet, according to Reis. This is the first positive quarterly performance since mid-2011. The second half of 2011 was all but negative, but was offset by a solid first half, allowing the year to finish with 790,000 square feet on the positive side. No such performance is expected for 2012, however, as a more modest 140,000 square feet is the years’ forecast demand.

Rents

Given that the D.C. office market is still in something of a holding pattern, Q1′s rental gains, while modest, were positive nonetheless. Reis reports Q1 asking and effective rents for general purpose, multi-tenant office space at $49.48 psf asking and $41.89 psf effective, up 0.5% and 0.6%, respectively for the quarter. Reis forecasts asking and effective increases of 1.6% and 2.3% in 2012.