Co-Working Spaces and Non-Law Firm Tenants Dominate Activity and Conversation
Washington, D.C. – April 4 , 2016 – CBRE Group, Inc. today announced the Washington/Baltimore region overview for the first quarter of 2016. Following a year of strong growth in 2015, the District of Columbia office market experienced more than 95,000 sq. ft. of positive net absorption, representing the sixth consecutive quarter of positive demand.
The D.C. market continued to diversify its tenant base, with non-law firm, private-sector tenants accounting for nearly 70% of total leasing activity in Q1 2016, compared to 48% in 2015 and 32% in 2014.
The District’s burgeoning co-working sector was the primary driver of growth, accounting for nearly 170,000 sq. ft. of occupancy gain in Q1 2016 and almost 20% of total leasing activity. WeWork inked its sixth deal in the District, taking 117,769 sq. ft. at Metropolitan Square and backfilling the space vacated by Miller & Chevalier. The co-working service also expanded its Dupont Circle location at 1875 Connecticut Avenue, NW by 18,615 sq. ft. Furthermore, Spaces, a co-working group out of the Netherlands, entered the Washington, D.C. market with a 44,000-sq.-ft. prelease at Douglas Development’s Uline Arena in NoMA.
Office sales volumes remain on par with the trailing 12-quarter historical average, despite recent stagnation in the investment sales market nationally. “In terms of investment activity, Washington, D.C. and suburban Maryland did not see the steep decline in investment sales volume compared to Q4 2015 that was observed at a national level. In fact, after taking into account pending deals, both jurisdictions are likely to see increased volumes over the quarter” said Revathi Greenwood, Director of Research, CBRE Washington, D.C.-Baltimore. “Northern Virginia did experience a significant drop, although it is still on par with Q1 2015 volumes, highlighting the volatility in the market.”
Q1 Market Highlights:
Following an active Q4 2015,the Northern Virginia office market experienced a muted Q1 2016 with 205,813 sq. ft. of negative net absorption, sparked by large consolidations by government contractors. Gross leasing activity dropped 800,000 sq. ft. below the 16-quarter average volume of 2.2 million sq. ft. Despite no major GSA leases signed in Q1 2016, the contractor sector was more active than usual, comprising 40% of the total leasing activity during the quarter, up from its 15% stake in all of 2015.
The CBD continues to experience tightening along the Pratt Street Corridor, which has a current vacancy rate of 12.7%. We expect vacancy to hold steady until late 2016, when Exelon will vacate 440,000 sq. ft. at 750 East Pratt Street and 111 Market Place, and relocate to its new regional headquarters at Harbor Point. Following this move, vacancy at Pratt is expected to increase.
Overall, Baltimore’s office market continues to buck the national trend as the suburban submarkets outperform their urban counterparts in terms of declining vacancy and positive absorption growth. The urban submarkets experienced 111,651 sq. ft. of negative net absorption and an overall vacancy rate of 15.2%, while suburban submarkets experienced 124,262 sq. ft. of positive net absorption and an overall vacancy rate of 12.8%.
The Suburban Maryland office market continued to experience growth during the first quarter of 2016, posting 215,942 sq. ft. of positive net absorption. This was attributed to education company 2U’s 250,000-sq.-ft. lease in Lanham as well as a number of small- to medium-sized expansions and move-ins. Additionally, the New York-based co-working service Serendipity Labs signed a 18,731-sq.-ft. new lease at Carr Properties’ 4500 East West Highway in Bethesda, establishing its first presence in the D.C. metro region.
During the first quarter, Class A product contributed 164,686 sq. ft. of positive net demand, double the 82,064 sq. ft. of net absorption recorded by Class B buildings. Touring activity with Trophy assets increased noticeably and is expected to translate into an uptick in leasing velocity throughout 2016.
About CBRE Group, Inc. CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.