As the Delta variant surge weighs on office markets nationally, some of the positive momentum during the second quarter experienced a pullback in Q3 2021. The Washington, D.C. market posted 321,000 sq. ft. of occupancy loss during the quarter, bringing year-to-date total net contraction to 1.9 million sq. ft. Vacancy rose 40 basis points over the quarter to 18.2%, surpassing the 18% mark for the first time on record.
Gross leasing volume ended the quarter at 3.1 million sq. ft., driven in large part by the Securities and Exchange Commission’s 1,274,000 sq. ft. prelease at Douglas Development’s 60 New York Avenue, NE development. While this marks the highest quarterly leasing volume recorded in the District since Q2 2019, private-sector leasing was flat quarter-over-quarter and remained 44% down from pre-pandemic averages. Tour activity experienced a sharp decline beginning in mid-July, as many smaller requirements for near-term occupancy paused in process. However, signs of a rebound emerged after Labor Day. With more than 600,000 sq. ft. of pending private-sector leases in the pipeline and new-to-the-market tenants continuing to evaluate the D.C. market, lease executions could increase in the coming months, assuming the Delta variant will subside.