It’s still a tenants’ market in Washington metro region

It remains a tenants’ market in the Washington, D.C. metro area according to new report from CBRE Group.

It says economic and federal budget concerns, combined with space consolidations, continue to suppress the office markets of the District of Columbia, Northern Virginia and suburban Maryland. This maintains an environment that favors tenants, according to first-quarter 2013 research by CBRE.

“Uncertainty has become our new normal. In a marketplace where hesitancy and doubts over sequestration, the debt ceiling and budget battles are likely to continue for at least the next six months, tenants continue to put decisions on hold, and those who are signing leases are looking at less space per employee,” John Germano, executive managing director of CBRE’s Mid-Atlantic Region, said in a statement. “Unlike previous cycles when we might see a heroic growth driver waiting in the wings to ease a leasing slowdown, private sector and government users alike remain locked in a cycle of wait and see.”

The CBRE reports reveal a metropolitan Washington office market in transition, with anticipated federal moves into smaller, more efficient office spaces and a continued preference for renewals over relocation in the private sector.  Some of the highlights:

•  In Washington, D.C., large leases signed by the Federal Reserve and NPR contributed positively to demand. Vacancy rates decreased slightly to 10.4 percent, and the first quarter ended with positive net absorption of more than 300,000 square feet.

•  In Northern Virginia office vacancy rates increased to 15.9 percent in the first quarter from 15.3 percent in the previous quarter, with negative net absorption of 231,000 square feet.  Sequestration is only part of an economic environment characterized by federal budget and debt ceiling concerns. As in the quarters leading up to sequestration, government contractors and other users are exercising more of their termination options than in the past to deal with uncertain future demand for office space. Greater impacts from sequestration (if at all) are more likely to be felt during the next six to nine months, and lack of clarity surrounding these issues will continue to drive uncertainty into the employment and leasing markets. Differences in office market performance inside and outside the Beltway are less pronounced than in the past because the widespread impact of BRAC movement and contractor slowdown. The completion of new Metrorail access in Tysons Corner is drawing greater attention from prospective tenants, although transit is not yet having a significant impact on rental rates or decision-making.