Washington D.C. office market benefits from migration from the suburbs

The District of Columbia has seen growth in leasing due to businesses and associations relocating from the suburbs to downtown Washington, D.C. The trend comes despite negative absorption (when more companies are downsizing or subleasing space than expanding and adding space) and high office vacancies in other areas of the overall region.

JLL reports that over the past 24 months, there has been more than 300,000 square feet of new leasing activity in the District as a result of tenants from Maryland and Virginia migrating into the city.

“The migration of suburban tenants into the District and robust expansion activity among startups and high-technology companies helped fill a gap in an otherwise tepid demand environment during the third quarter,” Scott Homa, senior vice president research at JLL, said in a statement.

While creative industries such as digital media, software engineering, advertising and consumer technology represent a relatively small portion of the metro D.C. tenant base, Homa said incremental growth – primarily concentrated downtown – helped offset contractions within the region’s core industries of legal services and government contracting.

Doug Mueller, a senior vice president at JLL, noted that the migration is heavily populated by associations, technology companies and professional services firms. “The quality and location of office space with easy access to mass transit, abundant amenities and housing options also has a visible and tangible impact on attracting and retaining top talent,” he said in a statement.

According to JLL’s Office Insight report for the third quarter, since the start of 2014, a total of 21,200 private-sector office jobs have been added to the metro D.C. economy. Although substantial declines in federal payrolls continue to offset the private sector growth, regional unemployment (5.4 percent) remains significantly below the national average (6.1 percent).

JLL’s snapshot of the Metro D.C. office market:

·       Total vacancy, 17.2  percent

·       Year-to-date net absorption in square feet (s.f.),  -2,069,130

·       Q3 2014 net absorption (s.f.), -1,346,328

·       12-month rent growth, 7.6 percent

·       Total under construction (s.f.),  4,619,612

·       Preleased under construction, 56.9 percent

“We feel the D.C. market has finally bottomed and that there are early signs of a resurgence in tenant demand,” said Homa. “Although tenants still hold strong negotiating leverage in today’s marketplace, the tightening of the top segment of the market suggests that the downtown market has found stability.”