JLL says broad-based recovery taking hold across Washington, D.C. region

Investment sales volume for office properties in the Washington, D.C. region totaled $5.1 billion through the end of the third quarter of 2015, an increase of 52.3 percent year-over-year and the highest sales volume achieved since 2006, according to research analysis from JLL.

In addition, Northern Virginia, suburban Maryland and the District of Columbia each recorded positive net-leasing gains during the third quarter, marking the first time in more than five years that each jurisdiction has recorded consecutive quarterly gains.

“Metro D.C. hit an inflection point at the start of the year, as strong employment growth drove occupancy gains throughout the regional office market,” Scott Homa, JLL’s vice president, research, said in a statement. “An uptick in tenant demand and the emergence of rent growth for the first time in years have provided a tailwind to the market, increasing both owner and investor confidence in the Washington region.”

Since the start of the year, the majority of the sales volume has been concentrated in the District of Columbia, but the Rosslyn-Ballston Corridor and downtown Bethesda also saw strong sales volume. The sales firgures were: Northern Virginia: $1.76 billion; Suburban Maryland: $423.9 million; Washington, D.C.: $2.94 billion.

“Competition for the limited number of offerings within the District of Columbia persists, while foreign buyers remain active in the district, accounting for 63 percent of transaction volume thus far in 2015,” said Bill Prutting, managing director, Capital Markets, JLL.

Year-to-date pricing remains at record-high levels, averaging $714 per square foot in D.C., $286 per square foot in Virginia and $225 per square foot in suburban Maryland, the report said.

JLL said sales volume is expected to remain strong through the end of the year with nearly $2.5 billion in transactions expected to close before year-end.

“The sales volume in the Virginia suburbs has been particularly high this year at close to $1.7 billion, and we expect another $1 billion to close before the end of the year,” said Prutting. “The improving suburban leasing market, low interest rates and availability of capital will continue to drive demand among investors for suburban Washington locations.”

The majority of tenant activity year-to-date has occurred among the government, contractor, technology, nonprofit/association and healthcare/education segments. The U.S. Transportation Security Administration (TSA) lease in the third quarter and a series of transactions by other federal agencies, including the U.S. Marshals Service, DHS, HHS and FBI earlier this year, have accounted for 36.6 percent of all transaction velocity in the Washington region leasing market.

 Altogether, JLL's stats show year-to-date net absorption of 709,751 square feet, 5.2 million square feet under construction and 59.2 percent for preleasing.

As of the end of the third quarter, Crystal City led all metro D.C. submarkets in terms of overall occupancy gains, registering 313,847 square feet of positive net absorption year-to-date. The core Central Business District, East End and Rosslyn-Ballston Corridor also exhibited strong activity, as well as the future Silver Line Phase 2 corridor along the Dulles Toll Road.

“When we see a resurgence in leasing activity in markets such as Crystal City and enclaves outside the Capital Beltway, we know we’re in the midst of a broad-based recovery,” Homa said.