New normal in downtown D.C.

A new market report from Studley shows that consistent rental rate growth, a given in the nation’s capital for the last 15 years, appears unlikely over the next to three years.

Several trends, including a move to more efficient space and restrained spending, will challenge D.C. landlords.

According to Studley’s research:

·        Law firms and federal agencies together account for over 40% of downtown D.C.’s tenant base.

·        Since 2012, office-using employment in the D.C. region has been growing at a 1.1% annual growth rate – a fraction of the 3.3% annual growth rate averaged between 1995 and 2008.

·        A Studley analysis of the largest law firm leases over 50,000 square feet signed before and after the recession indicates a clear shift toward reduction in law firms’ appetite for office space. Since 2010 large law firm leases have resulted in net decrease of nearly 270,000 square feet.

·        A five percentage point reduction in space occupied by federal agencies would add more than 500,000 square feet of available space downtown.

·        Contraction by law firms and federal agencies has the region seeking alternative sectors – such as technology, education and medical – that can fill the gap in employment and office space demand.

·        Some companies are willing to pay a premium for space in newly constructed buildings. In fact, newer buildings are already outperforming their predecessors.