Office Market Snapshot                                                                                                    ...
Cassidy Turley Office Market SnapshotWashington, DC  •   Third Quarter  •  2012                                           ...
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DC 3Q12 Office Snapshot

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3Q Office Market Report

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DC 3Q12 Office Snapshot

  1. 1. Office Market Snapshot Washington, DC • Third Quarter • 2012 Market Tracker Vacancy Net Absorption Deliveries Asking Rent *Arrows = Current Qtr Trend 10.3% 12,000 SF 0 SF $50.17 FS Uncertainty Slows Office Market Recovery Uncertainty surrounding the elections, tax reform and government spending kept Washington, DC office market tenants cautious during the third quarter of 2012. The limited momentum of the first half of 2012 continued into the third quarter, as only 12,000 square feet was absorbed. This mere ”drop in the bucket” demand brought the year-to-date total net absorption to a negative 34,000 square feet. Still, despite the slower pace of growth, and with new supply in check, vacancy fell slightly to 10.3% following three consecutive quarters at 10.4%. Average asking rents rose modestly by 58 cents, or 1.2%, over the quarter to $50.17 per square foot on a full service basis, and by 80 cents, or 1.6%, year over year.WASHINGTON, DC OFFICE Small and mid-size tenants drove demand for office space. Those tenants– primarily private sector onesEconomic Indicators – were a diverse mix of law firms, government affairs offices, education-related entities, executive suites and non-profits. Gross leasing activity remained stable over the quarter, with the bulk of activity Q3 12 Q3 11 occurring in the core submarkets of the East End and the Central Business District (CBD). Tenants continued to adopt cautious and defensive leasing approaches, either cutting down on their average DC Metro Employment 2.5M 2.4M square foot per employee or growing conservatively. Only a handful of transactions represented net growth. Aside from a couple of lease renewals, demand from the public sector remained stymied with DC Metro Unemployment 5.5% 6.0% both landlords and tenants awaiting policy decisions and greater government budget clarity. However, during the third quarter a few agencies downsized into already leased spaces, as total public sector net U.S. Unemployment 8.2% 9.7% absorption totaled a negative 140,000 square feet – the second lowest quarterly level in at least three years. U.S. CCI 65.64 50.26 Amid the vast majority of tenants finding creative solutions to reduce space requirements, a handful found it advantageous to expand their real estate footprints. Georgetown University, for example, signed the top non-renewal lease in the District during the third quarter which accounted for approximately Net Absorption 90,000 square feet of net growth. Offsetting that, however, was law firm Dewey & LeBoeuf’s return of about 125,000 square feet to the East End submarket, the result of the firm’s bankruptcy. The 5.0 non-profit United Nations Foundation signed the second largest non-renewal lease of the quarter for 4.0 85,000 square feet, accounting for over 35,000 square feet of net growth in the CBD submarket.Square Feet (mil) 3.0 In a chronic-uncertainty-plagued environment in which landlords compete for a finite set of tenants in 2.0 the market, some landlords, looking to increase occupancy levels, assumed several millions of dollars of 1.0 lease liability in order to secure a tenant. A few large law firms, in fact, are (as of the writing of this 0.0 report) in lease negotiations for this reason, with leases likely to be signed in the next couple of -1.0 quarters. 2007 2008 2009 2010 2011 YTD 2012 No new office supply was delivered to the Washington, DC office market in the third quarter of 2012. However, four office projects totaling 480,000 square feet are scheduled to deliver by the end of 2012, 37% of which was available at the end of the third quarter. The remaining development pipeline will Vacancy Rate deliver approximately 1.5 million square feet to the District of Columbia in 2013, 32% of which was preleased at the end of the quarter. Look for MRP Realty to break ground on a speculative basis next quarter on approximately 111,000 square feet at 900 G Street, NW scheduled to deliver mid-2014.13%12%11% Forecast10% Historical Average • Potential cuts in government spending and the consolidation of multiple leased spaces into single 9% locations may ultimately reduce the government’s space needs. 8% 7% • Concerns over the effects of mandated federal spending cuts in early 2013 on local businesses will 6% remain a factor in hiring decisions. 5% • A lack of significant demand drivers and flat vacancy rates will keep overall asking rental rate 4% 2007 2008 2009 2010 2011 2012 increases modest to flat over the next 18 months. • Growth is expected to remain subdued through 2013, with the private sector driving the bulk of office demand in the near term. Tenants across industry sectors will likely continue a “wait and see” approach to leasing decisions. www.cassidyturley.com
  2. 2. Cassidy Turley Office Market SnapshotWashington, DC • Third Quarter • 2012 UNDER SUBLET TOTAL VACANCY CURRENT YTD AVERAGE VACANT ABSORPTION ABSORPTION CONSTRUC- TOTAL BLDG INVENTORY VACANT RATE ASKING RENT TION Submarket CBD 252 38,801,607 453,362 4,865,751 12.5% 71,523 169,224 248,697 $51.00 East End 201 39,225,153 302,891 3,837,882 9.8% (88,133) (171,796) 539,644 $53.02 West End/Georgetown 59 6,019,052 27,939 607,164 10.1% 23,950 26,653 0 $41.20 Capitol Hill 42 4,272,688 20,871 174,251 4.1% (6,218) 13,462 336,085 $55.56 NoMa 37 9,636,850 21,349 1,036,731 10.8% (12,104) (21,891) 623,817 $45.78 Southwest 36 13,907,238 1,000 963,782 6.9% (30,117) (39,237) 0 $49.41 Capitol Riverfront/Southeast 11 3,736,758 17,200 646,748 17.3% 21,972 (25,749) 0 $46.48 Uptown 95 6,308,307 47,747 468,279 7.4% 30,686 15,541 196,013 $39.39 TOTAL 733 121,907,653 892,359 12,600,588 10.3% 11,559 (33,793) 1,944,256 $50.17Key Lease Transactions 3Q 12PROPERTY SF TENANT TRANSACTION SUBMARKET601 New Jersey Avenue, NW 217,300 GSA - Federal Trade Commission (FTC) Renewal Capitol Hill650 Massachusetts Avenue, NW 91,200 Georgetown University Relet East End1750 Pennsylvania Avenue, NW 85,000 United Nations Foundation Relet CBD901 F Street, NW 77,000 Gallup, Inc. Renewal East End1299 Pennsylvania Avenue, NW 75,300 Cooley LLP Relet East End1331 F Street, NW 62,100 GSA - Department of Justice (DoJ) Renewal East End1100 New York Avenue, NW 41,300 Gilbert LLP Renewal East End1025 Thomas Jefferson Street, NW 30,200 American Institutes for Research (AIR) Expansion West End/Georgetown505 9th Street, NW 25,100 Solar Energy Industry Association (SEIA) Sublet East EndKey Sales Transactions 3Q 12PROPERTY SF SELLER/BUYER PRICE SUBMARKET409 3rd Street, SW 420,122 Vornado Realty Trust / Hobby Lobby Corporation $200,000,000 Southwest607 14th Street, NW 270,158 DEKA Immobilien / New York Life Insurance Company $159,359,900 East End975 F Street, NW 178,200 Akridge & Seaton Benkowski & Partners / GLL Real Estate $121,400,000 East End1025 Thomas Jefferson Street, NW 315,628 NSP Ventures / The JBG Companies  $80,500,000 Georgetown300 D Street, SW 391,089 Vornado Realty Trust / Hobby Lobby Corporation $50,000,000 Southwest1200 17th Street, NW 83,187 First Potomac Realty Trust / Mitsui Fudosan America $43,700,000 CBD900 2nd Street, NE 115,394 Potomac Development Corporation / Fluorine, LLC $30,500,000 NoMA Urmi JoshiAbout Cassidy Turley Senior Research AnalystCassidy Turley is a leading commercial real estate services provider with more than 3,600 professionals in more than 60 offices 2101 L Street, NWnationwide. The company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non- Suite 700profits to major institutions. The firm completed transactions valued at $22 billion in 2011, manages 455 million square feet on Washington, DC 20037behalf of institutional, corporate and private clients and supports more than 28,000 domestic corporate services locations. Cassidy Tel: 202.463.2100 Fax: 202.223.2989Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital Urmi.Joshi@cassidyturley.commarkets, tenant representation, corporate services, project leasing, property management, project and development services, andresearch and consulting. Cassidy Turley enhances its global service delivery outside of North America through a partnership with The information contained within this report is gathered from multiple sources considered to beGVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com reliable. The information may contain errors orfor more information about Cassidy Turley. omissions and is presented without any warranty or representations as to its accuracy. Copyright © 2012 Cassidy Turley. All rights reserved. www.cassidyturley.com

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