WASHINGTON, DC–Class A commodity office space will continue to struggle to find tenants, according to NGKF's Q1 report on the Washington DC market.
This trend has been unfolding for several quarters: namely, tenants in the area are either gravitating towards the Trophy and/or brand new Class A space or the lower-cost Class B space. The undistinguished Class A properties, which are typically marketed at $60 to $75 per square foot, don't seem to have a natural constituency anymore.
NGKF's conclusion may seem counter intuitive as, at first glance, the office asset class posted a strong performance in Q1.
Net absorption, which was positive in all three sub-state areas, totaled 1.1 million square feet, matching the total for all of 2016. The region's vacancy rate ticked down 40 basis points from year-end 2016 to 16.1%. Average weighted asking rents registered $36.89 per square foot in Q1, an increase of 3.4% over the past year that is partly attributed to increased demand over the last few quarters.
The problem is, these trends are not enough to lift Class A.
The vacancy rate is still high and yet developers continue to build spec projects, NGKF pointed out. And while demand is growing, the companies are falling in one of two camps: they either want the newest buildings and internal configurations, or are interested more in value.
WASHINGTON, DC–Class A commodity office space will continue to struggle to find tenants, according to NGKF's Q1 report on the Washington DC market.
This trend has been unfolding for several quarters: namely, tenants in the area are either gravitating towards the Trophy and/or brand new Class A space or the lower-cost Class B space. The undistinguished Class A properties, which are typically marketed at $60 to $75 per square foot, don't seem to have a natural constituency anymore.
NGKF's conclusion may seem counter intuitive as, at first glance, the office asset class posted a strong performance in Q1.
Net absorption, which was positive in all three sub-state areas, totaled 1.1 million square feet, matching the total for all of 2016. The region's vacancy rate ticked down 40 basis points from year-end 2016 to 16.1%. Average weighted asking rents registered $36.89 per square foot in Q1, an increase of 3.4% over the past year that is partly attributed to increased demand over the last few quarters.
The problem is, these trends are not enough to lift Class A.
The vacancy rate is still high and yet developers continue to build spec projects, NGKF pointed out. And while demand is growing, the companies are falling in one of two camps: they either want the newest buildings and internal configurations, or are interested more in value.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
