WASHINGTON, DC–There is currently some nine million square feet of core Class A blocks of space that are greater than 20,000 square feet being marketed for occupancy in 2021 or earlier, according to JLL's Q3 report on the Washington DC market. This will create six million square feet of overhang, as there is only 3 million square feet of Class A large tenant demand expected to be in the market. This data point is part of a larger trend with which the area is sadly well aware.
There are many repercussions to this trend, one of which has begun to manifest strongly during the third quarter — namely that landlords of new vacant product are becoming more aggressive by offering lower terms and also by targeting smaller tenants for the first time.
New and renovated product with significant vacancy have started to shift asking rents down by 5% to 10%, according to JLL. Landlords are also offering upward of 24 months free and $140 per square foot in tenant improvement allowances.
It predicts that over the next 24 months as vacancy rises, the Class A market will see a 10-15% decline in net effective rents.
JLL also notes that:
4.6 million square feet of new space is slated to deliver vacant over the next 36 months, a majority of which will deliver in 2019 and 2020 with law firms committed to the top floors, but the middle and lower floors remaining fully vacant.
In the core (CBD, East End and Capitol Hill), Class A (non-Trophy) direct vacancy is 15.3% and positioned to rise to 20% by 2020, shifting leverage further in tenants' favor.
WASHINGTON, DC–There is currently some nine million square feet of core Class A blocks of space that are greater than 20,000 square feet being marketed for occupancy in 2021 or earlier, according to JLL's Q3 report on the Washington DC market. This will create six million square feet of overhang, as there is only 3 million square feet of Class A large tenant demand expected to be in the market. This data point is part of a larger trend with which the area is sadly well aware.
There are many repercussions to this trend, one of which has begun to manifest strongly during the third quarter — namely that landlords of new vacant product are becoming more aggressive by offering lower terms and also by targeting smaller tenants for the first time.
New and renovated product with significant vacancy have started to shift asking rents down by 5% to 10%, according to JLL. Landlords are also offering upward of 24 months free and $140 per square foot in tenant improvement allowances.
It predicts that over the next 24 months as vacancy rises, the Class A market will see a 10-15% decline in net effective rents.
JLL also notes that:
4.6 million square feet of new space is slated to deliver vacant over the next 36 months, a majority of which will deliver in 2019 and 2020 with law firms committed to the top floors, but the middle and lower floors remaining fully vacant.
In the core (CBD, East End and Capitol Hill), Class A (non-Trophy) direct vacancy is 15.3% and positioned to rise to 20% by 2020, shifting leverage further in tenants' favor.
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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.
