DC Office Pipeline Drops to 5.2M SF
Much of the pipeline is concentrated in CBD, driven by shift in demand toward West End, Transwestern says.
WASHINGTON, DC–In the third quarter of 2018, the Washington DC office construction pipeline decreased to 5.2 million square feet with 57% of that pre-leased, according to Transwestern’s third-quarter 2018 outlook report. However, it remains above the five-year average of 4.5 million square feet at 42% pre-leased, with the bulk of the pipeline – 1.36 million square feet – concentrated in the Central Business District.
Year to date 2018, 2.7 million square feet has delivered in the District of Columbia at 63% pre-leased upon delivery.
“The robust pipeline for new deliveries in the Central Business District is a result of a shift in demand toward the West End, which is going to further impact second-generation, Class A space in the East End,” said Transwestern Executive Vice President George Vogelei.
The District’s office market gained momentum during the third quarter of 2018 from positive absorption in both the Class A and B space. Transwestern reported that net absorption totaled 76,000 square feet due to several lease transactions in the CBD, East End and NoMa submarkets. Class A space accounted for positive 32,000 square feet, while Class B and C space accounted for positive 44,000 square feet. The most notable deal of the third quarter was the 345,800 square foot US Attorney’s Office of D.C. renewal at 555 4th Street, NW in the East End submarket. In the financial services sector, Carlyle Group signed on for an additional 68,000 square feet at 1001 Pennsylvania Avenue, NW.
Transwestern also reported that the direct vacancy rate decreased 60 basis points to 9.1% compared to last quarter and that asking rents achieved a 0.3% boost in the third quarter to $52.40 per square foot (full service).
In addition, concession packages remain elevated in the District of Columbia. For deals completed year to date in 2018, tenant improvement allowances averaged $90 per square feet, and free rent averaged 13.4 months for a typical 10-year or longer term on a new lease. This compares to $91 per square foot and 13 months during 2017.