As Federal Employees Stay Home, DC’s Office Leasing Market Survives on Private-Sector Activity

The federal government’s decision to continue to allow its employees to work remotely has had a significant impact on office leasing in the nation’s capital. There has been some private sector activity, though: many companies are eyeing better locations that offer renovated space or owners that deliver concessions even as these tenants look to tighten the square footage they require. 

Overall, the market saw a 30-basis point increase in vacancies during the first quarter of this year, according to a report from Colliers. Yet, that was counteracted by some good news–a bump in the touring activity and number of signed leases—roughly 45 percent more for spaces 10,000 square feet and larger from the previous quarters. However, the caution of employers was evidenced in their stepping in gingerly by signing leases on average smaller spaces and for shorter periods, the Colliers report noted. The federal government played a role in this trend with large consolidations hampering positive demand, according to Colliers.

 Law Firms Tighten Up

Among the businesses that demonstrated this trend are law firms, those either headquartered or with offices in the District. A report from Cushman & Wakefield (C&W) cited them as a major employment driver, making up 40% of total gross leasing activity in the area. The majority of these firms still have high demand for quality office space but seek efficiencies as they renew or relocate, says Nate Edwards, Senior Director of C&W’s D.C. Metro Research. “We’re seeing significant tightening in the best assets in the market,” he says. As an example, the New York headquartered firm of Pillsbury Winthrop Shaw Pittman renewed space but also contracted at 1200 17th Street NW, according to Colliers.

Of the 101 office leases recorded, 16% measured more than 20,000 square feet for a total of 617,000 square feet. And of those 69% were new leases. But the numbers represent the second consecutive quarter without new leases above 100,000 square feet. And overall leasing was down year-over-year, while new leases were up 18% quarter-over-quarter.

Where did firms lease their new space? Mostly in the central business district and East End. And they went for quality when they did with 70% of leases for Class A buildings. This higher-end property class was the only one with positive absorption at 124,000 square feet.

The law-firm results also demonstrate that despite a decrease in overall leasing year-over-year, firms are willing to relocate to take advantage of high concessions in the market, Edwards says. He sees other rewards for those who follow. “Owners of existing assets that are able to renovate and fund full-tenant improvement allowances will outperform the broader market by capturing users that solve near-term occupancy and cash.”