Q4 2020 Market Report
Cresa continues to track market conditions in the DC,
Maryland, and Northern Virginia areas to assess the impact of the COVID-19 pandemic
on office space. This information can
help your company make strategic decisions on its office space, and the
opportunities the current market can offer.
We will be publishing a blog each quarter that captures the salient
information in these reports, and you can see the full report for each area by
clicking on the link provided. Here, we
present the Q4 2020 market report data.
If I can help you interpret this data and provide advice on how it can
affect your company’s strategic office planning, please contact me at www.tenant-broker.com.
Market Overview –
District of Columbia (Full Report)
Q4 2020 Market Report Vacancy 15.7% Average Rent $57.81/SF
Net Absorption -891,265 SF Key Performance Indicators The District of
Columbia’s office market fundamentals continued to face significant shocks in
the fourth quarter of 2020. Pandemic-induced economic uncertainty continues to
influence market indicators and highlights precarious industries.
Asking rates in the District of Columbia continued on a
downward trend to $57.24/SF, averaging negative yearly growth for the first
time since 2013. Fourth-quarter vacancy, another market fundamental affected by
COVID uncertainty, ended at 15.7%, a 180 basis points (bps) increase from
year-ago levels. As expected, slow leasing activity and limited tenant demand
continued to force downward pressure on the market, marking the first year-end
negative absorption in more than ten years.
Though trepidation and uncertainty encompass the market, the beginning phases of vaccine distribution have led to increased public optimism. This optimism is expected to grow as vaccines are projected to become widely distributed in the upcoming year, bringing momentum and increased activity to the market.
COVID Slump Continues, Challenging Coworking Providers
The District of Columbia office market fundamentals’ effects
due to COVID-19 continued accelerating during the fourth quarter of 2020. These
pandemic-induced impacts have influenced some market drivers more than others,
one such driver being coworking providers. As a primary draw to coworking
facilities includes shared spaces and amenities, heightened health-conscious
awareness has reduced shared space attractiveness.
Since the onset of COVID, coworking providers, such as WeWork and Spaces, have struggled and been forced to close multiple locations across DC. Other providers, such as MIXER and Make Offices, have shuttered completely as the providers could not sustain business activities during the pandemic. Coworking spaces represented 66% of DC’s total occupancy expansion in 2019, allowing for possible significant swings in future occupancies due to COVID-induced closures.
DC’s office market continues to remain tenant-favorable, a
trend expected to continue well into the upcoming year. Overall market activity
remained considerably below average, with leasing activity down 55% from
year-ago levels. Considering limited market movement and low tenant occupancy
levels, several landlords have been looking to compete through repositions and
renovations, adding heightened amenities such as fitness centers, rooftop
spaces, and conference facilities.
Suburban Maryland continued to struggle in its recovery from
the pandemic in the fourth quarter of 2020. Occupancy losses continued, marking
the first time since 2014 that year-end absorption ended negative for the
market. The fourth quarter saw losses measured at -244,753 SF, resulting in an
annual net occupancy loss of -529,603 SF. The Biotech & Life Sciences
sector, typically a bright spot for the market, saw an activity slow-down to
end the year. However, the continued development and the strong, educated
employee base for the industry are expected to increase leasing activity and
boost the local economy for years to come. Vacancy decreased four basis points
(bps) to 16.5% from Q3, though levels are expected to remain high to begin 2021
as new construction delivers with availabilities and market uncertainty
continues. Asking rates did see an increase year-over-year from $27.90/SF to
$28.08/ SF, partly due to market forces being slower to adjust and new
deliveries introducing higher quality space to the region. There is likely to
be downward pressure on rents as demand for space remains low in the future.
Pre-Leasing Continues; Hope for Relief from Life Sciences and Federal Government
The fourth quarter provided little relief to Suburban
Maryland, as leasing activity remained slow to end 2020, down 62% from year-ago
levels. Top quarterly leases included office-using tenants such as Walker &
Dunlop and UBS in downtown Bethesda, along with an expansion by the Food &
Drug Administration in Prince George’s County.
Increased vaccine distribution will boost market fundamentals and likely continue to drive growth in the region for Life Sciences and Federal Government sectors as they respond to the pandemic. These knowledge-based industries continue to be less impacted by the effects of COVID-19, providing a much-needed backstop for the region. However, the lack of demand from harder hit industries and increasing sublet availability will likely cause market fundamentals to soften further.
Uncertainty surrounding the effects of COVID-19 continues to
hinder the Suburban Maryland commercial real estate market. Market softness
continued through the end of 2020 and is expected to continue well into 2021 as
Landlord’s battle to land tenants in a low-demand environment. While
uncertainty will remain, Suburban Maryland should continue to benefit from a
strong Life Sciences tenant base, and a possible expansion of Federal Government
demand as the transition to a new administration takes place.
Pandemic-induced uncertainty continued to affect the
Northern Virginia market fundamentals of the final quarter of 2020, registering
-677,170 SF in occupancy losses. Though leasing increased from third-quarter
activity, total leasing activity remains down 45% from year-ago levels as
activity and demand continue to fall across all building classes. Though the
fourth quarter delivered no new buildings, Northern Virginia’s development
pipeline remains robust, as Reston and National Landing developments continue
on schedule.
The lack of deliveries follows a similar trend to other
national markets, as construction has slowed due to pandemic related effects in
markets. Average direct rental rates fell $0.77/SF from year-ago levels,
marking the first yearly decrease in average asking rates since 2014. Effective
rental rate (factoring in concessions) declines have continued throughout
primary submarkets in Northern Virginia. However, several submarkets are
expected to quickly rebound after pandemic induced uncertainty begins to fade.
Region’s Metro Expansion Promises Growth, Reston Leading the Way
Though the pandemic has caused much uncertainty in the
market, Northern Virginia has begun to show future rebounding signs in suburban
centric markets. The region’s planned 2021 opening of the Silver Line Phase II
is expected to unlock several markets, opening areas to higher tenant demand
through mass transit. Near the new Reston Town Center Metro site, Volkswagen
Group signed a 196,000 SF prelease at Reston Gateway, the second major occupier
to announce at Reston Gateway following Fannie Mae. Reston Gateway will deliver
2022 along with additional developments set to deliver 2021, already preleased
to major occupiers such as ICF International at 1902 Reston Metro Plaza, and
Neustar at 1906 Reston Metro Plaza. As the pandemic continues to affect the
region, insulated submarkets such as Reston promise upcoming growth and
stability.
Northern Virginia’s office market continued to remain soft
in the fourth quarter and is expected to remain so due to slow demand and the
structurally oversupplied market with high vacancy. Landlords continue to
remain competitive, dropping rents and offering large concession packages to
compete as the market continues to soften.
If you have significant questions about your current real estate strategy, it may be time for a discussion. Once we have started our conversation, we can create a strategy to look at your business operations and current space and then craft up a plan to find something that is a great fit in the area. With the current vacancies and inventory, we will work with you to get the best deal. We represent tenants ONLY, so you can feel comfortable that we are working for your business 100%. If we can help you by being your tenant broker in the DC, Maryland, or Northern Virginia area, visit my website or call me at 301-841-6542. Make sure to follow all my social efforts by clicking on the links below.
If you have significant questions about your current real estate strategy, it may be time for a discussion. Once we have started our conversation, we can create a strategy to look at your business operations and current space and then craft up a plan to find something that is a great fit in the area. With the current vacancies and inventory, we will work with you to get the best deal. We represent tenants ONLY, so you can feel comfortable that we are working for your business 100%. If we can help you by being your tenant broker in the DC, Maryland, or Northern Virginia area, visit my website or call me at 301-841-6542. Make sure to follow all my social efforts by clicking on the links below.
I specialize in providing comprehensive real estate services,
exclusively representing corporate tenants on all commercial real estate needs.
Commercial Tenant Broker
2 Bethesda Metro Center, Suite 900
Bethesda, MD 20814
301-842-6542
Comments
Post a Comment