WASHINGTON, DC—JLL’s Spring 2014 U.S. Skyline Review can be summed up in one phrase: it’s a good time to be a landlord. Or at least it will be by 2016 when fundamentals in most markets around the US will favor office landlords.
Yesterday we spoke with Studley execs about why this isn’t so, at least in the Washington DC area.
Today we speak with JLL’s Research Director Scott Homa to hear why it is.
First of all, Homa takes pains to point out that DC is definitely a laggard nationally in its relative position of landlord versus tenant dynamics. “We are clearly not in a landlord market currently,” he tells GlobeSt.com.
“Having said that though, there is reason for longer term optimism about the direction of the market. We see a slow and steady shift in dynamics to a landscape that is more balanced by 2016.”
The primary reason is the pull back in new construction, he says. What new projects that are delivering, such as CityCenter, are rapidly leasing, Homa says, which means limited high-quality options for tenants, especially ones looking for large blocks of space.
Trophy quality space in particular-which is the focus of the Skyline report-remains in short supply despite the constrained leasing environment in DC in general. Trophy vacancy rates fell to 9.9%, their lowest level since 2010, and large-block space availabilities in Trophy buildings dwindled. The local construction pipeline of Trophy buildings, 925,000 square feet, ended 2013 with 68% of space preleased.
JLL also notes that the bloodletting-or rather, rightsizing-appears to be over for most companies, which will also pave the way for a landlord’s market. Some 73% of the law firms in the Washington, DC market have either already right-sized or are actively growing, it says. “We see for the long term a balanced market place and something that is certainly shifting away from the current leverage of the tenant,” Homa concludes.