WASHINGTON, DC—The Washington DC greater area market has become very practical, very exacting about development in recent years. This is true not only for the office asset class -- which has its own special set of issues --- but also for multifamily product, an asset class that has seemingly transcended market force gravity.

Let's start with office.

In Q2, office markets Northern Virginia, Suburban Maryland and the District of Columbia each recorded positive leasing growth -- the first time that has happened in over a year and a half, according to JLL's Office Insight Report. In addition, JLL noted, there is some 5.2 million square feet of office product currently under construction, of which 47.6% is pre leased. Not exactly the most auspicious environment to begin a new project – not the worst, of course, but not the best either.

As it happens, trends are moving in favor of office landlords -- but they are modest at best. As DTZ noted in its analysis of Q2 activity, leasing activity by the federal government is expected to increase, as a staggering 13 million square feet in leases are expected to expire through 2019. However, it concluded that the activity would only have modest impact on the overall vacancy rate in the District as most large prospectus level leases in the queue are targeting space efficiencies in the 10 – 20% range with one for the Department of Education targeting a 42% space reduction.

In short, for the foreseeable future office development here will be best characterized as a work in progress, no pun intended. Developers will need tangible evidence that demand is there for new office space before investing in projects.

Now let's look at the multifamily category. The picture is brighter here, obviously, but there are telling signs that developers are becoming cautious in their demand projections.

Not that recent stats would lead one to conclude that. Delta Associates reports that some 13,800 Class A units were absorbed during the past 12 months -- more than double the region's 10-year average -- while a near-record 14,231 units were delivered over the past 12 months. Another 15,121 units are scheduled to deliver over the next 12 months.

Delta does note that it expects the pipeline to shrink to a more healthy level in the next 12 to 24 months "as financial feasibility becomes more difficult in the face of rising construction costs and relatively flat rents."

News on the ground, though, suggests this is happening already.

In July, Washington REIT acquired a three-building, 711-unit multifamily complex in  Arlington, VA, for $167 million. The REIT also said it was planning to build a fourth building on the site that will add 360 additional units as well as upgrade the existing units. On paper it is certainly a smart move -- and perhaps one that should be executed immediately given the high personal income levels in Arlington, the building's proximity to some nice restaurant and retail amenities as well as the quick shuttle ride to the Pentagon City Metro station. A Class A product would be, one would think, most welcome here.

A call to the REIT, however, revealed there isn't a timeline for breaking ground on that fourth building, in large part because the permitting process is only getting started. Its plans for upgrading the rest of the project are moving forward with post haste. Only -- Washington REIT won't be upgrading the units to Class A, but rather to "a better class of Class B," a spokeswoman tells GlobeSt.com, "enough to justify a higher Class B rent."