Q2 Leaves DC Real Estate Battered But Still Standing

There is also the stabilizing presence of the government--and its increased spending. "We are fortunate to have some demand, which is being driven by the government and early stages of the stimulus package," Jones Lang LaSalle's Scott Houma, tells GlobeSt.com.

Still, though, there is no denying the sobering Q2 numbers: the Washington metropolitan area office sector experienced an overall net absorption of negative 726,100 square feet in the second quarter, according to Cassidy & Pinkard Colliers. Overall vacancy rates have risen in the DC region, registering at 12.3%. In the District, net absorption was a negative 230,900 square feet. In Northern Virginia, it was a negative 666,700 square feet; in suburban Maryland, a positive 171,500 square feet, up from negative 423,700 square feet in the first quarter.

Asking rates are declining in this environment, not surprisingly. Full service asking rental rates dropped for the fourth consecutive quarter to $48.59 down from $49.13 in Q1 2009 in the District, according to CBRE. These rates do not take into account the increasingly aggressive rent concessions that landlords are offering as a means to lure tenants to their buildings, it added. "Sublease space has become more competitive with direct space for the first time in recent memory," CBRE reports.

In Northern Virginia overall asking rental rates fell by $0.60 to $29.19 on a full-service basis. The Springfield/Newington submarket was the exception where asking rents actually increased $3.70 due to high asking rents of Class A space and the newly delivered Metropark VIII in the submarket's otherwise limited Class A inventory, according to CBRE. In suburban Maryland, after holding steady for the previous six months, asking rental rates dropped in the second quarter to $26.53 per square foot from $27.30 in the first quarter.

Looming in the near term is the problem of additional supply, JLL's Q2 report noted. "With 10.2 million square feet remaining in the development pipeline and tenant demand suppressed, market conditions in Metro DC faced additional headwinds for the second half of 2009. The region's supply profile was likely to produce overhang in the market until early 2010, as new construction and sublease space continues to outstrip demand."