JLL Rebuttal: It’s More of a Landlords’ Market Than You Realize

WASHINGTON, DC-New statistics from Studley are pointing to a tenants’ market that shows little sign of easing. While hard numbers are rarely in dispute--interpretation of those numbers is another story. Jones Lang LaSalle, for example, believes there are stronger strains of a landlords’ market in the DC area that bear examining.

“I agree with much of what [David
 Lipson, executive vice president of Studley] said,” Scott Homa, director of research for JLL, tells GlobeSt.com. “However, I would say that there are some parts of the area that have seen a significant tightening or even a reversal.”

Lipson did point to NoMa and the Southeast and Southwest as very tight, Homa notes. “There are other submarkets, as well, where the shift is moving toward being landlord-friendly.” This includes Bethesda, Rosslyn-Ballston and, most notably, trophy space in the CBD and East End.

“If you are looking for commodity class A space then, yes, it is still a tenants’ market,” says Homa. “But it really depends on the deal size and user profile. A small-block user has tons of options, while a big-block user does not.”

Homa also notes that there has been a decisive shift in market conditions over the past 12 months, and--again broadly speaking--the balance of power has been rapidly moving away from tenants and into landlords' favor. For instance, over the past 12 months, despite the continued delivery of speculative construction projects, “we've seen a net reduction of 15 available blocks of space 100,000 square feet and above,” he tells GlobeSt.com.

Also, net effective rents in select markets, such as the Southeast and Rosslyn-Ballston, have increased over 25% throughout the past 12 months. “Taking rents in those markets are now back above pre-recession levels,” says Homa. “Concession packages have been reined in market-wide as conditions have tightened.”

Although private sector demand remains choppy, Homa has seen many segments of the market grow substantially, including government affairs groups, contractors and non-cyclical industries like healthcare and education providers. “And the backbone of our market--law firms and professional services companies--have gained a level of comfort in their business plans that allow them to now go out and make long-term real estate decisions,” he adds. “This wasn't the case 12 to 24 months ago, when virtually all private sector firms were retrenching and unable or unwilling to commit to long-term leases.

Lastly, Home believes that renewed confidence in the private sector is benefiting the trophy market, as these tenants have moved en masse to upgrade their space at new developments. “Large blocks of trophy space are vanishing,” he tells GlobeSt.com, “so the picture 12 months from now will be very different, as the lack of new supply coming online will allow landlords to hold tremendous leverage in the market.”