DC to Post Uptick in Vacancies for Q1

WASHINGTON, DC-A lease could come in adding 300,000 square feet to the DC area market’s positive absorption before the end of the first quarter. One never knows. But barring such an event, right now DC is on track to post an uptick in the office vacancy rate when Q1 figures are formally announced, according to brokers who are compiling their end-of-the-quarter stats right now.

“Assuming nothing major comes in, we will see that the vacancy rate has risen in the last 90 days,” CBRE’s Bruce Pascal tells me. That does not even take into account the 300,000-plus square feet that the Howrey law firm will be vacating with its dissolution, announced earlier this month, but not included in CBRE’s calculations until the firm actually leaves. “That right there is a pretty good-sized chunk for the District and will show up in later figures,” Pascal says.

Delta Associates also is finding a slight uptick in the office vacancy rate for the Washington-metro area in Q1 2011, National Research Director Alexander Paul tells me. “Our preliminary data shows overall vacancy, including sublet space, at 12%, up from 11.9% at year-end 2010,” he says. The District continued to experience positive net absorption, at 348,000 square feet, but absorption in the suburbs was modestly negative for the first quarter of the year, at negative 432,000 square feet in Northern Virginia and negative 129,000 square feet in suburban Maryland, he says.

So is this the beginning of the end of DC’s otherwise impeccable reputation as a top commercial real estate market? Not hardly, says Jones Lang LaSalle’s Scott Homa.

Such ebbs and flows need to be taken with a grain of salt, he says. “It’s typical to see a lull in leasing activity during the first quarter, as the majority of real estate decisions are made at the end of the year, during the fourth quarter.” Another factor in the recent quiet period, he goes on to say, is that this past quarter the federal government began to move  toward the sidelines due to budget deficits, austerity measures and political gridlock. In short, the speed of Washington’s recovery has begun to slow. “The market is still expanding, and rents are maintaining their upward momentum, but deal flow has clearly lost some momentum.”

 JLL is still optimistic about the market from a growth perspective, Homa concludes, “but we're anticipating most of the new leasing activity over the next 12 to 24 months will come from the private sector, rather than federal users.”