DC Market Wraps Up $1.9B in Office Sales

WASHINGTON, DC-Not surprisingly, the Washington DC area delivered a solid performance in real estate investment office sales for the first four months of this year, Cassidy Turley reports. In Q1, $1.9 billion in transactions closed, putting the area on pace to exceed the $5.4 billion that typically closes in any given years.

There are many reasons that account for the DC area’s health, key being its strong employment rate. Cassidy Turley pointed out that at the end of Q1 unemployment stood at 5.8%, the lowest rate for any metro area. It also noted that cap rates are expected to start rising this year, after experiencing a compression of some 150 basis points in 2010.

Another driver is the federal government, which is scaling back demand for office space after absorbing record amounts in 2010. For this reason, Cassidy Turley is also predicting a more “normalized” level of space absorption in the metro area this year and lasting through 2013, averaging about 4.5 to 5 million square feet annually.

One issue that needs to be addressed, said Jeffrey Kottmeier, director of research with the firm, is the  indeterminate amount of shadow space in the area coming out of the recession. “This space will need to be absorbed before new office space requirements generate net office absorption,” he says in a statement. “We anticipate net demand to pick up in 2012 and 2013 as shadow inventory burns off and employment in the private sector continues to improve.” Kottmeier did not return a call to GlobeSt.com in time for deadline.

Finally, delivery of new office space in 2011 through 2013 will be one-fifth of normal annual levels, Cassidy Turley also predicted.  “Speculative development will return to the region as some submarkets experience a shortage of new space,” according to Kottmeier.