DC Market Goes into Hiatus for Q2

WASHINGTON, DC-CB Richard Ellis sounded a warning, albeit slight, about the DC area’s commercial real estate market in a conference call releasing data Thursday morning: leasing activity has hit the pause button. The reasons are obvious even to people outside the industry. The federal government, for example, has scaled back significantly its activities and the economy’s recovery appears to be in neutral mode. The impending standoff over the budget deficit and debt ceiling is not helping either, said John Germano, executive managing director of CBRE's Washington-Baltimore region during the call. "Until the budget gets resolved government contractors are in a wait and see pattern."

According to CBRE, vacancy rates for the area dipped slightly from 12.7% in the first quarter to 12.6% percent in the second quarter. In the District, vacancy rates were unchanged in the second quarter holding steady at just over 10%. In Northern Virginia they dropped to 13.3% from 13.7% in Q1. And in suburban Maryland they rose to 15% in Q2, from 14.3% in Q1.

The federal government’s absence from the leasing scene is starkly apparent: In the District, only four of the top 25 deals for the quarter were federal government, CBRE says. In suburban Maryland the biggest deal inked by the federal government was for a paltry 11,927 square feet--the lowest quarterly total in two years. In Northern Virginia, government agencies were nowhere to be found on the quarterly top transactions list.

The government is leaving the area on tenterhooks in other ways as well. One big unknown for the suburbs is BRAC, as Congress considers a one-year extension on certain measures that could affect development, Marianne Swearingen, CBRE’s research director, said during the call. The little spec development that has occurred in the region--such as Corporate Office Property Trust’s project at Patriot Ridge--is due to BRAC, she observed.

The good news is that this pause is seen as temporary by CBRE. "Once the economy recovers we will see a sharp uptick in activity because there has been so little development," Germano said.