Cassidy Turley Reports More Negative Absorption

WASHINGTON, DC-While the rest of the nation’s commercial real estate markets relax as fundamentals improve, the mood in the nation’s capital is getting more glum. The Washington, DC area just recorded a net absorption of negative 1.6 million square feet in Q1, Cassidy Turley reports. That is the lowest level since Q4 of 2002. The metro-wide vacancy rate increased 0.6 percentage points, quarter over quarter, to reach 13.7%. In the District itself, first-quarter absorption was negative 248,000 feet, with the vacancy rate remaining flat at 10.4%.

The largest non-renewal deal inked this quarter was for a paltry (relatively speaking, if one is to harken back to the salad days of 2007) 61,000 square feet at 1050 Connecticut Ave., NW, by the American Bar Association. The next four largest leases were of equally dismaying size—dismaying, at least, to industry onlookers and local landlords.

The Nuclear Energy Institute inked a lease to occupy 50,900 square feet at 1201 F St., NW. GMMB is taking 43,300 square feet at 3050 K St., NW. That lease is followed by the 37,500 feet that IREX is occupying at 1275 K St., NW, and the 36,800 square feet that Covington & Burling LLP took at 1275 Pennsylvania Ave., NW. The main reason for the pause in activity is, of course, due to a slowdown in activity among federal contractors, to say nothing of the federal government.

It is not just the space needs of the government that fuels activity in the city’s commercial real estate market, however—a fact that is turning this call for government austerity into a real nail-bitter for the area. In general, Delta Associates, the research arm of Transwestern, reports that approximately one-third of metro area economic activity is generated by the federal government--and in fact this share rose to 40% in 2010.

Federal spending in the Washington metro area totaled $167.5 billion in 2010, based on revised numbers, Delta says. Of the $167.5 billion, $80.9 billion was procurement dollars.