DC Region Posts 100K SF of Negative Absorption in Q2

WASHINGTON, DC-The Washington DC area typically posts about 900,000 square feet of positive absorption every quarter for office product. Not this quarter, however. According to Cassidy Turley, it is posting nearly 100,000 square feet of negative absorption for Q2.

We can thank cut backs in government spending for that, along with a slightly off-kilter job market. "The effect of the federal contraction is particularly acute in government-contractor-heavy Northern Virginia, and therefore, the fiscal drag is most noticeable there," Nathan Edwards, Director of Research, says in a prepared statement. But tenant-downsizing is also a problem, he continues. "Whether it's due to technology, new space efficiency plans, or smaller headcount, businesses are simply signing for less office space in this recovery, so we are not getting the same pop in demand from job growth that we are accustomed to getting."

Also, while the DC area's private sector may be creating jobs, the federal sector is trending in the opposite direction. The losses are also accelerating. Compared to an average loss of 80 jobs per month a year ago, Washington, DC is now recording over 600 federal government job losses per month since year-end 2012, Cassidy Turley finds.

Highlights from Cassidy Turley's report on Q2:

• In the District, small to midsize private-sector deals contributed to 123,000 square feet of positive absorption in the second quarter. Year-to-date, the District of Columbia has absorbed 370,000 square feet, while the overall vacancy rate has declined from 10.6% at the end of 2012 to 10.3% at the midpoint of 2013. The bulk of activity occurred in the submarkets of NoMA, the East End and the CBD.

• For Northern Virginia, the vacancy rate ticked up 30 basis points to 16.7% in the second quarter, a trend that is expected to accelerate in the near term. Job growth is averaging just over 1,400 jobs per month since year-end 2012 compared with the average 2,300 jobs per month a year ago.

• In suburban Maryland, month-over-month job growth in 2013 is now averaging over 2,500 jobs, up from 400 average jobs per month a year ago. This is driving above-average absorption numbers year-to-date. Despite this positive news, tenant downsizing is still the overarching theme and the submarkets in this state registered 128,000 square feet of negative absorption in the second quarter of 2013. Vacancy was up 30 basis points compared to the previous quarter to 16%.