Professional Firms Dominate Leasing Activity in Q1

WASHINGTON, DC—Office-using professional services and financial firms led the way in office leases for Q1, according to an initial analysis by CBRE. Not that that made much of a dent in the area's persistently high vacancy rates. However, emerging trends in the overall economy are prompting the brokerage firm to hold out hope for modest improvements in coming quarters. The government is returning to the market with long-term lease requirements; meanwhile the private sector has strengthened its footprint. CBRE notes that approximately 35% of tenants over 10,000 square feet are professional services firms, compared to 25% at the same time last year. That said, the preliminary take-aways from CBRE's report give little cause for celebration. The first quarter of 2014 saw large government-related contractions dragging on net absorption numbers, with the vacancy rate increasing slightly to 10.8%, CBRE said.

Key transactions included:

• The National Labor Relations Board contracting and moving into 143,000 square feet at 1015 Half Street SE in the Capitol Riverfront.
• Millennium Challenge Corp contracting by 32,000 square feet and moving to 1099 14th Street in the East End.
• The GSA renewing 56,500 square feet at 1250 Maryland Ave. for the Federal Communications Commission.

Local governments, for their part, are trying to goose occupancy rates and economic activity in general with various incentives. The Arlington County Board is considering an expansion of tax breaks to technology companies with less than 100 employees. In Maryland Montgomery County announced the MOVE (Make Office Vacancies Extinct) Program to attract technology-based businesses by offering new or relocating tenants a first-year rent subsidy ($4 per square foot on a three-or-more-year lease for at least 2,000 square feet of Class A or Class B office space). There has been a focus on soft incentives as well. For example, the Maryland-National Capital Park and Planning Commission approved 11 rapid transit bus corridors. In combination with the proposed Purple Line light-rail link, these initiatives could help spur development by broadening the footprint of walkable, transit-accessible neighborhoods, CBRE said.