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WASHINGTON, DC-The District and neighboring Maryland and Northern Virginia regions are poised at a tipping point in which vacancy rates could top 8% within a year, according to speculation by industry sources. Third quarter figures for office investment sales and leasing activities suggest the real estate markets, while still robust, are entering a new cycle. According to CB Richard Ellis, while all three jurisdictions registered stable vacancy rates and positive net absorption in Q3, these may be overshadowed by the inventory of new product scheduled to deliver in the coming months and years. In short, supply is about to begin growing at a faster rate than demand.

The DC region is at a tipping point, says Rob Hartley, director of Research in CBRE’s Washington, DC office. “We have had phenomenal growth in the last few years, which everyone knew was not sustainable,” he tells GlobeSt.com. The supply entering the market now is a result of developers waiting until late in the cycle to begin building new product due to high construction costs.

Now, of course, development will begin to decline as deliveries continue to hit the market. “By the end of 2010, 11 million sf will deliver here,” Hartley says. “Next quarter when we run these numbers looking out three years there will be much less in the pipeline.”

The big question, of course, is what these shifting dynamics will do to vacancy rates. The fourth quarter 2006 vacancy rate was 6.6%. Now it is at 7.5%. This time next year, the speculation goes, it will have breached the 8% barrier, a psychological milestone of sorts. Another unknown is the federal government, which has not been as active in the leasing market lately. A few exceptions exist of course–the US Immigration and Customs Enforcement signed a 91,196 sf lease at 500 12th St., NW in the East End, CBRE reports.

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