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WASHINGTON, DC-The District and surrounding submarkets may have eked by in 2008; now, though, the recession and credit market crunch is clearly having an impact. Vacancy rates are rising–and the District itself likely to move into double digits for the first time in 13 years, according to CBRE figures. Ultimately, though, analysts see any recession and–more immediately for the CRE industry–decline in office fundamentals as short-lived.

“If the District does go into a recession it will be one of the last markets to fall to it,” Kevin Thorpe, vice president, director of market research at Cassidy & Pinkard Colliers, tells GlobeSt.com. “And we will be one of the first to recover.”

Ernie Jarvis, managing director of CBRE’s Washington, DC office, tells GlobeSt.com, “What I am telling people is that if you have to be in CRE right now–DC is about the only place to be.”

The upshot–say both firms in simultaneously released reports on the office sector here–is that the federal government’s stimulus spending will buttress any declines in the private sector. Indeed, by the end of this current–and clearly very painful cycle–DC’s position as a lead market will be cemented, Thorpe says. “The DC region could come out bigger and better with demand for office space more than doubling from historic levels.”

The here and now, though, is not pretty. CBRE, for instance, reports that Q1 net absorption measured negative 61,001 square feet–the third consecutive quarter of negative net absorption in the District. Overall vacancy rates in the first quarter in the District were 8.5%–a 25% increase year-over-year. The net 393,985 square feet of new vacant product that delivered into the market was the primary culprit.

When factoring in surrounding submarket performance, the picture worsens. Cassidy & Pinkard Colliers reports that the Washington metropolitan area office sector experienced an overall negative net absorption of 817,000 square feet in Q1–up from negative 793,200 square feet in Q4 2008. Vacancy rates in the DC region are now registering at 11.7%.

The bright spot, both firms say, is the government. Much of the private sector decline in office vacancies was mitigated by the Federal government, which leased 167,000 square feet in Q1, CBRE reports. There were a total of 19 leasing transactions greater than 15,000 square feet executed in Q1 2009–six of which were executed by the Federal Government. They included 126,000 square feet for TARP at 1801 L St., NW; 25,000 square feet for the Department of Homeland Security at 131 M St., NE; and 16,000 square feet for the Social Security Administration at 1227 25th St.

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