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WASHINGTON, DC-Landlords have been able to maintain leasing rates relatively close to the asking rates–but that is likely to change as more distressed buildings are taken back by lenders, according to Eric Berkman, executive vice president with Grubb & Ellis. Particularly, Opus East’s local portfolio is in the process of moving into receivership. “It remains to be seen how they will handle it,” he tells GlobeSt.com. “But generally speaking, in these situations the lenders are motivated to do something to stabilize the assets.”

That ‘something’, of course, is dropping their rates. While there is ample anecdotal evidence that landlords are offering concessions and lower rates, Berkman says many landlords have not had to veer too far from their original expectations. For instance, Grubb & Ellis reports that class A average asking rental rates decreased moderately to $54.79 per square foot at the end of Q2, from $55.88 per square foot at the end of Q1.

Still, though, DC market is increasingly falling prey to distress–which will soon be reflected in asking rates. It is not just Opus East, Berkman notes. “Some buildings have gone back to life insurance companies–Grubb in fact is leasing one of the buildings that Principal has taken back.”

Newly delivered buildings that have not landed permanent financing will also place downward pressure to rents; indeed the DC market is struggling to absorb a very robust supply pipeline right now with only 27% or so pre-leased. For example, the CBD and East End saw the delivery of four new buildings totaling just over one million square feet, causing the vacancy rate to increase by 100 basis points to 9.5% at the end of second quarter from the previous quarter, according to Grubb & Ellis. These buildings as well will be aggressive in their rates, Berkman says.

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