Office Insight

Metro DC | Q3 2015

Broad-based recovery taking hold across the region

Tenants attention remains focused downtown
Northern Virginia, Suburban Maryland and the District of Columbia each
recorded positive net absorption during the third quarter, marking the first time in
over five years that each jurisdiction has recorded consecutive quarterly gains.
While the growth of tenants such as Capital One, WeWork, UberOffices and
Shady Grove Fertility helped drive positive net absorption region-wide, leasing
activity remained highly concentrated in urbanized submarkets. The District of
Columbia claimed a 50.5 percent share of regional leasing activity YTD despite
comprising just 34.8 percent of Metro DCs overall inventory. In continuing a
recent trend, 89.1 percent of all leases over 20,000 square feet were signed
within a half mile of existing or planned Metro stations during the third quarter.

Leasing activity remains concentrated downtown

Northern Virginia

39%

Suburban Maryland

51%

Washington, DC
10%
Source: JLL Research

Surge in federal leasing heading into the election year

Government leasing comes out of hibernation
After a period of dormancy, the federal government made headlines as the U.S.
Transportation Security Administration (TSA) signed the largest lease of the third
quarter (625,000 square feet) at Victory Center in Alexandria. The TSA lease
followed a series of transactions by other federal agencies, including the U.S.
Marshals Service, DHS, HHS and FBI earlier this year. To date, government
users have accounted for 36.6 percent of all transaction velocity.
Net absorption spilling into unlikely places
With a relatively thin pipeline of large law firm lease expirations and a growing
share of tenant activity falling within the government, contractor, technology,
nonprofit/association and healthcare/education segments, leasing velocity has
increasingly flowed into value-oriented properties in core markets and more
economical enclaves in the suburbs. As of the end of the third quarter, Crystal
City led all Metro DC submarkets in terms of overall occupancy gains, registering
313,847 square feet of positive net absorption year-to-date. Generous incentive
packages and a Metro-proximate environment helped lure groups such as the
American Diabetes Association and International Foundation for Electoral
Systems to Crystal City this year. Even far-flung Loudoun County has shared in
the broad-based market recovery, gaining 122,814 square feet of occupancy.

Government
Contractor
Tech
Law firm
Accounting, finance, RE
Nonprofit/association
Education, health, life sciences
Shared workspace
Government affairs
Other

7%
37%

9%
10%
11%

18%
Source: JLL Research

Occupancy growth extending to previously stagnant markets

Crystal City
CBD
Reston-Herndon
RB Corridor
East End
NoMa
Southeast
Springfield
Loudoun County
Source: JLL Research

313,847
284,143
281,117
268,837
188,625
181,525
172,447
139,165
122,814

2,257
100,000

200,000

300,000

400,000

330,182,428

685,920

$36.53

5,227,655

Total inventory (s.f.)

Q3 2015 net absorption (s.f.)

Direct average asking rent

Total under construction (s.f.)

18.9%

709,751

-1.1%

59.2%

Total vacancy

YTD net absorption (s.f.)

12-month rent growth

Total preleased

Peaking
market

Rising
market

Historical leasing activity (s.f.)

27,000,000
26,000,000
25,000,000
24,000,000
23,000,000
22,000,000
21,000,000
20,000,000

Tenant leverage

Landlord leverage

Current conditions submarket

Falling
market

Bottoming
market

Source: JLL Research

24,320,369
23,162,256
22,479,671

2011

Northern Virginia,
Suburban Maryland

Washington, DC

25,784,947

25,620,642

2012

2013

2014

YTD 2015

Source: JLL Research

Total net absorption (s.f.)

10,000,000

8,738,486
7,184,611

5,000,000
1,622,876

1,522,706

695,464

709,751

184,898

0
-1,835,977

-2,581,819

-5,000,000
2006

2007

2008

2009

-3,569,597

2010

2011

2012

2013

2014

YTD 2015

17.4%

17.1%

2014

YTD 2015

$36.42

$36.53

2014

YTD 2015

Source: JLL Research

Total vacancy rate (%)

19.0%
17.0%
15.0%
13.0%
11.0%
9.0%
10.4%
9.4%
7.0%
5.0%
2006
2007

15.8%

15.4%
14.1%

14.1%

2010

2011

16.4%

12.4%

2008

2009

2012

2013

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$38.00

$36.74

$36.00

$35.20

$35.69

$35.38

$37.13

$35.88

$33.84

$34.00
$32.39

$32.00
$30.00
2006

2007

2008

2009

2010

2011

2012

2013

Source: JLL Research

For more information, contact: Scott Homa | scott.homa@am.jll.com

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