MARKETBEAT

Washington, D.C.
Office Q2
Q1 2018
2017

Washington, D.C. OFFICE Economy

While still projected to easily surpass the annual historical average, job growth
Economic Indicators across the Washington, D.C. metropolitan region cooled off in the second quarter
12-Month of 2018. A total of 23,500 non-farm jobs have been added through May 2018,
Q2 17 Q2 18
Forecast although nearly 80% of those were in January and February alone. The federal
government has slashed 7,000 jobs year-to-date (YTD) – 4,200 of which were in
D.C. Metro Employment 3.3M 3.3M
the District of Columbia. Many of these jobs were re-created in the Professional &
D.C. Metro Unemployment 3.8% 3.6% Business Services space, in which 11,000 jobs have been added YTD across the
region, the largest figure for any industry sector.
U.S. Unemployment 4.3% 3.8%

Market Overview
The first wave of construction deliveries hit the Washington, D.C. office market in
Market Indicators (Overall, All Classes) a big way in the second quarter of 2018, adding just over 2.0 million square feet
(msf) of Class A product to the market at six sites across the city. This is the
12-Month largest quarterly total of new deliveries in Washington, D.C. history, narrowly
Q2 17 Q2 18
Forecast edging out two quarters from the last major development cycle in 2009-2010 when
Vacancy 12.3% 14.0% projects in emerging areas such as Capitol Hill/NoMa and Southwest accounted
for nearly 2.0 msf of total new office space online. In contrast to that time period,
YTD Net Absorption (sf) 188k 390k when new construction was more restrained in the Core submarkets, over 1.5 msf
Under Construction (sf) 5.0 MSF 3.5 MSF has been delivered in the city’s Central Business District (CBD) alone thus far in
2018, while project completions at The Wharf, Capitol Crossing, and 99 M Street,
Average Asking Rent* $53.85 $55.01 SE have also added inventory in emerging submarkets.

While each of these projects delivered with at least one large, high-profile anchor
*Rental rates reflect gross asking $psf/year
tenant, nearly half of the total space (roughly 1.0 msf) has yet to lease. These
vacancies, along with further consolidations in both the public and private sectors,
Overall Net Absorption/Overall Asking Rent caused the overall vacancy rate in the District to rise to 14.0%—an increase of
4-QTR TRAILING AVERAGE 170 basis points (bps) year-over-year (YOY) and the city’s highest vacancy rate
since 2014. No submarket was immune to this phenomenon; in fact, Capitol
1,000 $56.00 Hill/NoMa was the only one in which the rate rose by less than 100 bps over the
course of the second quarter of 2018.
800
$54.00
600 Year-to-date (YTD) new leasing activity at Mid-Year 2018 registered nearly 2.9
msf roughly in line with Washington, D.C.’s 10-year market average. The largest
400 $52.00 lease for new space in the second quarter was signed on behalf of WeWork,
which will expand by 107,726 sf across on two floors at Metropolitan Square (655
200 $50.00 15th Street, NW), bringing their footprint in the building to just shy of 225,000 sf for
0 the global leader in coworking. In addition, rapidly growing education technology
$48.00 company EverFi will relocate from its current home in Georgetown to 58,005 sf at
-200 2300 N Street, NW in the West End – expanding its footprint by about 250% in the
process. This was another significant victory for the Washington, D.C. market,
-400 $46.00 after company executives had debated moving to either Maryland or Virginia.
2011 2012 2013 2014 2015 2016 2017 2018
Net Absorption, Th.SF Asking Rent, $ PSF With core assets tending to trade to longer-term holders over the course of the
past five years, the capital markets experienced increased activity in higher yield
and non-traditional investment spaces during the second quarter of 2018. Among
these deals was JPMorgan Chase’s acquisition of 875 15th Street, NW from JBG
SMITH. The financial services giant will renovate the property over the next few
Overall Vacancy years, ultimately opening its regional headquarters in the building as its major
16% metro-wide expansion continues.

Outlook
The Washington, DC office market has started to become a tenant-favorable one
14% in earnest, a trend expected to become even more pronounced in the next 12-18
months. By year’s end, deliveries of new construction and substantially renovated
product are projected to add another 2.2 msf to the District’s inventory, 60% of
which is yet to be leased. A few tenants in Class B space have already followed
12% the flight to quality trend more typically seen towards the top of the market,
capitalizing on elevated vacancy rates and unprecedented levels of concessions
Historical Average = 12.3%
to move to lower floors of new construction. With landlords competing heavily to fill
their remaining large blocks and Class B product continuing to be removed for
renovation work, look for more firms to make the jump up to higher-level product.
10%
2011 2012 2013 2014 2015 2016 2017 2018

cushmanwakefield.com
 MARKETBEAT

Washington, D.C.
Office Q2 2018

CURRENT QTR YTD YTD OVERALL OVERALL

SUBLET DIRECT OVERALL UNDER
INVENTORY OVERALL NET OVERALL NET LEASING AVERAGE AVERAGE
SUBMARKET VACANT VACANT VACANCY CNSTR
(SF) ABSORPTION ABSORPTION ACTIVITY ASKING RENT ASKING RENT
(SF) (SF) RATE (SF)
(SF) (SF) (SF)** (ALL CLASSES)* (CLASS A)*

Capitol Hill/NoMa 14,309,223 16,114 2,088,966 14.7% 258,268 238,294 290,497 1,550,723 $55.80 $60.29

East End 37,417,568 483,258 5,041,518 14.8% -461,646 -364,472 1,074,730 1,012,176 $59.04 $62.97

CBD 34,243,389 394,153 3,614,471 11.7% 552,959 775,770 733,681 807,628 $56.23 $67.02

West End/Georgetown 4,730,453 48,959 403,249 9.6% -18,730 -5,402 143,073 0 $47.49 $56.33

Uptown 4,153,673 56,974 1,318,718 33.1% -453,909 -500,845 60,988 0 $42.91 $51.16

Southwest 11,429,776 44,191 1,586,930 14.3% 103,282 81,073 458,578 215,023 $49.11 $52.74

Capitol Riverfront 3,817,062 28,733 275,321 8.0% 144,193 165,370 93,516 0 $47.77 $47.77

WASHINGTON, D.C. TOTALS 110,101,144 1,072,382 14,329,173 14.0% 124,717 389,788 2,855,063 3,585,550 $55.01 $62.13

*Rental rates reflect gross asking $psf/year **Does not include Renewals

CURRENT QTR YTD YTD

SUBLET DIRECT OVERALL UNDER DIRECT OVERALL
INVENTORY OVERALL NET OVERALL NET LEASING
VACANT VACANT VACANCY CNSTR AVERAGE AVERAGE
(SF) ABSORPTION ABSORPTION ACTIVITY
(SF) (SF) RATE (SF) ASKING RENT* ASKING RENT*
(SF) (SF) (SF)

Class A 60,623,732 597,186 8,128,451 14.4% 1,140,651 1,774,480 1,873,483 3,585,550 $64.52 $62.13

Class B 29,579,437 249,945 3,864,698 13.9% -342,430 -740,790 663,740 0 $51.28 $50.26

Class C 19,897,975 225,251 2,336,024 12.9% -563,504 -643,902 317,840 0 $45.39 $43.65

Key Lease Transactions Q2 2018

PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

1001 Pennsylvania Avenue, NW 199,508 The Carlyle Group Expansion / Renewal East End

655 15th Street, NW 107,726 WeWork Expansion East End

2300 N Street, NW 58,005 Everfi New Lease West End/Georgetown

1275 First Street, NE 50,281 Center on Budget and Policy Priorities New Lease Capitol Hill/NoMa

2000 K Street, NW 40,506 Ankura Consulting New Lease CBD

Key Sales Transactions Q2 2018

PROPERTY SF SELLER/BUYER PRICE / $PSF SUBMARKET

875 15th Street, NW 234,111 JBG SMITH / JPMorgan Chase $139,000,000 / $594 East End
Principal Real Estate Investors / DSC Partners JV
1250 Eye Street, NW 177,906 $100,000,000 / $562 East End
Wafra Capital
1100 G Street, NW 109,959 UBS / Meritage JV Tokyo Trust Capital $54,000,000 / $491 East End

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