Market Conditions Soften at Mid-Year
The District of Columbia finished Q2 2024 with negative 285,000 SF in net absorption which is a positive increase from the quarter prior. Office-using job growth decelerated slightly with only 2,400 new jobs being added to the District of Columbia economy, which is below the pre-pandemic 5-year average of 9,800. We expect generous concession levels to moderate as landlords who have the resources to perform shrink. This should spark tenants in the market to act sooner rather than later.
Overall and Prime Rents Decline During First Half
The average asking rental rate for all classes of office space in the District of Columbia decreased 110 basis points since Q4 2023 averaging $53.15 PSF as compared to $53.40 one year prior. The office prime average rent at mid-year 2024 totaled $82.22 PSF, and 1.0% decline from year-end 2023, as flight to quality has eroded the best-in-class space putting downward pressure on the average rent based on what is left for occupancy.
We anticipate limited asking rent growth during the second half of the year. Landlords facing financial headwinds in offering generous concessions could lower the asking rent to compete. However, most landlords will hold asking rents.
Market Trades Down at Close of Mid-Year
Office investment volume in the District of Columbia totaled $493 million during the first half of 2024, representing for 67% of the total real estate investment dollars for all property types for this year so far. Due to lack of sales, there is no available cap rate data.
Elevated interest rates, couple with a soft office market, will limit investment volume in the near-term. With office debt maturities still set to occur throughout 2024, opportunistic capital will be looking for distressed assets that they can purchase at a discounted rate.
