Market Conditions Improve at Year-End
The District of Columbia finished the fourth quarter of 2024 with 453,000 SF in positive net absorption which is a steep increase from the previous quarter. Office-using job growth accelerated with 13,700 new jobs being added to the District of Columbia economy, which is above the pre-pandemic 5-year average of 9,800. We expect office-using job growth in the District of Columbia to add just over 4,000 new jobs per year over the next five years. We expect most jobs to be created within the physician offices, civic/social organizations, and consulting tech sectors.
Overall and Prime Rents Show Little Change in 2024
The average asking rental rate for all classes of office space in the District of Columbia decreased 20 basis points year-over-year averaging $53.18 PSF as compared to $53.26 one year prior. The office prime average rent at year end 2024 totaled $83.28 PSF, 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 2025. Landlords facing financial headwinds in offering generous concessions could lower the asking rent to compete. However, most landlords will hold asking rents.
Market Trades Improve at Year End 2024
Office investment volume in the District of Columbia totaled $790 million during 2024, representing for 73% of the total real estate investment dollars for all property types for this year so far. The average cap rate for office buildings sold this year was 10%. Elevated interest rates, coupled with a soft office market, will limit investment volume in the near-term. However, we expect opportunistic capital to be at play for distressed assets that can be purchased at a discounted rate.
