Washington DC Office Figures Q3 2023
October 5, 2023 10 Minute Read
Continued flight-to-quality and large densifications during the quarter have resulted in a further accentuated bifurcated market. Fundamentals remain strong for the top of the market, comprised of Trophy and Class A+* product, while demand wanes for commodity Class A, B and C space. Tenant behavior is indicating that real estate is an effective tool in driving, and maintaining, successful return-to-office initiatives and that occupiers are willing to pay a premium for quality space.
During the third quarter, gross leasing activity totaled 2.7 million sq. ft., a 50% increase from the previous quarter and on pace with pre-pandemic quarterly averages. Government tenants accounted for 1.5 million sq. ft. of the leasing. This brings the year-to-date leasing total to 5.9 million sq. ft.
The market recorded 512,000 sq. ft. of negative absorption, pushing vacancy to 21.1%, a 70-basis point increase over the prior quarter. Vacancy is expected to remain elevated in the near term as a number of large contractions remain in the pipeline. During the third quarter, CareFirst BlueCross BlueShield and Amtrak shed a combined 205,000 sq. ft. following each tenant’s renewal and contraction. The Securities and Exchange Commission (SEC) did not renew its 202,000 sq. ft. lease at 700 2nd Street NE as it consolidates into other leased space nearby. Furthermore, the Australian Embassy vacated 101,000 sq. ft. of leased swing space at 1145 17th Street NW as it relocated to owned space, adding to the occupancy loss. Additionally, two buildings delivered fully vacant during the quarter, contributing to the increase in vacancy.