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News release

WASHINGTON, DC

Leasing Market in Washington Region Remains Slow as Tenants Favor Early Renewals, Consolidations and Contractions

Tenants waiting for economic and electoral clarity before relocating or expanding according to Jones Lang LaSalle


WASHINGTON, DC, June 29, 2012 – Leasing activity across the Washington region remained depressed as government contractors, law firms and federal agencies remained reluctant to commit to long-term space decisions, according to Jones Lang LaSalle’s Q2 office research. In the second quarter of the year, price conscious tenants renewed existing leases or consolidated their space, to eliminate out-of-pocket moving and build-out expenses, and relocations were rare.

Contrary to an earlier trend in which BRAC – the Base Realignment and Closing Act – had a harsh impact on the Northern Virginia market, the slowdown in downtown Washington was the most severe of any major regional market during the second quarter reaching negative 172,327 square feet. Across the entire Washington region there was negative net absorption of 359,199 square feet, which raised the total occupancy loss so far in 2012 to more than 1.3 million square feet. This was driven in part by the dissolution of Dewey & LeBoeuf, stagnancy within the GSA and the move for efficiency. In addition, net effective rents were down just over seven percent for the first five months of this year.

“The relative stability of asking rents across the market obscures the fact that concessions have been increasing dramatically, and when accounting for record levels of free rent and tenant improvement allowances, net effective rents have fallen a great deal,” said Scott Homa, Vice President, Research, Jones Lang LaSalle. “The slowdown in activity, coupled with reduced rental rates, has created a very tenant-friendly environment. We are seeing deals signed well in advance of their natural expiration – often renewing or restructuring three to five years before the expiration of their current lease.”

Other highlights from the report include:

  • There is a growing disconnect between market performance and macroeconomic conditions. Washington D.C.'s unemployment (5.1%) is still the lowest of any major metropolitan region and job creation (+ 47,000) is trending above long-term averages yet this has not translated into gains in the office market. 
  • Tenants are right-sizing their footprints taking on average 10 to 35 percent less space. 
  • Owners of older, second generation space have cut asking rents or are offering more generous concession packages in order to attract new tenants.

The reports note that recovery in the Washington market still depends heavily on the passage of a new federal budget, which is highly unlikely before year-end given the confluence of pending issues such as the extension of the payroll tax holiday, the Bush tax cuts and the threat of automatic federal spending reductions as a result of the January 2013 sequestration deadline.

"Don't expect to see any improvement before the November elections as most tenants are going to delay decision making and wait to see what happens," added Homa.

Key market statistics:

  • Supply: 326,466,644 square feet
  • Direct vacancy rate: 13.1%
  • Under construction (% preleased): 7.6 million square feet (49.6%)
  • Leasing activity 12 month percentage change: -25%
  • YTD net absorption: -1,370,656 square feet
  • 12-month overall rent % change: -1.4%
  • Class A overall asking rent: $38.89 per square foot (psf)
  • Class B overall asking rent: $31.54 psf

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47.2 billion of assets under management. For further information, please visit www.joneslanglasalle.com.