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Landlords woo tenants with expirations as far out as 2017; tenants covet newest buildings in the market
WASHINGTON, D.C., Sept. 28, 2012 – The Washington region’s commercial office market remained stalled in the third quarter of 2012, with no foreseeable momentum in the future, even with the November elections on the horizon, according to Jones Lang LaSalle’s Q3 office research. The few tenants in the market are choosing the newest buildings available and some landlords are aggressively courting tenants with expirations as far out as 2017.
“Do not expect the usual suspects – the federal government, contractors and law firms – to get the Washington region market out of this slump. Organic growth is going to have to come from another source,” said Managing Director Creighton Armstrong. “This is, and will remain, a tenant’s market for the time being – particularly for tenants seeking under 25,000 square feet. The lack of a long-term federal budget, combined with approaching sequestration and ‘fiscal-cliff,’ will perpetuate the current malaise, no matter who is in the White House or Congress come November. ”
New construction appears to be the most sought after by tenants in the market. According to the Jones Lang LaSalle Summer Skyline Report for Washington, D.C., the one trophy building that delivered during the first half of 2012 and four trophy projects currently under construction are almost 70 percent pre-leased.
“The flight-to-quality evident in these large-scale leasing decisions underpins the growing disparity in second-generation, commodity office space versus new buildings,” noted Scott Homa, Vice President Research, Jones Lang LaSalle. “To compete with newer and more efficient buildings, owners of commodity properties are offering record levels of free rent and tenant improvement allowances.”
According to the Q3 reports, instances of growth were very limited and transaction activity was concentrated in renewals, consolidations and contractions. However, a few areas of organic growth by non-traditional users of office space – such as technology, media and higher-education groups – helped to partially offset the contraction in the third quarter. Georgetown University signed the largest private sector lease, a 91,000-square-foot deal at 650 Massachusetts Avenue, NW, where the school will house its rapidly expanding graduate education program.
“While the Washington region market is not seeing its customary level of growth, there is a chance that the November election will provide a needed inflection point,” added Homa. “In the meantime, deals are being put on hold, short-term renewals should remain prevalent and leasing and sales activities are generally in decline.”
Key Washington region market statistics:
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About Jones Lang LaSalleJones 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 billion of assets under management. For further information, please visit www.joneslanglasalle.com.
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