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News release

WASHINGTON, D.C.

Quarterly Stats: Washington, DC Commercial Real Estate Market Mirrors Congress – Not Much Getting Done

Market flat in third quarter and expected to remain slow until 2014


WASHINGTON, October 1, 2013 – The commercial real estate leasing market in metro Washington remained flat in the third quarter, as lawmakers battled over the debt ceiling, sequestration, implementation of the Affordable Care Act and a variety of other key policy issues, according to third-quarter market reports released today by Jones Lang LaSalle.

Despite the political gridlock on the Hill, durability of the Washington region economy was apparent in the third quarter, as job growth and low unemployment persisted. Year-over-year employment growth of 33,400 new jobs extended the region’s gains, but the concentration of new positions in non-office-occupying sectors tempered overall tenant demand in the office market. For the Washington region as a whole, vacancy was 16.4 percent, up 0.7 percent from the second quarter. 

“So far this year, most sectors of the Washington metropolitan economy have been resilient, with few signs of distress.  One area of increasing concern is the leasing market, which has been and will remain subdued as tenants wait for political clarity and the full impact of sequestration,” said Mike Ellis, Mid-Atlantic Market Director, Jones Lang LaSalle. “We cannot really expect to see a rebound until lawmakers are able to compromise on the policy issues that remain unresolved.”

Key market indicators
 
“Looking forward, the lack of new construction and surge in private sector expirations over the years ahead will likely rebalance the office market in approximately 24 months,” said Scott Homa, Vice President, Research, Jones Lang LaSalle.  “That leaves tenants with a limited window to act before the highest quality buildings and most appealing lease terms begin to disappear from the market.”

Suburban Maryland: Total vacancy rates in Suburban Maryland climbed to 18.5 percent, which is the highest it has been in 14 quarters.  Overall leasing activity fell 43.9 percent from a year ago, even though the year-to-date growth is positive at 179,784 square feet.  Face rents did rise slightly to $26.51 per square foot, with owners offering increased concessions packages. To combat elevated vacancies, many landlords are looking to reposition their buildings, upgrading and repositioning facilities.

Northern Virginia: Total vacancy rates in Northern Virginia rose to 18.7 percent, the highest level in years, as 1.3 million square feet delivered to the market.  With the implementation of sequester cuts and the OMB freeze the footprint mandates, any growth in tenant demand will depend on private sector job growth and transit-oriented development along the Silver Line.

Washington, DC: Leasing activity in Washington, DC was essentially flat, with a vacancy rate of 12 percent and year-over-year velocity slipping by 33.1 percent. Despite suppressed federal leasing activity, the market is expected to tighten from the top down, beginning with Trophy buildings. Given limited new construction, quality options for large tenants continue to dry up, and many tenants are now considering proposed development sites to accommodate future space needs.

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management. For further information, visit www.jll.com.