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News release

Washington, DC

Demand Has Bottomed Out While Rents Have Stabilized in DC and VA According to Jones Lang LaSalle; MD Lags Behind

Substantial Government Agenda Driving New Federal Activity with Private Sector to Follow; DC Only Market in U.S. Showing Growth

WASHINGTON, October 1, 2009 — According to Jones Lang LaSalle’s Q3 market statistics, the DC and Virginia commercial real estate markets have hit bottom and evened out while the Maryland market lags behind by about 9 months.  The stabilization in the DC and Virginia markets is due in part to increased demand from federal government tenants, and a slowing of new sublease space to the market.  Conversely, Maryland, which historically lags behind the other two markets, saw over 500,000 square feet of new sublease space this quarter, primarily from the life sciences industry and Fannie Mae.
“Unlike any other market in the U.S., Washington is starting its recovery, seeing substantial new demand from the federal government,” said John Sikaitis, Vice President Research, Jones Lang LaSalle. “There is limited new supply in the pipeline in the suburbs and DC’s development cycle is coming to a close, so in the next 12 to 18 months as the private sector grows in response the new government business, the Washington real estate market will see tightening fundamentals. No other market in the country right now can point to the demand generators this region is experiencing. While most markets around the country have more of a demand issue than a supply issue, we are gradually winding down our supply here in DC. ”
Key highlights from the Q3 market reports include:
  • Leasing volume picked up in the third quarter as the Washington, DC office market continued to benefit from the expanding federal government.
  • Approximately 40 transactions greater than 10,000 square feet were signed during the third quarter, compared to 23 transactions in the second quarter.
  • New construction projects began to lease up at a brisker pace as large blocks of space enticed value-conscious tenants.
  • Three transactions greater than 90,000 square feet were signed, all at relatively new buildings.
  • While few tenants expanded, and a majority of leases were in the form of renewals, the market did not see a continuation of the rise in sublet space it saw during the first half of the year.
  • Rental rates held relatively firm as steady demand for medium sized blocks of space remained, especially inside the beltway.
  • The construction cycle that has added 10.4 million square feet to the market since 2007 continued to subside, which helped alleviate oversupply issues in outlying markets.
  • Market activity centered on short-term renewals dominating activity.
  • The federal government continued to account for the vast majority of leasing activity with significant renewals signed by the Department of Health and Human Services and the Food and Drug Administration.
  • Oversupply problems continued as construction finished on five new buildings with weak pre-leasing levels.
“Given the substantial reduction in development activity in Metro DC’s established markets, and continued demand from federal agencies and associated contractors, the underlying fundamentals of the commercial real estate market will soon begin to show marked improvement,” said Scott Homa, Research Manager for Washington, DC at Jones Lang LaSalle. “Although compelling options for tenants will remain over the near term, the window of opportunity to reap benefits from the trough in rental rates and abundance of available space options will close quickly. Many quality options have already been committed to aggressive tenants, and government demand continues to chip away at oversupply in many segments of the market. The federal government is providing substantial growth to our market for the first time since the mid-term elections of 2006, and that economic driver will lead Metro DC into economic recovery faster than any other market in the country.”