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News release

WASHINGTON, D.C.

Obstacles Cleared for Reinvigorated Leasing Market in 2014

Preleasing at under-construction buildings in downtown Washington at all-time high of 79.2%


WASHINGTON, Jan. 7, 2014 – Within downtown Washington, DC, the 1.5 million square feet of office product under construction is 79.2 percent preleased, an all-time high for the market, according to the fourth quarter office market report for the Washington region from Jones Lang LaSalle. The overall construction pipeline in the metropolitan Washington region (including the Virginia and Maryland suburbs) is 58.5 percent preleased, significantly above the long-term average of 47.3 percent.

“The Washington market always tightens from the top down, and there are limited large blocks of new, efficient space,” said Mike Ellis, Mid-Atlantic Market Director, Jones Lang LaSalle. “While it won’t be a landlord market in 2014, we will see balance restored and a more even playing field as the rightsizing trend hits a tipping point.

“Large tenants with pending lease expirations must start their search process early to preserve the option of anchoring a new development or risk being confined to second-generation space,” added Ellis.

The pullback in new construction will have a meaningful impact on the metro DC office market over the next 24 months. Although a few submarkets in the region, particularly NoMa, have ample new space options available, most vacancy across the region is becoming concentrated in commodity Class A and Class B assets, buildings that are not well suited for efficiency-minded tenants.

“New construction and ground breakings have slowed significantly, and, as a result, buildings already in the pipeline are exceptionally well preleased,” said Scott Homa, Vice President Research, Jones Lang LaSalle. “The fact that new supply is well aligned with tenant demand reinforces the fact that market dynamics across the Washington region have stabilized and that the tenant-favorable environment will not last much longer.”

Tenant perspective
Although defensive leasing decisions—including short-term renewals, consolidations and contractions—dominated transaction activity in recent years, the passage of a federal budget, scaling back of spending cuts and continued improvement in the economy suggest a resurgence in tenant demand could be around the corner. Many tenants have already adopted aggressive rightsizing measures and are operating in a lean and efficient manner. With corporate profits rising, tax and regulatory outlooks gaining clarity and companies sitting on record stockpiles of cash, capital investment in people and facilities could spark a rapid turnaround in the regional office market.

Landlord perspective
Competition among landlords remains fairly intense given stubbornly high vacancy rates and limited near-term, large-block space requirements.  As a result, attracting new prospects and retaining existing tenants has required aggressive action. Renovations to add new amenities such as rooftop terraces and fitness facilities have been common among many second-generation buildings, and owners across the board continue to offer record levels of concessions to appeal to tenants’ cost-conscious motivations.


Also of note is that sublease space in the metro DC region fell to a 13-year low of 3.7 million square feet during the fourth quarter. Meanwhile, growth of small and midsize tenants helped drive modest occupancy gains throughout Washington, DC, northern Virginia and suburban Maryland during the fourth quarter.

To view all of the Washington region market reports please visit: http://www.joneslanglasalle.com/Washington-DC/en-us/Pages/Research.aspx

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 $46.7 billion of real estate assets under management. For further information, visit www.jll.com.