Skip Ribbon Commands
Skip to main content

News release

WASHINGTON, DC

Migration From Suburbs to Downtown Washington Continues as City Sees 300,000 SF of New Leases

Growth of innovative companies, high-tech firms and business services companies fueling demand in downtown Washington, DC as YTD private sector job growth reaches 21,200 according to JLL Q3 report


WASHINGTON, September 30, 2014 –The District of Columbia has seen growth in leasing due to businesses and associations relocating from the suburbs to downtown Washington, DC, despite the overall region seeing negative absorption. Over the past 24 months, there has been over 300,000 square feet of new leasing activity in the District as a result of tenants from Maryland and Virginia migrating into the city.

“The migration of suburban tenants into the District and robust expansion activity among start-ups and high-technology companies helped fill a gap in an otherwise tepid demand environment during the third quarter,” said Scott Homa, Senior Vice President Research, JLL. “Creative industries such as digital media, software engineering, advertising and consumer technology represent a relatively small portion of the Metro DC tenant base, but incremental growth – primarily concentrated downtown – helped offset contractions within the region’s core industries of legal services and government contracting.”

Resurgence in private-sector office employment
According to JLL’s Office Insight report for Q3 2014, since the start of 2014, a total of 21,200 private-sector office jobs have been added to the Metro DC economy. Total private-sector office-using employment is now at its highest point in history. Although substantial declines in federal payrolls continue to offset this private sector growth, regional unemployment (5.4 percent) remains significantly below the national average (6.1 percent) and strong population growth among a highly educated workforce demographic suggests that continued, sustainable employment growth is likely on the horizon.    

Federal budget deficit falls to lowest level in six years
The federal budget deficit has fallen to its lowest level in six years ($679.5 billion) and the midterm elections have the potential to create more policy debate, which together could serve as a catalyst for the office market. Historically, legislative action and net absorption in the Washington, DC office market have been strongly correlated, with bipartisan action spurring demand among think tanks, associations, government affairs groups and contractors. 

Investment Sales
Investment sales activity continued to focus on core, well-leased assets. Pricing for these buildings remained at all-time highs, a testament to the long-term durability and attractiveness of the Washington, DC marketplace.

“With one-half of office sales closed in downtown Washington in 2014 resulting from carryover transactions from 2013, it is no surprise that record prices are being set and strong bid volume being seen for the handful of “core” assets that have traded this year,” said Bill Prutting, Managing Director, JLL. “Foreign, life company and pension fund capital continue to be the most active for the larger, typically ‘core’ transactions, while numerous private capital sources have succeeded in buying assets under $100 million.  Investors trying to fill their acquisition pipelines are increasingly more receptive to moving up the risk spectrum accepting higher vacancy in higher quality assets, a clear indication that investors believe the market is poised for a move to the up side.”

Innovative industries helping to offset the contraction within the law firm, GSA and contractor segments
Robust expansion activity among start-ups and high-technology tenants has helped fill a gap in an otherwise weak demand environment. Creative industries such as digital media, software engineering, advertising and consumer technology represent a relatively small portion of the overall Metro DC tenant base, but incremental growth has helped offset contractions elsewhere.
“The most recent wave of lease signings is just the tip of the iceberg.  We’re seeing over 300,000 square feet of active requirements in the downtown Washington market right now that are potential relocations from Virginia,” said Doug Mueller, Senior Vice President, JLL. “The migration from Virginia and Maryland to Washington is populated by associations, technology companies and professional services firms.

“The quality and location of office space with easy access to mass transit, abundant amenities and housing options also has a visible and tangible impact on attracting and retaining top talent,” added Mueller.

Metro DC Office Market:
• Total Vacancy 17.2%
• YTD net absorption (s.f.) -2,069,130
• Q3 2014 net absorption (s.f.) – 1,346,328
• 12-month rent growth 7.6%
• Total under construction (s.f.) 4,619,612
• Preleased under construction 56.9%

“We feel the DC market has finally bottomed and that there are early signs of a resurgence in tenant demand,” said Scott Homa, Vice President Mid-Atlantic Research, JLL. “Although tenants still hold strong negotiating leverage in today’s marketplace, the tightening of the top segment of the market suggests that the downtown market has found stability.”

About JLL
JLL (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 fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.