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DC ground-up developments outperform redevelopments

  • ​Oversupply issues continue to cause headwinds for the top segment of the Washington, DC office market as 4 m.s.f. has delivered to the core over the past four years and 6 m.s.f. is currently under construction.
  • As new space options have multiplied, ground-up development has captured 3x more leasing activity than redevelopments (4.5 m.s.f. versus 1.5 m.s.f.) and only 33% of recently delivered or under construction ground-up projects remain available versus 56% of space at redevelopments.
  • Excess supply among both ground-up and redevelopment projects and a limited near-term demand pool of Trophy and Class A tenants has resulted in a 25-35% increase in concession packages at ground-up projects and a 45-60% increase at redevelopments, which have recently offered 16-18 months free and $140-$150 in tenant improvements allowances to prospective tenants.
  • Growing concession packages have significantly offset the rise in face rates and suppressed net effective rent growth, particularly at redevelopments, where rents on a net effective basis are more than $10 p.s.f. lower than the base year rent among leases signed in 2017.
  • As new product continues to deliver and Trophy/Class A vacancy trends toward 20%, net effective rents will decline not only as concessions grow, but also as face rates increasingly drop from the mid-to-high-$70s p.s.f. FS to the low-$70s/high $60s p.s.f. FS.​

Source: JLL Research​

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