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Class A buildings are beginning to drop rents into the high-$50s p.s.f. FS as new vacancies loom

• While vacancy within the Trophy and Class B/C segments of the core Washington, DC market is sub-10%, vacancy within the Class A (non-Trophy) market has remained above 14.0% for the past 24 months as vacancies in excess of 150,000 s.f. have lingered on the market, principally at building formerly occupied by law firms who have migrated to new developments.

• Over the next 24 months, an additional 320,000 s.f. of vacancy at second-generation law firm buildings just east of the White House will hit the market as law firms vacate the Warner Building, Bowen Building and Hamilton Square.

• To further exacerbate issues of excess Class A (non-Trophy) supply, six new/renovated buildings have delivered over the past 24 months and have 750,000 s.f. of vacancy remaining, and 12 additional new/renovated buildings with more than 2 m.s.f. available will deliver over the next 24 months, pushing vacancy from 14.7% to close to 20.0%.

• With Class A (non-Trophy) vacancy remaining elevated and additional vacancies looming, buildings priced between $60-$78 p.s.f. FS have started to drop rents as low as the high-$50s p.s.f. FS and offer upward of $150 in tenant improvement allowances and 18 months of free rent on 15-year lease commitments to secure large tenants as competition continues to grow and the near-term demand pipeline remains limited.

Source: JLL Research

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