If you build it (spec suites), they (tenants) will come to Washington DC
Spec suite leasing activity in Washington, DC continues to grow.
May 08, 2019
- Spec suite leasing activity in Washington, DC continues to grow. Spec leasing volume was up a whopping 148% in Q1 2019 compared to Q1 2018 as 49,000 s.f. of spec suites were leased. Given the average tenant in the city is 6,876 s.f., the prospects for spec suites is plentiful. What other factors have led to this uptick?
- In 2018, 3.0 million s.f. of new office supply delivered and in 2019, 4.4 million s.f. is expected to deliver. With preleasing commitments totaling only 56% and anchor law firms rightsizing by 31% on average when relocating to new construction, vacancies at both new and second-generation buildings continue to increase. Over Q1 2019 alone, vacancy increased from 10.8% to 11.5%.
- Due to an increase in large-block vacancies and a lack of near-term large tenant demand outside of coworking, developers have increasingly started to build spec suites to target smaller tenants and foster speed to occupancy. Over the past 18 months, >800,000 s.f. of spec suites have been marketed for lease with 18% of spec suites located in new buildings and 40% located in second-generation Trophy or Class A product. Spec suites are available within 64 buildings across Washington, DC and average 4,284 s.f. in size with suites ranging between 973 s.f. and 20,628 s.f. The majority (61%) of suites are located on the middle/lower floors of buildings and asking rents average $60.05 p.s.f. FS, which is in line with the market average asking rent of $59.87 p.s.f. FS.
- Nonprofits and consulting firms have equally accounted for 50% of spec suite leasing activity over the past 18 months with the remaining activity spread across a diverse set of industries such as government relations, government contracting, finance and technology. The average suite leased was 3,585 s.f., nearly half the size of the average office tenant in Washington, DC and the average lease term was 5.5 years.
- As developers begin to carve out common area space to create shared amenity lounges for spec suites on the same floor, demand will only grow. While spec suites are a relatively new phenomena, the growth of coworking in Washington, DC and across the globe has proved that there is robust demand for pre-built space.
- What Kevin Costner famously said in the 1989 film Field of Dreams, “If you build it, they will come”, has held true for Washington, DC spec office suites in today’s market.
Source: JLL Research