United States: Washington DC office market - H1 2026
The District of Columbia is usually immune to employment declines, but the cuts to federal workers in 2025 have taken a significant toll on the city.
Employment Services Continue to Plummet at Mid-Year 2026
The District of Columbia finished the first half of 2026 with negative 468,419 SF of net absorption. Employment services in the District of Columbia declined by 5.2 percent mid-year as federal workforce reductions and contractor pullbacks have remained a strain on the market.
The District of Columbia is usually immune to employment declines, but the cuts to federal workers in 2025 have taken a significant toll on the city. Looking ahead, the new protections for federal employment and stabilization of funding to the impacted agencies provide hope that the district's employment rate steadies in the second half of 2026.
Steady Highs in Asking Rents for First Half of 2026
The average rental rate for all classes of office space in the District of Columbia increased to $54.69 PSF, continuing the rise in asking rents seen in 2025. The office prime average rent dipped to $88.24 in the first half of 2026 from 2025's $88.27, remaining at historical highs. The elevated prime asking rates reflect the sustained demand for high-quality space and constrained availability of these assets. Landlords are able to continue to push rents higher as spaces stays highly coveted and competitive to lock down. The office construction pipeline is still inactive for now. There are two planned projects by BXP for three law firms that will break ground over the next year or two. The lack of availability will keep rents on the rise in new, high-class space.
Capital Rates Remain Elevated Through June 2026
Overall District office capital rates are estimated around 11%, rising from 10% at the end of last year. Prime office capital rates remained at 9% midway through the year, indicating the lingering hesitancy from investors. The elevated capital rates display the higher return that investors are requiring to invest in properties. There is less confidence in the investment market to be risk-tolerant. Office investment volume totaled $762 million, heading into the second half of 2026. The office investment volume represented over 90% of the real estate investment market.