Federal workforce uncertainty negatively impacts FH 2025
During the first half of 2025, Washington, DC’s office market experienced continued contraction, marked by rising vacancies and significant negative net absorption. Across Q1 and Q2, the market recorded a combined net absorption of nearly −950,000 SF, with −295,101 SF in Q1 and a steeper −654,614 SF in Q2. This trend reflects a broader pullback in office demand, driven in part by federal downsizing and corporate relocations.
Stable Rents Amid Market Softness
Office rents in Washington, DC remained relatively stable during the first half of 2025, despite rising vacancy and negative absorption. The average full-service asking rent declined only slightly, from $53.14 PSF in Q1 to $53.04 PSF in Q2, reflecting a modest 10 basis point drop year-over-year. Direct vacant available rate reached 15.7% in Q2 2025, up from 15.3% last quarter and 15.2% year-over-year. The CBD posted the highest rate at 18.5% with 7.83 M SF vacant.
Office Investment Continues to Lead DC Sales Limited Activity
In FH 2025, office properties accounted for a dominant share of real estate investment activity in Washington, DC, totaling $672 million, or approximately 91% of all property-type investment volume year-to-date. The average capitalization rate for office transactions remained high, reflecting investor caution amid a challenging market environment. With elevated interest rates and ongoing softness in office fundamentals, near-term investment activity is expected to remain subdued. However, the current climate may present opportunities for opportunistic investors targeting distressed assets available at discounted pricing.
