Midyear Slow activity continues through year-end 2023
The District of Columbia finished 2023 with negative 1.7 million SF in net absorption which follows the trend over the last three years in DC of negative net absorption. Services job growth decelerated slightly at year-end finishing with a 1.4% increase which is below the historical average. We expect office market conditions to remain soft in the District of Columbia through 2024, as future move-outs and rightsizing, coupled with limited leasing activity, will drag the overall market.
Overall rents decline while prime rents remain stagnant
The average asking rental rate for all classes of office space in the District of Columbia decreased 0.5% in 2023 averaging $53.26 PSF as compared to $53.53 one year prior. The office prime average rent at mid-year 2023 totaled $83.04 PSF and has inched downward slightly to $83.03 PSF at year-end. Demand for high quality space remains steady as tenants have been upgrading in quality while downsizing their footprint.
Office investment sales remains limited in 2023
Office investment volume in the District of Columbia totaled $509 million during 2023, representing for 90% of the total real estate investment dollars for all property types for this year so far. This compares to 64% during the previous five years as investors have pulled back significantly on office. The average cap rate has increased while sales have remained limited in this period of price discovery. Office values could be challenged in the future due to the recent announcement by Monumental Sports deciding to move the Capitals and Wizards to Potomac Yards in Alexandria Virginia.
