Slow 2022, with a Slower 2023 Expected
The District of Columbia closed out 2022 on weak footing with negative 166,000 SF in net absorption, despite absorption improving during the fourth quarter. Services job growth continued throughout 2022 with a 1.6% increase, which is on par with the historical average. There remains a notable amount of available space on the market which will challenge recovery over the next several quarters as economic conditions potentially worsen.
Flight to Quality Continues to Push Up Office Prime Rents
The average asking rental rate for all classes of office space in the District of Columbia decreased 0.2% in 2022, averaging $53.53 PSF as compared to $53.66 one year prior. The office prime average rent at year-end 2022 totals $82.56 PSF, a healthy rise from year-end 2021 which totaled $78.59 PSF. Demand for trophy/new construction remains steady as tenants upgrade their space. This in turn supports rent growth despite the economic climate. The vacancy rate continued to rise, increasing by 90-basis points for the year.
Office Investment Sales Decline
Office investment volume in the District of Columbia totaled $491 million during 2022, representing for 30% of the total real estate investment dollars for all property types for this year. This is a drop compared to 71% during the previous five years as investors pulled back significantly on office. The average cap rate in investment sales have also increased, averaging 5.7%, which is up 30-basis points from the year-end of 2021.