Strong absorption driven by pre-leased deliveries
Employment services job growth increased 0.7% in the District of Columbia during the 12 months ending June 2019, which is below the 10-year annual average of 1.3%. The District of Columbia office market performed very well in the first half of 2019, with 1.4 million SF of positive net absorption. Most tenants continue to demand new construction and trophy, leaving second-generation Class A space with elevated vacancy. However, as trophy asking rents drive rental rates higher, value tenants look to more affordable Class B space. Strong absorption through the fist half of the year was due primarily to the pre-leased delivery of 655 New York Avenue, NW and 150 M Street, NE.
Asking rents rise 0.3% in H1 2019
The average asking rental rate for all classes of office space in the District of Columbia increased 0.3% during the first half of 2019, increasing to $52.60 PSF from $52.45 PSF at year-end 2018. The office prime average rent at mid-year 2019 was $77.07 PSF. This is a 1.1% increase from the $76.20 PSF rate we saw at year-end 2018.
Office investment continues
Office investment volume in the District of Columbia totaled $1.3 billion during the first half of 2019, accounting for 81% of the total real estate investment dollars for all property types during this period. This compares to 79% of total investment dollars spent over the past five years. Office net prime yields have trended downward since reaching 7.0% in 2009 and now stand at 4.8% at mid-year 2019. Despite the challenging market conditions and political/government uncertainty, office received the bulk of the share of investment dollars.