Strong finish to 2017
Employment services job growth increased 0.8% in the District of Columbia during 2017, which is below the 10-year annual average of 1.3%. The District of Columbia office market rebounded in the final quarter of 2017. Net absorption totaled positive 840,000 SF, which pushed the 2017 total to positive 726,000 SF. Comparatively, net absorption during 2016 totaled 1.5 million SF. 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 for more affordable Class B space.
Asking prime rents rise 1.4%, ahead of larger market
The average asking rental rate for all classes of office space in the District of Columbia increased 0.8% during the fourth quarter, up 1.5% over year-end 2016. The average asking rent was $51.84 PSF (full service) at December 2017. Office prime rents increased 1.4% to $76.75 PSF from year-end 2016.
Office investment slow in 2017
Office investment volume in the District of Columbia totaled $3.9 billion during 2017, accounting for 80% of the total real estate investment for all sectors during this period. This compares to 79% of total investment spent over the past five years. Office net prime yields have trended downward since reaching 7.0% in 2009 and now stand at 4.6% at year-end 2017. Despite the challenging market conditions and limited investment, office received the bulk of the share of investment.