WASHINGTON, DC METRO AREA
MARKET SUMMARY
Cresa Washington DC 1800 M Street, NW, Suite 350 S Washington, DC 20036 202.628.0300 cresa.com/washingtondc
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OUR MISSION Cresa provides customized solutions exclusively for corporate space users by offering fully integrated services that align their real estate needs with their business plans, delivering maximum cost savings and exceeding expectations.
TABLE OF CONTENTS
Information contained herein is provided, in part, from third party sources including: GMU Center for Regional Analysis, the US Bureau of Labor Statistics and CoStar Group. Even though obtained from sources deemed reliable, no warranty or representation, expressed or implied, is made as to the accuracy of the information herein.
01
THE TENANT’S PERSPECTIVE
02
CONSTRUCTION & DELIVERIES
03
EMPLOYMENT
04
FEDERAL LEASING
05
MARKET UPDATE
06
AREA SNAPSHOT
01
THE TENANT’S PERSPECTIVE Office construction is below average as landlords struggle to backfill existing space.
Employment numbers are mixed. Retail leads private sector job growth while the Federal Government continues to shed employees.
Federal lease requirements are capped at 2012 occupancy levels and decreasing.
Tenant-favorable conditions continue in the Washington Metro region.
Average vacancy rates in DC are at 12.8%. Suburban MD sits at 18.1% while Northern VA inches closer to 20% with 19.6% vacancy. Photo Credit: Stocksy.com
2
02
OCCUPANCY RATE: 1812 N MOORE ST
0% CONSTRUCTION & DELIVERIES
* 1812 N Moore Street is the DC Metro’s largest existing office building that delivered in late 2013
AVERAGE PRE-LEASED RATE
45 %
* for office projects Under Construction in the DC Metro Area
Less than 4 million square feet has delivered in 2014.
SLATED OFFICE SPACE DELIVERY
The 10-year average for new office construction delivery annually is 7 million square feet. Pre-leasing is strongest in Northern Virginia’s submarkets inside the beltway at 3.7 MILLION SF
62% indicating more speculative development in Northern Virginia outside of the beltway and Suburban Maryland
2015
2017
where pre-leased rates are under 40%.
OFFICE DELIVERIES (SF) BY MARKET
Northern Virginia
Washington DC
Suburban Maryland
10-Yr Average
14,000 12,000 10,000 8,000 6,000 4,000 2,000 2005
2006
2007
2008
2009
2010
2011
UNDER CONSTRUCTION (PRE-LEASING STATS)
2013
Square Feet UC
Washington, DC
Suburban Maryland
NoVA
NoVA
(Inside Beltway)
(Outside Beltway)
8
11
5
6
Square Feet
1,520,966
970,320
1,513,878
932,944
% Pre-leased
39%
43%
62%
36%
Square Feet Pre-leased
588,614
414,327
931,035
335,860
# of Properties Under Construction
2012
% Pre-leased
2M 1.5M 1M 62 % 0.5M
39 %
DC
3
2014 YTD
43 % MD
36 % NoVA
(Inside Beltway)
NoVA
(Outside Beltway)
5601 Fishers Lane Rockville 490,998 Square Feet 100.0% Leased LL: JBG Companies
14995 Shady Grove Road
7900 Tysons One Place
3001-03 Washington Blvd
North Rockville 111,476 Square Feet 15.2% Leased LL: Lerner Enterprises
Tysons Corner 528,290 Square Feet 66.9% Leased LL: Macerich
Clarendon/Courthouse 302,665 Square Feet 89.6% Leased LL: Invesco Realty Advisors
2014 MAJOR DELIVERIES
1) 5601 Fishers Lane 2) 14995 Shady Grove Road 3) 7900 Tysons One Place 4) 3001-03 Washington Boulevard 800 10th Street, NW
5) 800 10th Street, NW 6) 850 10th Street, NW 7) 655 K Street, NW Photo Credit (1-7): CoStar Group
East End 293,010 Square Feet 92.5% Leased LL: Hines
850 10th Street, NW
655 K Street, NW
East End 263,994 Square Feet 100.0% Leased LL: Hines
East End 287,800 Square Feet 74.8% Leased LL: Assn. of Am. Med. Colleges
Photo Credit: Š Paul Warchol, warcholphotography.com
03
EMPLOYMENT The Washington Metro Region is home to a highly educated, well-paid workforce. 48.2% of the adult population has at least a Bachelor’s Degree and the median household income for the region is $88,233 which is among the highest of the top 25 metro areas.
TOTAL EMPLOYMENT
PROFESSIONAL BUSINESS SERVICES
FEDERAL EMPLOYMENT
11.5 %
28.9 %
By 2022 , total employment is projected to grow by 11.5%.
Expected to decline to 28.9% of total employment by 2018.
15 LARGEST JOB MARKETS
Professional Business Services is expected to contribute 48.8% to job growth through 2018.
15 LARGEST JOB MARKETS
Job Change: July 2013 - July 2014
Ranked by Unemployment Rate June 2014
160,000
9.0%
140,000
8.0% 7.0%
120,000
6.0%
100,000
US 6.1
5.0%
80,000
4.0%
60,000
3.0%
40,000
2.0%
20,000
1.0%
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6
03
EMPLOYMENT ANNUAL JOB CHANGE Washington, MSA, 2002-2014
100,000 80,000 60,000
Job growth in the Washington MSA has been
40,000
challenged by the contraction of the federal government.
20,000
Any improvement in the job growth rate will have to be fueled by the private sector.
-20,000 -40,000 -60,000 2002 2005 2010 2008
2011
2012
2013
2014
JOB CHANGE BY SECTOR July 2013 - July 2014 Washington MSA
Prof. & Bus. Services Fed. Gov. Educ. & Health Services State & Local Gov. Retail
The Federal Government lost 8,000 jobs in the period
Leisure & Hosp.
between July 2013 and July 2014. Professional &
Construction
Business services, an office-using sector, improved by
Other Services Financial
adding 2,000 jobs.
Information Manufacturing Wlse Trade Transportation & Utility
-10
-5
5
10
TOTAL EMPLOYEES BY INDUSTRY Washington, MSA
Federal Government Prof. & Bus. Services
25,000 20,000 15,000 10,000
With unemployment just over 5%, the Washington
5,000
Metro remains under the US average of 6.1% and enjoys the 5th lowest unemployment rate among the 15 largest job markets in the country.
-5,000 -10,000 -15,000 2002 2005 2008
7
2009
2010
2011
2012
2013
2014
04
SELECT GOVERNMENT REDUCTIONS
DEPARTMENT OF JUSTICE Current: 1,045,000 Proposed: 839,000 by FY2017
FEDERAL LEASING
20 %
“Laying the groundwork for the long-term strategy DEPARTMENT OF EDUCATION
on government occupied real property, in 2012 the
Current: 502,329
Administration issued a Freeze the Footprint policy
Proposed: 290,000 by FY2015
and directed agencies to freeze the growth in their real
42 %
estate inventory. In early calendar year 2014, the Administration will begin publicly tracking the Government’s adherence to a fixed
FEDERAL BUREAU OF INVESTIGATION (FBI)
baseline—730.2 million square feet—composed of office
Current: 195,676
and warehouse space, and agencies will continue to
Proposed: 155,755 by FY2016
pursue mobile workforce strategies and tighter internal
20 %
controls on space acquisitions.” (Source: “The President’s Fiscal Year 2015 Budget”)
10-YEAR EXPIRING GOVERMENT LEASES Source: GSA
56 Million RSF 35,000,000 30,000,000 25,000,000 20,000,000
96 Million RSF
15,000,000 10,000,000 5,000,000 2014
2015
2016
Northern Virginia
2017
2018
2019
Suburban Maryland 8
2020
Washington DC
2021
2022
2023
04
FEDERAL LEASING
PROSPECTUS REQUIREMENTS
Change in USF
Number of Leases
2012
0.4 %
6
2013
11.5 %
14
2014
14.6 %
12
2015
29.3 %
3
PROPOSED FEDERAL EFFICIENCY REDUCTION
2014 Prospectus Leases
Current (USF/person)
Proposed (USF/person)
239
191
9
Photo: Š Eric Taylor, EricTaylorPhoto.com
05
MARKET UPDATE Tenant favorable conditions are expected to continue through the balance of 2014. There is still plenty of space to backfill across the region—especially in Northern Virginia and Suburban Maryland where vacancy rates continue to increase. Federal employment and space requirements are decreasing so the region will have to look at the private sector to fuel future growth. Many jurisdictions around the region are pushing for high-tech tenants as the DC Metro area looks to move beyond its reliance on the federal government. Landlords continue to be aggressive in pursuing tenants and are increasingly willing to buy out existing lease obligations to attract tenants.
DC
MD
VA
Offfice Vacancy Rates
Asking Rents
12.4 %
$ 52.41
0.8% vs 2013
$0.16 vs 2013
18.1 %
$ 28.73
1.4% vs 2013
$0.31 vs 2013
19.6 %
$ 32.10
1.2% vs 2013
$0.66 vs 2013
10
Photo Credit: Capitolyardsdc.com
G
Vacancy
TH
ERSBUR
$24.67
$22.58
20.4%
17.1%
97
270
28
INCREASE
Rent
AI
DECREASE
$30.08
NO CHANGE
20.0% RO
CKVILLE
586 $30.56
N
23.3% RO
UT
E 28 NOR
TH
S BE T HE
D
495
495
$36.84
11.7% NDON
BE
7
TY
S COR N ON
N
NOMA
10.1% EA
ST END
CLA R E N D
COURTH
N/ O
$42.23
11.8% CBD
12.0% 66
C
$51.38
BA
495
$28.39
LLSTON
$32.34
16.0% X CEN
15.0% R TE
AL
11
EXA NDRIA
214
19.2%
YN S L395
$38.63
Alexandria
236
15.3%
$41.55
CA
RRIFIELD
ROS
$55.48
395
29.6%
17.7%
50
ITO L HI L L AP
12.4% 395
$41.12
295
16.3%
$54.51
O
1
$46.97
E
18.8%
RFA
14.8%
$42.28
17.4%
FA I
$40.15
29
8.2%
50
$30.60
TE 28 SO
RGETOW
US
123
ME
ST END
$42.29
$32.79 19.7%
H UT
EO
ER
S
G
123
267
18.8%
OU
WE
TOWN
$52.70
$28.47
R
355
THE S D A
495
$25.03
UP
11.2%
RESTON
95
$28.93 11.4%
TH
$27.29
HER
29 G
A
OR
R S P RI N
VE IL
270
22.4% $23.12
S
355
26.40% 1
CR Y S TA L CI TY
PI
TO
4 NT
G
MANTOW
G
ER
N
AREA OVERVIEW
L R I V E RF R
295
O
5 95
cresa.com
Photo Credit: Stocksy.com
CONTACT US Cresa Washington DC 1800 M Street, NW, Suite 350 S
2 Bethesda Metro Center, Suite 900
1600 Tysons Boulevard, Suite 800
Washington, DC 20036
Bethesda, Maryland 20814
McLean, VA 22102
202.628.0300
301.951.6500
571.203.9360
Cresa Baltimore 509 S Exeter Street, Suite 200 Baltimore, Maryland 21202 410.558.6192
Cresa Š 2014. All rights reserved. Permission is hereby granted for internal distribution by Cresa business partners. Other reproduction by any means in whole or part without written permission is prohibited. For additional information, please contact Justin Moultrie, Senior Research Manager, at 301.841.6533 or jmoultrie@cresa.com.