2013 In Review
The Washington D.C. office market finished FY 2013 with a vacancy rate of 14.1%. Having started the year with a vacancy of 14.2%, it has essentially remained unchanged. Throughout the year there was approximately 720,800 square feet of positive net absorption of space. However, new deliveries of speculative office space kept the vacancy rate flat.
Vacancy rates for Class C space remained the lowest at approximately 7.9%, followed by Class B at 9.13% and Class A at 14.5%. Class A is the highest given that it includes newly delivered buildings with a large speculative/vacant component.
The 14.1% vacancy rate for Washington D.C. is 2.1% higher than the national average which ended FY 2013 at 12%. With very few exceptions, the vacancy rates for metro areas surrounding Washington had higher vacancy rates. Montgomery County had a 12.5% vacancy rate blended across Class A, B and C buildings. However, Class B buildings had a vacancy rate of 17%. Frederick County had a vacancy rate of 14.5% blended across all office building types.
The vacancy rate for the industrial sector in Washington D.C. ended the year at 10.3%. This reflects a blended rate between flex space and more traditional high bay distribution/warehouse space. This rate is a respectable drop from the beginning of the year which was approximately 11.9%. This compares to a national market vacancy rate of 8%.
The suburban warehouse/flex markets posted higher vacancy rates, with the exception of Montgomery County which had a vacancy rate of 9.5%. Frederick County finished the year with a 14.5% vacancy rate. The flex component for Frederick County ended the year with a 16.7% vacancy rate.
The retail sector in Washington, D.C. experienced continued improvement throughout the year. The vacancy rate declined from approximately 5% at the beginning of the year, to 4.4% at the end of the year.
Specialty and power centers posted the lowest vacancy rates at approximately 2% for both. Traditional shopping centers posted the highest vacancy rates ending the year with an average vacancy rate of approximately 6.5%. Ecommerce will continue to grow dramatically over the next several years. This trend will reduce some demand for “brick and mortar stores.”
Every sector of real estate is likely to experience an improvement in fundamentals throughout 2014. Having posted a solid performance in 2013, residential will continue to gain momentum 2014. Rising interest rates are motivating prospective buyers to act more quickly. This, coupled with tightening supply and an improving job picture, is contributing to solid price gains in the residential sector.
Among commercial property types, retail and industrial will continue demonstrating the best fundamentals with vacancy rates trending down, and rental rates rising. The office sector will likely show the least improvement as it continues to combat excess supply. Contributing factors include government cutbacks, more efficient space utilization among users, telecommuting and other factors dampening demand.
Noteworthy bright spots in the regional economy include the following:
- Housing- Washington and surrounding suburban areas post best housing markets since 2006. For Montgomery County the total number of housing units sold increased by 9.5% over 2012. In Frederick County the total number of units sold increased by 12.5% over 2012.
- Interest Rates - while interest rates are rising, they remain at historically low rates which are unlikely to increase substantially.
- Corporate Spending/Capital Investments - having deferred capital investment throughout the long recession, there are signs that spending is picking up among many companies. Increase in both global and U.S. manufacturing are encouraging corporate leaders to "loosen up the purse strings".
- Low Inflation - pricing pressure lags increases in economic output. Correspondingly while many economic forecasters expect a respectable increase in economic output over 2013, they also expect modest inflation.
- Improving Employment and Consumer Spending - Consumer spending in the U.S. climbed more than forecast in December 2013 even as incomes stagnated. "The U.S. private sector added 175,000 jobs in January, which is in line with the average monthly growth throughout 2013,” said Carlos Rodriguez, President and Chief Executive Officer of ADP, one of the largest U.S. payroll processing companies.
- Increasing Small business borrowing/lending - According to the Biz2Credit Small Business Lending Index, the small business loan approval rates at big banks ($10 billion+ in assets) increased 17.6% in December 2013 from 17.4%. Further, in a year-to-year comparison, lending approval rates at big banks have increased nearly 20%.
Tyler-Donegan 4th QTR Completed Transactions
Jecho Laboratory, Inc.
TD represented the owners of 7320 Executive Way, Frederick MD in leasing 7150 square feet of office and lab space to Jecho Laboratory, Inc. Jecho’s major focus is in the field of biopharmaceutical development, including novel therapeutic drug candidates, biosimilar biopharmaceutics, and innovative bio-manufacturing technologies. The building currently has remaining 10,000 square feet of lab and office available for lease.
Service Master/Brent Cross
TD represented Service Master owned by Brent Cross in leasing 2600 square feet within West View South, in Frederick, MD. West View South is owned and was developed by Saint John’s Properties. Service Master performs construction and renovation work on residential and commercial properties primarily related to insurance claims.
TD represented Mansour Jarbion of NIMA Custom Homes in leasing office space at 11901 Parklawn Drive in Rockville, MD. NIMA has been building custom homes in the greater Washington Metropolitan area for over 25 years and has received many builder excellence awards for their work.
TD’s HealthMed Realty Partners
TD has been awarded the property management assignment for a new medical office building owned and developed by HD Partners in Martinsburg, WV. The building is 37,000 square feet, located directly across from the West Virginia University Hospital Center (WVUH), and is 40% preleased to WVUH and a specialty physicians group. The space occupied by WVUH contains imaging space for general radiology, ultrasound and mammography. The specialty physicians group provides ENT, OBGYN, Pulmonology and a general family practice.