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Federal Presence Strengthens Washington, D.C.’s Office Market

Washington, D.C.’s 10.4 percent office vacancy rate is far below the 17.3 percent national average.  Washington, D.C.’s commercial real estate market – including its Virginia and Maryland suburbs – continues to be the nation’s most stable with vacancy rates far below the national average.  The area’s vacancy rate stood at 10.4 percent at the end of the first quarter, far below the 17.3 percent national average, according to Reis, a New York-based real estate research firm.  Effective rents have fared well through the Great Recession, sliding just five percent from their 2009 peak high of $41.43 PSF.

“There is a tremendous amount of domestic capital looking to invest in D.C. for obvious reasons,” said John Kevill, managing director in Jones Lang LaSalle’s Washington, D.C. office.  “Aside from its solid fundamentals, investor demand is being stoked by the area’s dominant industry, the federal government.  The office market is benefitting from continued government spending in areas such as healthcare, the war on terror and the economic stimulus package.  That activity is really differentiating our economy from virtually every other economy in the country, which is why we are seeing an increase in transactional velocity”

As an example, Jones Lang LaSalle at present is listing twice the number of for-sale properties than just one year ago.  A key selling point for an office building in Landover, MD, is a 10-year lease just signed with the General Services Administration (GSA) on behalf of the Department of Defense.  The two-story Class B office building recently sold for a cap rate of 8.4 percent; the purchaser was the Government Properties Income Trust.  Real Capital Analytics reports that cap rates for Maryland office properties averaged 9.4 percent over the past year.

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