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Suburban Maryland 1Q 2015 Snapshot

04/02/2015

ECONOMY

The U.S. economy continues to accelerate at this point in the recovery.  The nation is currently experiencing its strongest job growth in 15 years, unemployment continues to fall, currently at 4.8%, and job openings are at an all-time high—exceeding pre-recession numbers—and many of them office-using.   After a slow start in 2014, the Washington, DC Metro region has been experiencing modest employment growth. The same is true for Suburban Maryland.  Its premier submarket, Bethesda, is outperforming the DC Metro as a whole.  Bethesda’s unemployment rate remains low at 4.3%.  Still, office-using jobs took a step backward as major consolidations in the Government and the Professional & Business Services sectors occurred throughout 2014.  With the passage of the  Continuing Resolution Omnibus $1.013 trillion spending bill in late 2014, capital is expected to flow into many government agencies in the DC Metro, including those agencies that drive demand for office space in Suburban Maryland—the Food and Drug Administration (FDA), the Centers for Disease Control (CDC) and the National Institutes of Health (NIH).

MARKET OVERVIEW

After a slow second half of 2014, the Suburban Maryland office market experienced noticeable growth at the beginning of 2015. Net demand registered 115,000 square feet (sf), a significant improvement from the 212,600 sf of negative absorption registered the previous quarter. Vacancy declined 0.1 percentage points from the fourth quarter of 2014 to 18.4% at the end of the first quarter of 2015. While the level of demand is not overly substantial, it is a welcome sign in a market that shed 1.1 million square feet (msf) during 2014. The GSA’s only major transaction was that for NIH which expanded by 24,000 sf at 10401 Fernwood Road in Bethesda. With nearly 33 msf of GSA leased space due to expire over the next four years in the DC metro, there will likely be a handful of deals and renewals in the near future. GSA continues to pursue more efficient spaces across the DC metro area—a strategy which may also lead to a fair amount of consolidations.

Leasing volume in the first quarter of 2015 totaled 563,000 sf—nearly half the quarterly average volume in Suburban Maryland. For a second consecutive quarter, the largest lease signed was for less than 70,000 sf. The largest lease signed during the first quarter was a renewal:   that for iHeartRadio. The digital radio provider signed for 69,000 sf at 1801 Rockville Pike in Rockville, and thus—like some other tenants in Suburban Maryland—shrank its footprint, in its case by nearly 4,000 sf.  Newly renovated 7550 Wisconsin saw a flurry of deals:  SunEdison signed for 16,000 sf and DARCARS for 11,100 sf. Over the quarter, full service asking rents rose above $26.00 to $26.07 per square foot (psf) nearly $0.25 up from rents in the final quarter of 2014. On a year-over-year basis, rents across the submarket have remained relatively flat, declining by only $0.04.

No new buildings broke ground in Suburban Maryland during the first quarter of 2015. Park Potomac, one of the major developments currently under construction, signed a few new tenants, bringing the building to nearly 50% preleased. The 105,000 sf development is expected to deliver in the first quarter of 2016. Throughout the remainder of 2015, nearly 530,000 sf is scheduled to deliver to the market, 23% of which is preleased.  Tenants throughout the region have clearly demonstrated a demand for new, high quality space, so expect healthy leasing activity for new product to continue.

To read the full report, as well as other DTZ research reports, please click here.

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By: Nathan Edwards

Director of Research, DTZ - Washington, D.C. 

Email Nathan: Nathan.Edwards@dtz.com 

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Contributor: Joe Wood, Research Analyst, DTZ

Follow DTZ on Twitter: @DTZ

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