Office Market Snapshot

SUBURBAN MARYLAND
Office Market Snapshot
First Quarter • 2015
Economy
SUBURBAN MARYLAND OFFICE
Economic Indicators
Q1 14
Q1 15
DC Metro Employment
3.09M
3.14M
DC Metro Unemployment
4.8%
4.8%
U.S. Unemployment
6.6%
5.5%
Q1 14
Q1 15
Overall Vacancy
17.4%
18.4%
Net Absorption
(968K)
116K
980K
634K
$26.11
$26.07
12-Month
Forecast
Market Indicators
Under Construction
Average Asking Rent
12-Month
Forecast
Market Overview
Net Absorption/Asking Rent
4Q TRAILING AVERAGE
1
$26.80
$26.60
0.5
$26.40
0
$26.20
-0.5
$26.00
-1
-1.5
$25.80
2010
2011
2012
Net Absorption, MSF
2013
$25.60
2014
Asking Rent, $ PSF
Overall Vacancy
19%
18%
17%
Historical Average = 16.1%
16%
15%
14%
13%
12%
11%
10%
2010
2011
2012
2013
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 officeusing. 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, officeusing 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).
2014
2015
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.
SUBURBAN MARYLAND
Office Market Snapshot
First Quarter • 2015
INVENTORY
SUBLET
VACANT
TOTAL
VACANT
Bethesda/Chevy Chase
102
11,233,762
147,294
1,292,013
11.5%
15.6%
19,726
19,726
0
North Bethesda
75
9,880,127
38,140
2,167,353
21.9%
22.0%
80,506
80,506
0
$29.72
Rockville
93
8,809,516
120,015
1,503,509
17.1%
19.4%
(19,572)
(19,572)
216,613
$31.34
North Rockville
111
11,366,007
213,415
2,074,344
18.3%
22.2%
1,568
1,568
0
$25.91
Gaithersburg/Germantown
97
6,528,643
58,690
1,204,719
18.5%
31.0%
15,802
15,802
80,000
$23.55
VACANCY
RATE
AVAILABILITY CURRENT
RATE
ABSORPTION
YTD
ABSORPTION
TOTAL
BLDG
UNDER CON- AVERAGE
STRUCTION ASKING RENT
SUBMARKET
$35.70
Silver Spring
99
7,654,652
51,110
929,885
12.1%
15.7%
22,697
22,697
227,408
$25.99
Montgomery County
577
55,472,707
628,664
9,171,823
16.5%
20.5%
120,727
120,727
524,021
$28.47
Northern
134
10,165,584
64,713
2,569,247
25.3%
29.3%
(8,242)
(8,242)
0
$20.75
Central
85
4,882,619
26,265
1,324,673
27.1%
31.7%
(2,961)
(2,961)
110,000
$21.00
Southern
51
2,367,057
15,204
320,736
13.5%
20.4%
6,731
6,731
0
$23.45
270
17,415,260
106,182
4,214,656
24.2%
28.8%
(4,472)
(4,472)
110,000
$21.14
72,887,967
734,846
13,386,479
18.4%
22.5%
116,255
116,255
634,021
$26.07
Prince George's County
SUBURBAN MARYLAND MARKET TOTALS
TOTAL
847
p - preliminary
Key Lease Transactions 1Q 15
PROPERTY
TENANT
TRANSACTION TYPE
SUBMARKET
1801 Rockville Pike
SF
68,121
iHeartRadio
Renewal
Rockville
12410 Milestone Center Drive
37,606
Earth Networks Inc.
Renewal
Germantown
9711 Washingtonian Boulevard
24,105
Edgewood Management
New
North Rockville
10401 Fernwood Road
24,000
NIH
Expansion
North Bethesda
414 Hungerford Drive
21,523
Computer Packages
Renewal
Rockville
12410 Milestone Center Drive
15,335
Regus
Relet
Germantown
6710 Rockledge Drive
15,000
IBM
Relet
North Bethesda
7550 Wisconsin Avenue
11,109
Darcars
Relet
Bethesda/Chevy Chase
SELLER/BUYER
PRICE
SUBMARKET
Key Sales Transactions YTD
PROPERTY
SF
4700 River Road
324,415
Government Properties Inc Trust / GSA
$30,600,000
North PGC
15200 Omega Drive
77,534
LNR Partners / FINRA
$18,750,000
Rockville
1350 Piccard
104,747
PPM America / Rickman Development
$5,800,000
North Rockville
6100 Chevy Chase Road
41,000
Intelligent Decisions / EBA Engineering
$4,030,000
North PGC
Joseph Wood
Research Analyst
About DTZ
DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world
with a full spectrum of property solutions. The company’s core capabilities include agency leasing, tenant representation,
corporate and global occupier services, property management, facilities management, facilities services, capital markets,
investment and asset management, valuation, research, consulting, and project and development management. DTZ
provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3
billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in
2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than
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The information contained within this report is
gathered from multiple sources considered to be
reliable. The information may contain errors or
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