Washington, D.C., adds 54,000 net new jobs YOY

The Washington, D.C., metropolitan region posted another year of strong job growth, adding over 54,000 net new jobs year-over-year, 50 percent above the historical average, according to Cushman & Wakefield. The regional unemployment rate remains one of the strongest in the country among major metro areas sitting at 3.6 percent, 50 basis points below the national average.

Particularly appealing to the real estate industry were the 12,000 jobs added in 2017 in the professional & business services sector, 3,200 of which were in the District of Columbia. This represented the second largest gain in jobs in any sector for the region, trailing only the education & healthcare sector.

Fourth quarter 2017 was the Washington, D.C., office market’s busiest of the year in terms of new leasing activity, registering a total of more than 2.1 million square feet, nudging the annual total just over 6.5 million square feet, 23.6 percent above the 10-year average.

The District registered nearly 600,000 square feet of net move-ins throughout the year, approximately 40 percent of which hit the books in the fourth quarter. While this figure is about 35 percent below the 10-year average, many of the largest leases to sign in 2017 have not yet landed. This phenomenon, along with deliveries of new supply to the market, resulted in a slight uptick of the D.C. overall vacancy rate, rising 30 basis points in 2017 to close the year at 12.4 percent. Vacancy should continue to rise in 2018 as only 66.3 percent of the 3.2 million square feet set to come online throughout the year has been pre-leased.

Concession packages have remained elevated for long-term class A deals, clearing 12 months of abatement with some tenant improvement allowance packages reaching $130 per square foot, as landlords chase the few large near-term expirations in the market. To offset these upfront costs, lease terms have frequently reached 15 years to allow for rents to escalate aggressively over the tenant’s lifespan in the building. Tenants also have been accepting higher face rates in exchange for these concessions, resulting in a 3.8 percent rise in overall rental rates across the city throughout 2017.

Looking forward, the pipeline of new supply delivering to the city, particularly in the core submarkets (CBD and East End), will continue to grab headlines in the Washington, D.C., office market for years to come, according to Cushman & Wakefield. With 5.7 million square feet currently under construction and another 2.6 million square feet slated to break ground in the next 18 to 24 months, asking rates should begin to pull back as landlords chase limited demand, especially in the lower floors of new projects in the CBD. In fact, average class A rates in Capitol Hill/NoMa surpassed those in the CBD for the first time this decade at the close of 2017. Live-work-play developments continue to sprout up around the Ball Park and Southwest

Focusing on the waterfront, look for the District’s emerging submarkets to increasingly compete with the core for key tenant requirements in the coming years.