Office Insight

Washington, DC | Q3 2015

Market tightens, aided by emerging sectors

Non-traditional, emerging sectors continue to grow
Growth from the technology, healthcare and education sectors continued to
diversify the DC tenant base and generate occupancy gains, particularly in the
Class B segment of the market priced below $50 per square foot gross. During
the third quarter, two high-tech companies Trackmaven and Social Tables
signed deals to relocate and grow from approximately 5,000 square feet into
20,878 square feet and 30,880 square feet at 1 Thomas Circle, NW and 1325 G
Street, NW, respectively. The desire among growing tech companies to reside
downtown should remain elevated, and the decision by the Advisory Board
Company to remain and grow in the District supports the trend.

Large tech tenants dominate leasing activity in Q3 2015

Demand for Class B space is increasing and options are becoming limited
The Washington, DC market continues to tighten in a barbell-like fashion, with
Trophy vacancy at 8.4 percent and dwindling large-block Class B options.
Growth among emerging industries is driving demand for Class B space, while
large tenants relocating out of Class B buildings that will be repositioned is
resulting in increased competition. During the third quarter, two large non-profits
American Association of University Women and Save the Children signed
deals to vacate 1111 16th Street, NW and 2000 L Street, NW, respectively, given
the buildings will soon be repositioned, and relocate to 1310 L Street, NW and
899 N Capitol Street, NE, respectively.

Class B market seeing elevated large tenant leasing activity

Law firm rightsizing has plateaued and some firms are beginning to grow
Over the past 12 months, the law firm rightsizing trend has stabilized and a
number of firms have grown their real estate footprint. During the third quarter,
Cozen OConnor signed a deal to backfill Square Sanders former space at 1200
19th Street, NW, growing to 62,762 square feet from 24,860 square feet. Also
purely as a result of organic growth, Gibson Dunn expanded by 27,549 square
feet at 1050 Connecticut Avenue, NW. Signs of growth from the legal sector in
DC is a key driver of demand that has be missing from the market for the past 36
months and should help generate future occupancy gains in the Trophy and
Class A segments of the market.

Market sees signs of law firm growth in Q3 2015

Technology
Law firm
Association, nonprofit, union
Healthcare
Accounting, consulting, research, strategy
Government
Architecture, engineering, construction, design

1.4 million
s.f.

Share of leasing activity

Source: JLL Research, deals < 20,000 square feet

Class B

Class A

Trophy

100%
50%
0%

Q3 2014
Q4 2014
Q1 2015
Source: JLL Research, deals > 20,000 square feet

Morgan, Lewis
Cozen O'Connor
Gibson, Dunn
Forbes Tate
Brownstein Hyatt
Littler Mendelson

Q2 2015

Q3 2015

Growth
0

Source: JLL Research

2,257
20,000
Square feet

40,000

60,000

114,878,675

212,975

$53.75

2,4666,494

Total inventory (s.f.)

Q3 2015 net absorption (s.f.)

Direct average asking rent

Total under construction (s.f.)

11.5%

925,176

2.8%

34.7%

Total vacancy

YTD net absorption (s.f.)

12-month rent growth

Total preleased

Current conditions submarket

Historical leasing activity (s.f.)

Peaking
market

Rising
market

Capitol Hill

CBD
East End
Georgetown

Source: JLL Research

Falling
market
Southwest,
West End

Bottoming
market

Tenant leverage

Landlord leverage

10,000,000

9,496,195
7,818,250

8,000,000

8,542,977

9,466,268
7,959,828

6,000,000
4,000,000
2,000,000
0

Uptown

2011

NoMa,
Southeast

2012

2013

2014

YTD 2015

Source: JLL Research

Total net absorption (s.f.)

4,000,000
3,000,000

3,253,648
2,846,732
2,225,588

2,000,000
925,176

666,267

1,000,000
59,998

272,930

350,755

2013

2014

0
-351,586

-1,000,000
2006

2007

2008

2009

-517,405

2010

2011

2012

YTD 2015

Source: JLL Research

Total vacancy rate (%)

14.0%
12.0%
10.0%
8.0%
7.7%
6.0%
6.7%
4.0%
2.0%
0.0%
2006
2007

13.3%

11.9%

12.3%

12.2%

2011

2012

2013

2014

$52.21

$52.76

$52.98

$52.58

2011

2012

2013

2014

12.2%
11.0%

11.5%

8.9%

2008

2009

2010

YTD 2015

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$56.00
$54.00
$52.00
$50.00
$48.00
$46.00
$44.00
$42.00
$40.00

$49.79

$50.69

$53.75

$50.38
$47.64

$45.64

2006

2007

2008

2009

2010

YTD 2015

Source: JLL Research

For more information, contact: Carl Caputo | carl.caputo@am.jll.com

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