Promising signs of recovery are reflected in positive absorption at the end of the first quarter in the District of Columbia, a first since the pandemic hit in early 2020. Net absorption reached 177,000 SF compared to -588,000 SF a year prior.
In another optimistic sign, vacancy numbers at the end of the first quarter maintained the same level (17.2%) as the end of the fourth quarter last year. Though higher than 15.9% a year prior, the fact that vacancy is not on an upwards trend is encouraging.
Positive absorption and steady vacancy numbers are good indicators of the office market moving in the right direction, despite headwinds from inflation and increasing interest rates.
As the Federal Reserve Bank continues to increase interest rates in an effort to curb inflation, landlords were under increased pressure to lower their rents to keep current tenants in place or attract new tenants into their buildings.
Tenants continue to converge on trophy buildings, making use of increasing landlord incentives, and driving trophy vacancy down 100 basis points to 17.6% from 18.6% at the end of last year.
Under increasing pressure from tenants downsizing, inflation, and supply chain constraints for new construction and tenant buildouts, overall asking rental rates in the District ended the first quarter at $56.81/SF, slightly lower than last quarter at $57.66/SF.