The Washington, DC Region Research Department explains the previous year’s major trends and transactions
WASHINGTON, DC, January 2, 2018 – Cushman & Wakefield today released the fourth-quarter 2017 Research Statistics for the Washington, DC Metropolitan area. These stats reflect the major transactions and trends that influenced the commercial real estate market.
“This year’s highlights indicate the commitment to the region for some of its largest and most prevalent industries,” said Nate Edwards, Senior Director of Cushman & Wakefield’s Washington, DC Region Research Department. “The major transactions closed during the latter part of the year stress the impact that these groups have in shaping the region.”
Last year showed DC Law Firm rightsizing approaching seventy-five percent completion among AM Law 100 Firms. In addition, several firms have recently expanded indicating that they may have underestimated their space needs. Several major deals closed in 2017, including Wilmer Hale, Morrison Foerster, K&L Gates, Akin Gump, Goodwin Proctor, and Paul Hastings.
“With law firms being the second largest overall lessee of office space in the District of Columbia, as well as the tenants who pay the highest rents, the fact that they are nearing completion of the efficiencies they are gaining in new deals is significant,” says Edwards. “However, more merger and acquisition activity is expected to take place over the course of 2018 and 2019. This, coupled with the preference among high-profile firms to relocate to newly built buildings or large-scale renovations, adding vacant supply to inventory, will increase vacancy in the core submarkets through 2020. ”
The GSA sector is delivering on its promise for price and space efficiencies with long-term leases and major consolidation for organizations including CIS and TSA, Peace Corps, FEC, GCC, HUD, PBGC, and USAID. The government is expected to continue to migrate out of the high cost submarkets of the Central Business District and the East End, and sign leases in the value submarkets of NoMA, Southwest and the Capitol Riverfront. The buildings left vacant by GSA relocations will provide ownership the opportunity to attract tenants looking for value in great locations or allow for a renovation into higher quality private sector office space
The prospect of an additional $52 billion in defense spending has led to an increase in government contractor activity. The new administration’s proposed budget for 2018 has positives, particularly for the defense side. However, the lingering effects of sequestration and federal uncertainty is continuing to make long-term lease commitments from contractors difficult to obtain. Five-year term renewals or less still prevail, as the current federal fiscal landscape has not translated to long-term space decisions.
Lastly, tech sector giants, such as Facebook, Amazon, and Yelp, made headlines with deals this year. However, “Govtech” still constitutes the majority of Washington, DC area tech-related leasing. In addition, with its storied history of winning nationally competitive headquarters competitions, don’t count out the DC metro region, Northern Virginia in particular, as a frontrunner for Amazon’s HQ2 site.