BETHESDA, MD. – Major Mid-Atlantic markets closed 2015 on a high note, according to Transwestern’s fourth-quarter 2015 market outlook reports. Payroll employment for the 12 months ending October 2015 was more than three times the 20-year annual average in the Baltimore metro and nearly double the 20-year annual average in the District of Columbia. Office and flex/industrial markets gained traction throughout the Mid-Atlantic region in the fourth quarter, with positive absorption in the District of Columbia, Baltimore metro, Northern Virginia and suburban Maryland.
Transwestern has produced outlook reports for the District of Columbia, Northern Virginia, suburban Maryland and Baltimore. Below are highlights from the reports, along with links to each full report.
• Economy: Payroll employment increased by 67,100 jobs during the 12 months ending October 2015 in the Washington metro area, a material year-over-year gain compared to the 20-year annual average of 42,400.
• Medical Office: The medical office market in the Washington metro experienced healthy conditions during fourth-quarter 2015, as net absorption was positive and the vacancy rate declined 30 basis points to 14.4 percent. During the year, the vacancy rate declined 200 basis points from 16.4 percent at year-end 2014. Despite this decline, the rate remains elevated and rents cautiously climbed only 1.1 percent. Conditions are expected to gradually improve during 2016. Read the full report here.
DISTRICT OF COLUMBIA
• Economy: Payroll employment increased by 8,100 jobs in the District of Columbia during the 12 months ending October 2015, nearly double the 20-year annual average of 4,800 jobs.
• Office: The District of Columbia experienced strong conditions during fourth-quarter 2015, as net absorption registered positive 707,000 square feet and the direct vacancy rate declined 20 basis points to 8.7 percent. Although this gain represents healthy growth, net absorption for all of 2015 was 841,000 square feet, below the 10-year average of 1.3 million square feet. Given the improving conditions, asking rents climbed 1.1 percent during 2015 to $50.26 per square foot at December 2015. Overall, investors have continued to target high-quality assets. With limited options for new space, new projects are expected to break ground during the next 24 months. Read the full report here.
• Economy: Payroll employment increased by 31,900 jobs during the 12 months ending October 2015 in Northern Virginia, above the 20-year annual average of 24,900 jobs.
• Office: The Northern Virginia office market experienced healthy conditions during fourth-quarter 2015, as the direct vacancy rate edged down 20 basis points to 16 percent. Net absorption was positive 429,000 square feet, driven by leasing activity in the Class B and C market. Asking rents stabilized during the fourth quarter but declined 1.1 percent since year-end 2014. Demand is projected to gradually rise during the next several years, driven by the technology sector and interest surrounding the recently opened Silver Line. However, progress will be sluggish compared to past recovery cycles. Read the full report here.
• Flex/Industrial: The Northern Virginia flex/industrial market was steady during fourth-quarter 2015, as the direct vacancy rate declined 20 basis points to 7.5 percent and net absorption was positive 191,000 square feet. Net absorption totaled 1.2 million square feet during 2015, just above the 10-year average of 1.1 million square feet. Landlords increased asking rents by 0.6 percent during fourth-quarter 2015 and 2.0 percent for all of 2015, as the vacancy rate is low enough to warrant this rise. The pipeline expanded during 2015 and is significantly pre-leased, which will further boost net absorption as these projects deliver. Read the full report here.
• Economy: Payroll employment increased by 27,100 jobs during the 12 months ending October 2015 in suburban Maryland, more than double the 20-year annual average of 12,700 jobs.
• Office: The suburban Maryland office market had a healthy fourth-quarter 2015, as the direct vacancy rate decreased 40 basis points and net absorption registered positive 456,000 square feet. During all of 2015, net absorption registered positive 634,000 square feet. Given improving conditions, asking rents edged up 0.8 percent during 2015. Market conditions are expected to improve at a gradual pace during the next several years. Overall, the suburban Maryland office market has historically been a consistent performer and should experience steady growth in the long run. Read the full report here.
• Flex/Industrial: The suburban Maryland flex/industrial market had a strong fourth-quarter 2015. Net absorption totaled positive 745,000 square feet, and the direct vacancy rate decreased by 50 basis points to 8.6 percent. Asking rents edged up 0.5 percent during the past three months and are up 0.8 percent for all of 2015. The pipeline expanded during 2015 as tenants are demanding newer space with efficient layouts and adequate ceiling heights. The market should gain traction during 2016, as demand gains momentum, pushing the vacancy rate down and asking rates up. Read the full report here.
• Economy: Payroll employment increased by 33,500 jobs during the 12 months ending October 2015, more than three times the 20-year annual average of 11,500 jobs. Baltimore City accounted for 6,200 jobs, or 19 percent, of these new jobs.
• Office: The Baltimore metro office market experienced steady conditions during fourth-quarter 2015, as net absorption was positive 172,000 square feet due primarily to a handful of mid-sized deals. During all of 2015, net absorption totaled 1 million square feet. Given this, the vacancy rate edged down to 10.4 percent. Landlords increased asking rents by 1.5 percent during the year. The construction pipeline is tame and holds a healthy pre-lease rate at 59 percent. Fundamentals are expected to improve during 2016, driven by cybersecurity, cloud computing and healthcare. Improving conditions will be felt more in the suburbs surrounding the military bases benefitting from the federal government’s Base Realignment and Closure initiative (BRAC) than in the Baltimore Central Business District. Read the full report here.
• Flex/Industrial: The Baltimore metro flex/industrial market experienced strong conditions during fourth-quarter 2015. The direct vacancy rate decreased 20 basis points, and net absorption was positive 1 million square feet due to several tenants leasing large blocks of space. As a result of these conditions, landlords increased asking rents by 2 percent during the past three months and 3.5 percent during all of 2015. The age of the current inventory suggests future groundbreakings, as tenants are showing preference for newer product with efficient floor plates and adequate loading docks. The next year should bring continued growth in the Baltimore flex/industrial market. Read the full report here.
Transwestern is a privately held real estate firm of collaborative entrepreneurs who deliver a higher level of personalized service – the Transwestern Experience. Specializing in Agency Leasing, Management, Tenant Advisory, Capital Markets, Research and Sustainability services, our fully integrated global enterprise adds value for investors, owners and occupiers of all commercial property types. We leverage market insights and operational expertise from members of the Transwestern family of companies specializing in development, real estate investment management and research. Transwestern has 34 U.S. offices and assists clients through more than 180 offices in 37 countries as part of a strategic alliance with BNP Paribas Real Estate. Experience Extraordinary at transwestern.com and @Transwestern. For updates from the Mid-Atlantic region, follow @TranswesternDC.