Q4 2022 Office Space Report: Washington, D.C.
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Washington, D.C. hosts the headquarters of well-known companies like Amtrak, the United States Postal Service, the American Red Cross, and NASA.
The unemployment rate in Washington, D.C. (3.4%) was slightly below the nation’s average (3.5%) in Q4.
Its metro population increased by 1.03% in 2022.
Year-over-year, Washington D.C.’s office space market saw vacancies rise, production fall, absorption decline, and rental rates dip.
General Area Overview & Demographics
Washington, D.C.’s population of 712,816 residents is almost evenly split among Black or African American (46%), White (45%), and Hispanic or Latino backgrounds (8%).
In addition, Asian Americans make up 7.3% of the city’s population, and Native American/Alaskan Natives make up 0.7%.
Washington, D.C. Median Household Income & Population
The median household income is $85,203, making it one of the highest incomes among all states and cities in the United States. The city has a wide income disparity, with an income ratio of 10.2%. This means the wealthiest 20% of households make ten times more than the lowest 20%.
It’s home to a multi-generational population, with the median age of residents being 36.1 years old. The largest demographic group is the 25-44 age group at 27.2%, followed by those aged 45-64 at 23%. 17% of the population is between 18-24 years old, and 12% are over 65.
The city has over 110 universities and colleges, ranging from prestigious institutions like Georgetown University to career-oriented programs like The George Washington University School of Business.
Washington, D.C. is home to many of the nation’s most iconic attractions, such as the Smithsonian Institution, the White House, and the Lincoln Memorial. Many monuments throughout the city include the Washington Monument, Jefferson Memorial, Martin Luther King Jr. Memorial, and Vietnam Veterans Memorial.
The summers are hot and humid, and the winters are relatively mild—average temperatures in the summer range from a high of 86°F to a low of 67°F. In the winter, the average temperature ranges from a high of 43°F to a low of 24°F.
Summary of Washington, D.C. Office Space Performance in Q4 2022
Total office space vacancy reached 19% in Q4 2022, among the highest in the nation. This was a 4% increase quarter-over-quarter. The Southeast submarket had the lowest vacancy, at 2.9%. Additionally, NoMa and Northeast had vacancy rates below 10%.
Capitol Hill, CBD, Dupont-Logan-Shaw, East End, Market District, and Upper Northwest posted total vacancies above 20%. Market District’s vacancy rate was the only one to exceed 30%, reaching 34.5% by the close of 2022.
Q4 2022 office space absorption fell into the negative, recording -182,000 square feet. Class A property was the only property category to go negative in the fourth quarter—net absorption for the year ended at -1.16 million square feet. Class B & C office space recorded positive absorption.
What are office space rents like in Washington, D.C?
Rents declined 0.15% quarter-over-quarter, decreasing to an average $58.18 per square foot price in Q4 2022, one of the most expensive in the nation.
The prices were highest in Capitol Hill at $73.68, while Uptown recorded the lowest at $45.43. Across all submarkets, Class A, B, and C rents averaged $60.10, $48.66, and $48.03, respectively.
Purchase & Leasing Activity
Sales volume declined from $2.7 billion in 2021 to $2.15 billion in 2022. The average sale price was $573 per square foot as Q4 ended.
Leasing transactions were down over 4% year-over-year in 2022. Over half of the leasing activity was for new leases or direct relocations.
Notable Office Space Deals in Washington, D.C. in Q4 2022
Several deals for Washington, D.C. office space properties took place in Q4.
- Orrick Herrington & Sutcliffe LLP leased about 77,000 square feet.
- Universal Service Administrative Company leased about 69,000 square feet.
- Allen & Overy leased about 42,000 square feet.
These are select examples among other activity.
New Office Space Development Activity in Washington, D.C. in Q4 2022
The Wharf completed its waterfront property in the fourth quarter with office space fully leased to The Atlantic and the Freedom Forum.
Developers also delivered the second City Ridge building in Uptown. Industrious and CAVA have fully leased that property.
The pipeline brought 1.3 million square feet across 7 buildings online in 2022. After those deliveries, only 567,000 square feet of product remain in the pipeline.
Market Forecast for Washington, D.C.’s Office Space Market
In 2023, the widening gap between higher and lower quality will increasingly polarize the office space market.
Nonetheless, elevated interest rates and possible recession pose significant risks for all segments.
With trophy buildings performing best, the market will remain tight since only one is in the works.
The office space market is experiencing a surplus of Class B & C space. Recent conversion plans may provide relief to that overcapacity issue.
Takeaways for Office Space Investors
Washington, D.C.’s office space market suffered in 2022.
Vacancies are rising, the construction pipeline remains tight, and rents took a slight dip this quarter. It’s difficult to see indicators of a turnaround soon.
Stay diligent and happy investing.
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