2019-07-02_DTZ戴德梁行_Office_Q2_2019_Suburban_Maryland_2页_451kb

Suburban Maryland Office Market Summary Q2 2019

Core Content

The Suburban Maryland office market in Q2 2019 showed a mix of growth and challenges, with strong leasing activity in some submarkets and notable impacts from tenant relocations. Key economic and market indicators reflect a relatively stable but evolving environment, influenced by political factors and development trends.

Economic Indicators

• D.C. Metro Employment:
  • Q2 18: 3.30M
  • Q2 19: 3.33M
  • 12-Month Forecast: ↑
• D.C. Metro Unemployment:
  • Q2 18: 3.3%
  • Q2 19: 3.3%
  • 12-Month Forecast: ■
• U.S. Unemployment:
  • Q2 18: 3.9%
  • Q2 19: 3.6%
  • 12-Month Forecast: ↓

The region experienced a slowdown in job growth following the 2018/2019 government shutdown, which impacted the federal sector. However, the labor market remains tight, with a regional unemployment rate of 3.3%. Job additions in the DC region were led by Professional and Business Services, Leisure and Hospitality, and Retail sectors.

Market Overview

• Overall Vacancy Rate: 18.4% (down 60 bps YOY)
• Overall Net Absorption (Q2 2019): -53,312 sf
• Overall Gross Asking Rent (psf/year): $27.81 (up 2.0% YOY)
• Class A Asking Rent (psf/year): $31.40 (up 3.5% YOY)

Despite the negative absorption in Q2 2019, driven largely by Discovery vacating its headquarters, the market remained active. New leasing activity totaled 676,680 sf in the quarter, with a year-to-date total of 1,165,138 sf. The vacancy rate in Montgomery County was 17.2%, significantly lower than the overall Suburban Maryland rate. In contrast, Prince George's County had a higher vacancy rate of 21.3%.

Key Lease Transactions Q2 2019

• Children's National Health Systems: Leased 110,400 sf at Inventa Towers (Silver Spring)
• WeWork: Leased 60,067 sf at 7272 Wisconsin Avenue (Bethesda/Chevy Chase)
• ProFunds/ProShares: Leased 54,615 sf at 7272 Wisconsin Avenue (Bethesda/Chevy Chase)
• Dovel Technologies: Renewed 35,655 sf at 1700 Rockville Pike (Pike Corridor)
• Henry M. Jackson Foundation: Expanded 32,000 sf at 6720 Rockledge Drive (Rock Spring Park)

Renewals are not included in the leasing activity statistics.

Key Sales Transactions Q2 2019

• 45 Thomas Johnson Drive:
  • SF: 56,500
  • Seller/Buyer: CNL Healthcare Properties / Welltower Inc.
  • Price: $25,518,7437 / $451.66 psf
  • Submarket: Frederick

Market Trends and Outlook

• Trophy Developments: Silver Spring and Bethesda saw significant activity, with new large leases and expansions.
• Construction Activity:
  • 7373 Wisconsin Avenue is under construction.
  • 4747 Bethesda Avenue is scheduled for delivery in Q3 2019 and is over 93% leased.
  • 7272 Wisconsin Avenue is expected to deliver in September 2020.
• Market Competitiveness: Trophy developments in Bethesda are setting a high bar, pushing other Class A building owners to improve their offerings to remain competitive.

Submarket Analysis

Key Insights

• The market showed resilience despite the impact of the government shutdown.
• Strong leasing activity in Q2 2019, especially in Silver Spring and Bethesda.
• Vacancy rates are declining, but some submarkets, like Prince George's County, remain higher.
• Asking rents have increased slightly across the board, with Class A seeing a more pronounced rise.
• The development pipeline is robust, with several trophy buildings under construction or scheduled for delivery.

Conclusion

The Suburban Maryland office market remains dynamic, with a mix of new leases, expansions, and relocations shaping the landscape. While challenges persist, particularly in submarkets like Prince George's County, the overall market shows signs of stability and growth. The continued development of trophy buildings and the competitive leasing environment suggest a positive outlook for the future of the market.