Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Office Markets to Watch. Not the largest or the most actively contested markets, the 2015 Office Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.
Top Office Market to Watch: Washington, DC
Just a few years ago, record federal deficits were driving clarion calls for sharply reduced government spending. Few markets would have borne the burden of spending and employment cuts in the civil service like Washington, DC. Worries about how a smaller government footprint might impact space demand seem overblown in retrospect; leasing activity and underlying office-using employment trends remain generally stable in the core of the metro area. Vacancy rates trended higher during 2014 and early 2015, but those results capture losses in occupancy in Northern Virginia and suburban Maryland, and weakness in selected submarkets, including the Capitol Riverfront just south of the Capitol Building. It also reflects that recent lease expirations and tenant moves have seen firms downsize their office space, while at least one federal agency has reverted to government-owned space. Offsetting those trends, office development activity in Washington has been relatively subdued, at least as compared to New York and San Francisco. The overall trend is one of slow rent growth and relatively stable occupancy. However, investors in the District should keep a careful eye on projects underway. While the pipeline saw few new additions in early 2015, completions pick up in the latter half of the year and in 2016. The combination of measured gains in fundamentals and rising interest rates could exert downward pressure on values, rewarding patient investors who delay acquisitions till next year.
To read more on Washington, DC and other top office markets, download the full version of the 2015 Office Market Update report here.
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