Recent reports of high profile tenants relocating from Maryland to Virginia have focused renewed attention on the office markets in the three major counties surrounding Washington — Montgomery, Prince George’s and Frederick.
In assessing their year-end performance, CoStar found that the counties were on different paths in 2011. Montgomery County’s office market continued to strengthen, posting a slight decrease in overall office vacancy. The office market in Prince George’s County was stable with a slight increase in office vacancy, while Frederick County saw its office vacancy rate spike.
Office vacancy declined in Montgomery County during the year by one-tenth of one percent to 13.8 percent at the end of 2011. Market observers attribute the moderate decrease to the county’s success in retaining several key office tenants and attracting a few into Montgomery from neighboring Frederick County. Leasing activity was particularly strong in the I-270 Corridor areas of Rockville and Germantown, where the five largest, nongovernment office leases were signed in 2011.
Construction activity is also picking up in Montgomery County compared with Prince George’s and Frederick counties. At the beginning of 2012, approximately 750,000 square feet office space was under construction in Montgomery, compared with about 270,000 square feet in Prince George’s and 26,100 square feet in Frederick. The I-270 Corridor area also has the three major office projects currently under construction in Montgomery County.
Prince George’s County started 2011 with the highest office vacancy rate of all three counties at 17.2 percent, but market conditions and leasing activity stayed relatively stable, enabling the county to finish the year with a 17.3 percent office vacancy rate. While no major new tenants moved into the county during the year, a pair of major government agencies renewed their leases, helping the office vacancy to remain stable. Officials in Prince George’s are hoping to benefit from the potential relocation of the offices of a state agency to New Carrollton from Annapolis.
Frederick County’s office market took a hit in 2011 as several large tenants relocated or downsized during the year, including CitiMortgage’s decision to close its Frederick offices. As a result, the office vacancy rate increased by almost 2 percent during the year, from 13.3 percent in January to 15.5 percent at the end of December 2011. Observers anticipate more volatility following Bechtel Corp.’s announcement to relocate some jobs currently located in Frederick to Virginia.
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