In Washington region, suburban office markets are underperforming

April 27

In a bit of a twist, Washington’s office market is proving to be the exception to the rule in the current recovery.

Across most of the United States, suburban office markets have been outperforming their urban counterparts in terms of leasing activity. Nationally, suburban markets account for 73 percent of the total office inventory, but 89 percent of the total net absorption in the United States last year. Net absorption is defined as the total square feet of move-ins minus the total square feet of move-outs.

By comparison, the Washington office market experienced the opposite trend. Only 52 percent of the total net absorption in 2013 occurred in the Washington suburbs, which accounts for 69 percent of the total office space in the region. Suburban markets in this area aren’t pulling their weight in terms of market share.

Much of this has to do with the types of office-using jobs being added in the economy. Across the country, most of the job growth has occurred within traditionally suburban-based sectors, such as health care, business support services and computer engineering services.

Meanwhile, the typical urban-based jobs have declined. Financial services have taken the largest hit, with a 1.7 percent decline during the past 10 years while total office growth has increased by 7.8 percent nationally.

Comparatively, the Washington market shares some similarities with other regions in terms of jobs, with gains in business support services and losses in the financial and telecommunications sectors. However, the computer/software engineering sector is growing at a much faster rate here compared to other parts of the country.

The tech sector has gained 44,600 jobs in the region. Many of these companies sparking the growth are right here in the District with help from incubators such as 1776, and tech co-working companies such as WeWork.

Despite the growth, some tech companies are opting to move to other markets to scale up. Companies such as Hinge, a dating app, and HotPads.com, an apartment and home rental search engine, have both left for New York City and San Francisco, respectively. The question going forward is whether private industry, such as tech and business services, can continue to add office-using jobs in the region to offset losses in other industries.

D.J. O’Brien is a research manager for CoStar Group in Washington.

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