The vacancy rate for office buildings in the Washington area continued to decline and rents rose slightly last year, as professional firms expanded in the District and government contractors snatched up office space in Northern Virginia, but some government agencies slowed their expansion in the Maryland suburbs.
In the metro area, the office vacancy rate was 10.9 percent at the end of last year, down from 12.2 percent at the end of 2003, according to CoStar Group Inc., a Bethesda research firm. The average asking price for office rentals was up slightly to $29.65 per square foot from $28.38.
The new Franklin Square North building in Northwest, with 270,000 square feet of space, is in need of tenants.
(Dennis Brack -- The Washington Post)
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Steady job growth spurred companies to seek more office space, making this one of the healthiest markets in the country, said real estate brokers and developers. By comparison, Chicago's vacancy rate was 16.7 percent at the end of last year; Atlanta's was 15.9 percent; and New York's was 9.3 percent.
In the District, the vacancy rate remained virtually unchanged at 8.3 percent at the end of last year.
"D.C. had a good year, but it wasn't a gangbuster year," said Mary Petersen, a senior advisor at the real estate firm of Cassidy & Pinkard. "There aren't a lot of huge requirements of people looking for space."
Most of the tenants looking for large chunks of space opted to move into a new building. The largest lease signed last year was by Ernst & Young. The accounting firm will move into 132,000 square feet at 1101 New York Avenue NW, a new building of almost 400,000 square feet. Developer Louis Dreyfus Property Group is expected to deliver the building in 2007.
The average asking rate for rentals in the District was up slightly to $40.11 a square foot at year-end, compared with $39.17 a year earlier. Some new, full-service properties in the East End -- which has had a building boom in the last few years -- fetched rents as high as $55 to $60 a foot, brokers said.
"If you're looking for large blocks of space, there aren't a bunch of options out there, so you pay what the developer is charging," said Arthur J. Santry, a managing director who represents tenants at the real estate firm of Trammell Crow Co.. "The developer is facing high land costs and high construction costs, so that drives the rent price. We haven't seen rents at this level before."
While large tenants are paying high rents, some mid-sized and smaller tenants are looking for cheaper options in the Maryland and Virginia suburbs, District brokers said.
"We're struggling with the fact that we don't have enough mid-sized tenants to fill the existing vacancies that are in town," said Zeke Dodson, a managing director at Cassidy & Pinkard.
