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Regional Office Leasing Activity Lowest Since 1995
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"Renewals don't move the market; renewals keep the market stable," Sikaitis said. "So the renewal activity has created some depressed confidence in the overall market."
The District has had some positive news. The law firm Arent Fox said last week that it would move its office one building over, from 1050 Connecticut Ave. NW to 1000 Connecticut Ave. NW, when its lease expires in 2012. The former building at 1000 Connecticut Ave. is nearly demolished. A 370,500-square-foot, 12-story office building will rise in its place, with Arent Fox taking floors two through nine.
Also last week, developer Boston Properties said it would break ground Friday on Square 54, a mixed-use, 2.5 acre, town center at 2200 Pennsylvania Ave. NW, adjacent to the Foggy Bottom-GWU Metro station. The development will include retailers, a grocery store, apartments and office space.
The District's vacancy rate was 9.1 percent at the end of the first quarter, up from 8.5 percent at the end of the first quarter of 2007, while average asking rents increased to $47.45 a square foot, from $44.13.
The vacancy rate ticked up in parts of Northern Virginia, particularly in Reston and Herndon, where 15 new buildings totaling nearly 2.8 million square feet of office space have risen since 2005, the majority of which were built without tenants lined up. With leasing slowing, the vacancy rate in Reston and Herndon edged up to 15.4 percent at the end of the quarter, compared with 11.2 percent a year earlier.
"Everybody is trying to figure out when the market is going to turn," said Michael Vardell, the developer of Overlook Towers Phase I, a nine-story, 217,000-square-foot office building completed in Herndon last year that now sits empty. "I think developers, in their nature, are optimistic people, but certainly current conditions are testing that."
In the office market along Route 28 South, where developers began building on speculation in 2005 while expecting a wave of defense contractors to expand into the area, the vacancy rate was 17.9 percent, an increase from the 11.9 percent rate of a year ago.
In the Maryland suburbs, demand for office space also tapered off. The vacancy rate in Prince George's County was 17.1 percent, up from 14.8 percent. Montgomery County's vacancy rate increased to 9.8 percent from 8.9 percent.
