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Office vacancies finally shrinking in D.C. area

By V. Dion Haynes
Washington Post Staff Writer
Tuesday, January 5, 2010

For the first time in a year, the amount of office space leased in the Washington area is increasing instead of decreasing, according to an analysis released Monday, a harbinger to some commercial real estate experts that recovery is on its way.

While the uptick is being driven mainly by an expansion of federal agencies, researchers say they're also seeing positive activity in the private sector. Some companies that had shed space after laying off staff are now looking to regain offices they subleased in late 2008 and early 2009 -- a sign to researchers that the employers could be thinking about rehiring.

The report of fourth-quarter activity in the region, conducted by CB Richard Ellis, shows that the amount of vacant office space shrunk by 715,384 square feet. That represents a substantial change from the third quarter, when the amount of vacant space grew by 375,558 square feet.

"We're stopping the bleeding," said Marianne Swearingen, research manager for CB Richard Ellis, a real estate and research firm.

Vacancy rates reached historic highs last year, driven by the region's net loss of 24,000 jobs during the 12-month period ended in December. Not only were existing buildings having trouble holding on to tenants but a number of newly constructed office buildings opened, exacerbating the surplus.

In the District, the plethora of empty new office buildings in such emerging areas as Capital Riverfront and NoMa has boosted vacancy to 11.8 percent from the 7 percent range it had hovered at for 13 years.

Still, commercial real estate experts say they are getting inquiries from law firms, associations and financial service firms seeking new leases. Some are planning for future growth and others want to take advantage of huge discounts being offered by property management firms trying to woo new tenants.

"We have clients call and say maybe this is the time to go into the market and see what's available," said Ernie Jarvis, managing director of CB Richard Ellis's D.C. office.

Kevin Thorpe, research director of Cassidy & Pinkard Colliers, said the demand for office space also is being driven by the federal government, which is planning to hire as many as 100,000 employees in the region during the next several years as it expands numerous agencies.

The federal government now has about 32 percent of the commercial leases in the District, up from about 21 percent in recent years, said Thorpe, whose firm issued its own commercial real estate report Monday. Typically, the federal government has about three of the top 10 leasing deals in the region, but in 2009 it had eight, he said. They include the Department of Health and Human Services, which has a deal to lease 802,000 square feet in Rockville; the Drug Enforcement Administration, for 503,000 square feet in Pentagon City; and the Nuclear Regulatory Commission, for 360,000 square feet in North Bethesda.

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