Despite the recession, office space is still very much in demand in downtown Washington.
Recent surveys by companies specializing in office leasing nationally stressed that the market here is hampered only by a lack of space that can be occupied immediately. More than 7 million square feet of new space is expected to be available in the area within the next three years.
Demand for suburban office space has tapered off some, however. And any dramatic drop in the economy could affect the downtown market, where leasing specialists are currently offering 3 million square feet of new space at an average of about $20 a square foot.
The Washington office of Julien J. Studley Inc., a national leasing firm, recently reported that in May only 288,840 square feet of commercial office space was leased in this area, at an average of $15.45 per square foot.
Studley says that about 6.8 million square feet of space, most of it unbuilt, is currently on the market here, for an average of about $18 a square foot.
Steve Goldstein, a Studley vice president here, said that in May most of the leasing of this unbuilt space was for buildings in the central business district and in the West End. He said no planned space was leased in Rosslyn, Georgetown, Capitol Hill or the convention center area, where most of the new buildings are in the early stages of construction or negotiation.
In another recent report on District leasing, the Chicago-based Howard Ecker & Co., another leasing specialist, noted that the District is one of 12 major cities where a million square feet could be leased if available immediately. The Ecker firm also pointed out that high interest rates earlier this year had proved prohibitive for most developers, causing some planned buildings to be postponed.
Based on interviews with District leasing specialists, the Ecker report showed that leasing rates for new buildings have increased 36 percent since 1978, from $11 to $14 a square foot. In the same period, leases for older, existing office spaces increased 71 percent from $7 to $12 a square foot.
Ecker found that office space in downtown Washington was 99 percent occupied for the past three years. High occupancy rates were also reported in Seattle, San Francisco, St. Louis, Houston, Chicago, Phoenix and Los Angeles.
In Atlanta, 3 percent of the space continues to go unrented. In New York the rate dropped from 2 percent last year to 1.3 percent this year.
Ecker said there currently is no adequate space available downtown for firms needing more than 20,000 square feet and only minimal space under 20,000 feet available for immediate occupancy.
Another office leasing report, from Office Network Inc., a national group with which the Braedon Companies are affiliated locally, pointed out that space downtown here is "tighter than ever." But it added that space is "abundant" and leasing activity "excellent" in suburban areas.
James Eichberg, president of Braedon, said that the report covered 5,461 office buildings with 822 million square feet in this area. He added that 40 percent of all new office space being leased in the nation now is located in Washington, Houston and Dallas.
What may become a major trend because of increasing energy costs was projected by the Studley firm in a report on the new building being completed at 1050 Jefferson St. NW. in Georgetown.
With more than 95 percent of its space preleased since last December for occupancy in December 1980, the 186,000-square-foot building has separate metering for electricity on each floor as an inducement for full-floor tenancy and control of energy expenditure for heating and cooling.
Renters are paying for $14 to $16.50 per square foot for space, exclusive of charges for electricity. Normally, $3 to $4 of the annual leasing rate per square foot is allocated to energy costs.
Last month, the leasing committee of the Washington Board of Realtors noted a strong demand for downtown offices, adding the planned construction would be insufficient to meet the "average demand" in 1981 and 1982.
However, that same report stated that office buildings scheduled for completion in nearby Maryland and Virginia "may exceed the average demand."
On balance, it must be recognized that the area office leasing market has been unusually vibrant in the past four years. Occupancy rates for new space have increased more than 50 percent, mostly as the result of constantly increasing energy, construction and maintenance costs.
The market was due for a downtown, even though the absorption rate for new space doubled here in the 1970s.
Since construction and long-term lending rates have decreased sharply in the past six weeks, developers will be re-examining their plans for starts of major office building in downtown and suburban locations.
Before they start office buildings now, developers are likely to take into consideration how much the nationwide recession will affect law and accounting firms and trade associations -- the bulwarks of the private office leasing market here.