Vacancy in Washington’s retail and industrial property sectors edged down during the first quarter, reflecting the broader recovery seen in commercial real estate markets across the U.S., according to CoStar Group’s latest analysis. Washington’s office market was the exception to the rule, seeing a slight increase in vacancy during the quarter.

While net absorption, the total amount of space tenants moved into less the amount of space vacated, slowed slightly in many U.S. markets compared to the last half of 2011, the trend in rents generally showed increases from prior quarters. Nowhere was this more evident than in the Washington office market, which experienced a sizable drop in demand as the first quarter drew to a close, while still achieving a modest 1.2 percent year-over-year increase in rental rates.

For the U.S. overall, vacancy declined the most among office properties and declined the least for retail. With CoStar continuing to forecast positive absorption of available space and an exceptionally low level of new construction, the outlook is for a slow but sustained recovery, although rising energy prices and fiscal debt issues for both European and U.S. governments remain clouds on the horizon.


In the first quarter of 2012, U.S. office markets posted nearly 11.5 million square feet of net absorption, less than the two previous quarters. But with very little new construction, the office vacancy rate continued to trend downward, dipping under 13 percent for the first time since 2008. After eight consecutive quarters of positive absorption and very little new construction, the U.S. office market appears poised for the return of rent increases. Indeed, eight of the 10 largest U.S. office markets posted year-over-year increases in rent in the first quarter of 2012.

Washington was the exception among the largest U.S. office markets. With negative 421,909 square feet of net absorption during the first quarter, Washington recorded the lowest level of office absorption among the top metros.


The U.S. warehouse sector also saw positive net absorption and declining vacancy rates behind a slight increase in asking rents. In the first quarter, warehouse vacancy fell to 9.4 percent , down 0.7 percentage points from one year ago. The reduction in vacancy was driven by positive net absorption of 20.9 million square feet in the first quarter. However, this amount was actually a slight disappointment given the acceleration in leasing activity toward the second half of 2011.

In the Washington region, the Manassas/I-66 and South Prince George’s County submarkets accounted for the majority of industrial space demand growth during the first quarter.


The U.S. retail sector did achieve positive net absorption in the first quarter, preserving a streak of 11 consecutive quarters of positive absorption, along with a stabilized vacancy although still declining rents.

In Washington, the retail vacancy is much lower than the national average at 4.9 percent, a slight increase from the previous quarter. Area retail rents have stabilized and even increased in certain in-demand markets. The Washington market’s demographics continue to attract interest from national retailers. Recent major retail leases signed in the area include a 125,875-square-foot deal signed by grocery store operator Wegmans at Seneca Meadows; a 57,252-square-foot lease signed by Kohl’s at 3901 Aspen Hill Rd. and a 50,000-square-foot lease signed by Starplex Cinemas at Loudoun Station.