Silver Spring is served by excellent infrastructure and convenient access to major interstates. With boundaries at Eastern and New Hampshire avenues, this area extends to the Beltway for office and condominium properties. The apartments market encompasses a greater area to the north that includes portions of Wheaton. Silver Spring’s office market has experienced light demand in recent years. The apartment market is improving modestly.
Effective rents for Class A apartments increased to $2,051 a month in the third quarter, a 3.7 percent increase from year-end 2011. The overall vacancy rate for Class A units decreased to 12 percent, from 18.9 percent the quarter prior, yet is up from 4.2 percent from year-end 2011. A stabilized vacancy rate at 4.1 percent in Silver Spring compares to the higher suburban Maryland vacancy rate of 4.4 percent in the third quarter. Concessions were modest and slightly below the state average, offering a 3.2 percent discount on face rents.
Approximately 1,645 new apartment units are under construction or selling following the region’s recent apartment development boom. An increased vacancy rate will likely follow the extensive pipeline, as the delivery of current projects nearly doubles the inventory of Class A apartments.
Since 2003, 793 new condominium units have been built in the Silver Spring area. There are currently no projects in the pipeline. The newest entrant to the market is The Orion, with about half the project’s 46 units sold. The empty pipeline should aid the condo market’s recovery, allowing existing units to sell.
The 6.9 million square feet of office space in Silver Spring is primarily situated along Georgia Avenue. The office market contracted during the third quarter as net absorption — the difference between space filled and emptied — totaled negative 76,000 square feet. Net absorption for 2012 totaled negative 36,000 square feet through September, compared to the 15-year annual average of 108,000 square feet. As more space became available, the direct vacancy rate increased to 10 percent at the end of the third quarter, from 8.9 percent three months prior. The vacancy rate, including sublet space, rose to 10.9 percent. This equates to nearly 700,000 square feet of available space for lease or sublet. The average effective rent continued to slip in Silver Spring in the third quarter, declining 3.6 percent to $21.20 a square foot since year-end 2011.
Chris Dubberly is a senior associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.