Office space dilemma in Washington, DC

Office space vacancies are on the rise in Washington, D.C.

It's not a big surprise for most commercial real estate experts.

Industry insiders anticipated a slowdown in the Washington, D.C., commercial sector thanks to the partial government shutdown that started Oct. 1. But some other factors have raised issues, including growing pessimism from builders.

According to Bloomberg, the monthly Housing Market Index delivered by the National Association of Home Builders shows that builder confidence in the Northeast dropped to a level of 31, which marks the lowest total since April. A mark above 50 shows confidence in the market from builders.

"There is a sense of paralysis in terms of activity in the marketplace, in terms of growth in the marketplace, but there are areas where we can see some optimism," Scott Homa, Jones Lang LaSalle's vice president of research, told The Washington Post.

Jones Lang LaSalle expects that the lack of new commercial construction in tandem with the number of leases expiring could help stabilize the office market in the next two years.

"We're seeing a demand issue in the commercial office space area," said Mike Ellis, Mid-Atlantic market director of Jones Lang LaSalle, "but most of the other [commercial real estate] areas are doing pretty well."

Vacancy report of DC area
The Washington Post cited data from Delta Associates, which said 1,122 buildings across the region had at least 10,000 square feet of space available in adjoining blocks in September. That is an increase of 51 percent from September 2012. Roughly half the vacant space can be found in Northern Virginia, according the report.

Rents are expected to drop in the fourth quarter of 2013 and stay soft through 2014 as vacancies remain high, according to Delta Associates. Meanwhile, budget-minded companies are hoping to consolidate space.

Companies that can afford new office space are taking advantage of the situation and negotiating lower rents in new space.

On the national scale, Jon Southard, the managing director of CBRE, the world's largest commercial real estate services firm, believes the office market is doing well despite its surroundings.

"While the partial federal government shutdown has added more uncertainty, it is likely to be a short-term disruption at the national level," Southard said. "The office market has performed as well as can be expected in light of the uncertainties. Private hiring has remained healthy over the past year, with businesses adding 190,000 new jobs each month through August and the dearth of new office construction will continue to help the market to recover."

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