Washington DC Office Figures Q4 2023

During the fourth quarter, the Washington, D.C. office market recorded 52,000 sq. ft. of negative net absorption. As a result, vacancy increased 10 basis points (bps) over the prior quarter to 21.2%. In total, the market posted 1.0 million sq. ft. of occupancy loss in 2023, driven by law firm densification, vacant sublease space, and large consolidations. While the overall vacancy rate increased 70 bps over the course of 2023, the increase is shallower than the 210 bps increase posted in 2022. Looking forward, the dwindling supply pipeline should help keep future vacancy increases to a minimum.

Flight-to-quality remains the bright spot in the Washington, D.C. office market, as tenants opt for high quality space when relocating. While vacancy increased for commodity space during Q4, the Trophy vacancy rate reached a cyclical low of 11.5% and Class A+ vacancy decreased 20 bps to 24.7%. This trend is expected to continue into 2024, however supply constraints for large blocks in quality buildings will likely result in an increase in renewals.

Gross leasing during the fourth quarter totaled 1.5 million sq. ft., bringing the annual total to 7.4 million sq. ft. Activity is subdued across all size tranches, but the decline in large transactions (24 in 2023 compared to 45 on average pre-pandemic) had a significant impact on market fundamentals. Looking forward to 2024, gross leasing levels are expected to remain subdued until the economic uncertainty passes and the federal funds rate drops.