Lincoln Property Company

The Washington, DC office market consists of 780 buildings over 25,000 square feet for a total inventory of approximately 138.9 million square feet. National growth and economic improvement remain at a standstill as the unemployment rate inches higher each month. The District unemployment rate was 11.1% in August of 2011, according to the Bureau of Labor Statistics. This is compared with the national unemployment rate of 9.1%, which has remained constant since June 2011. As government stimulus money from 2008-2009 dries up, we see fewer government organizations leasing swing space and much less expansion. New renovations to government buildings have come to an end. Furthermore, budgetary issues threaten many contractors and small businesses. Leasing activity this quarter (1.9 million square feet) was the lowest in nine quarters which backs the anecdotal evidence of the reduced number of prospective tenant tours and leasing activity that brokers have reported. GSA activity continued to decline this quarter. Only two GSA leases made the top ten report - US Department of Treasury renewed for 52,028 square feet at 1750 Pennsylvania Avenue, NW and US Customs & Border Protection signed a new lease for 97,000 square feet at 90 K Street, NE downsizing from 99,408 square feet at 799 9th Street, NW. Such was the trend for top leases this quarter most opting to renew at their current locations and giving back space. CareFirst renewed at 840 1st Street, NE but consolidated from 248,314 square feet down to 204,314 square feet. Seven out of the top ten leases renewed this quarter with four of those renewals being contractions. Vacancy rates did not change much, with a slight increase since second quarter 2011, although we can look at this in a positive light considering 400,000 square feet of vacant space delivered this quarter. Absorption remains positive for the tenth straight quarter, but dipped slightly (108,390 square feet) below last quarter’s rates (218,819 square feet) as a result of decreased government leasing.

•  3Q2011 Quarterly Report Overall.pdf »

The Northern Virginia office market, which consists of 176 million square feet in Arlington, Alexandria, Fairfax, and Loudoun counties, experienced another quarter of moderate improvement in almost all leasing categories during the third quarter 2011. Almost one-third of the Northern Virginia office market is driven by the government or government contractors, and the uncertainty swooning on Capitol Hill is impacting the leasing decisions of contractors as they are scaling back operations in preparation for significant cutbacks from the federal government. Although Northern Virginia maintains one of the healthiest unemployment rates in the nation, it saw the unemployment rate increase from 4.5% at the end of May of 2011 to 4.8% at the end of August of 2011. Alexandria’s unemployment rate stood at 4.8% (up from 4.2% at the end of the second quarter of 2011), Arlington’s increased to 3.8% (up from 3.7%), Fairfax County saw a rate of 4.5% (up from 4.3%), and Loudoun County experienced a rate of 4.4% (up from 4.1%). Northern Virginia’s total vacancy of 12.6% has dropped to its lowest mark since the fourth quarter 2008. The Northern Virginia office market witnessed another quarter of positive total net absorption bringing the year-to-date total absorption in excess of 830,000 square feet. The average asking rental rate for Northern Virginia continues to increase as it reached $30.76 per square foot (psf), up from $30.41 psf at the end of the second quarter 2011, and is up from $30.15 psf at the end of the fourth quarter 2010. Northern Virginia witnessed a transfer of market fundamentals from markets inside the beltway to markets outside the beltway during the third quarter of 2011. The first BRAC relocations were initiated in Arlington and Alexandria, creating several pockets of vacant space in the respective markets, driving vacancy rates higher, while many of the vacancy rates in the outer markets witnessed slight improvement. Leasing activity during the third quarter of 2011 illustrated a sentiment of uncertainty among tenants as there were just 2.2 million square feet leased in Northern Virginia bringing the year-to-date to 8.2 million square feet compared to 8.7 million square feet leased this time last year. Five private sector leases in excess of 100,000 square feet led the way including Systems Planning & Analysis’ extension of 149,243 square feet at 2001 N. Beauregard Street in the I-395 submarket; Boeing’s extension at 460 Herndon Parkway in the Herndon submarket for 134,776 square feet; Capital One’s relet lease totaling 129,619 square feet at 8020 Towers Crescent Drive in the Tysons Corner submarket; NJVC’s new lease at Plaza East for 120,000 square feet in the Route 28 South submarket: and Mantech’s extension and expansion of 109,736 square feet at 2251 Corporate Park in Herndon.

•  3Q2011 Quarterly Report Overall.pdf »

The Suburban Maryland office market consists of 869 office buildings, totaling approximately 82.3 million square feet located in Montgomery and Prince George’s Counties. Over the third quarter of 2011, the direct vacancy rate in the Suburban Maryland office market decreased to 14.6% while the total vacancy rate also decreased to 15.5%. Throughout the third quarter, Suburban Maryland witnessed 188,325 square feet of direct net absorption. Total net absorption in the third quarter of 2011 was 294,154 square feet, which included 105,829 square feet of sublet space. The average direct rental rate in the office market decreased $0.09 to $26.23 per square foot. The Class A average rate increased $0.06 over the third quarter to $29.70 per square foot which is a positive sign for the office market. This slight decrease in average rental rate comes directly after the market witnessed an increase in rates for two consecutive quarters for the first time since 2008.

•  3Q2011 Quarterly Report Overall.pdf »