Our Research Director, John Sikaitis, has been very active on the speaker circuit these days! He was a featured speaker at CREBA’s Bethesda Development Showcase and at Bisnow’s D.C. State of the Office where he touched upon several themes impacting the current office landscape.
At the CREBA event, John shared his thoughts on the Bethesda market which he believes is at an interesting crossroads: the market needs new office product, but exactly how much is hard to determine. By 2019, three developments totaling about 1M square feet will break ground, already seeing significant leasing interest from suburban office park tenants within Montgomery County and from tenants occupying older office buildings in the District. As John demonstrated through detailed analysis and insight, although these new developments will likely command over $60 per square foot, once space efficiencies are factored in, it could actually be cheaper for such tenants to relocate to these brand new developments. However, while initial interest has been strong, marketing these developments has not been without its challenges including demographic trends, population shifts and industry dynamics that keep tenants tied to D.C. and VA.
At Biznow’s D.C. State of the Office, John was one of three market experts invited to a panel discussion focused on tenant demand. John’s unparalleled knowledge of the D.C. office market allowed him to lead a robust conversation that touched on employment levels, occupancy growth, supply levels and demand strength in the District. The general conclusion? Although employment growth has exceeded 11% in the Metro DC region since 2007, a frenzy of development in that time has led to a significant disconnect between supply and demand as tenant occupancy levels have remained flat. This imbalance has made the Metro DC office market, consistently a top rent growth market, one of the worst-performing markets nationwide. Similar to trends in Bethesda, it’s the older, suburban office buildings that are struggling the most as tenants favor new developments with fully amenitized buildings and close proximity to public transportation.