Washington, DC office market reports

2024 investment sales and recapitalization volume in the DC office market have rebounded after heavily suppressed volume in 2023, which was brought on by a rise in interest rates. This figure represents roughly 73% of the $656mm recorded in DC in 2023, just in the first quarter of 2024. Investors are seemingly approaching the marketplace with more conviction than in previous years. Note, that this figure only represents investment sales and recapitalizations, no user sales or entity-level portfolio sales.

While the flight-to-quality trend has been a dominant one in the past several quarters, leasing velocity attributable to Trophy and Class A properties tallied its lowest amount since 2022 in Q1 2024. Several large renewals in Class B properties contributed to this in Q1 2024, such as the Washington Post at 1301 K St NW and Finnegan at 901 New York Ave NW. The limited development pipeline was a major contributory factor, as large tenants facing expirations have very few if any options to upgrade their space in terms of quality, offering the requisite space.

The Washington, DC office development pipeline sits at its lowest level in over 20 years. This is driven by structural shifts as it relates to office utilization as well as cyclical macroeconomic issues driving up the cost of capital for levered developers. Also contributing to this is elevated construction pricing, which makes development deals increasingly difficult to underwrite given today's office leasing conditions.