Office space slowing down

The slowdown in commercial real estate that some industry executives said would bypass the Washington area appears to have arrived.

All three of the region’s submarkets — Washington, suburban Maryland and Northern Virginia — are reporting slower sales and leasing activity as they finish compiling statistics for 2007, according to the financial services firm PricewaterhouseCoopers.

The vacancy rate in suburban Maryland rose from 10.3 percent at the beginning of 2007 to 11.9 percent by the end of the year, the firm said in a report this week.

Vacancy rates in Washington and Northern Virginia held steady, but leasing activity and sales inquiries slowed.

Similar trends are continuing into 2008.

“Unexpected job losses in January and February — particularly in the financial industries — are beginning to have an impact on office space demand in a number of markets,” said Tim Conlon, U.S. real estate leader for PricewaterhouseCoopers. “At the same time, widespread cutbacks in consumer spending are causing more pain for the nation’s retail sector.”

Demand for commercial space in Northern Virginia was diluted by a fast construction pace. In the fourth quarter of last year, 3.2 million square feet of commercial space was added to Northern Virginia’s market, which ranked with the Phoenix area as having the fastest growth rates for office properties in suburban markets nationwide.

Any downturn in the Washington area’s real estate market is slight compared with other regions.

The American Institute of Architects reported this week that its Architecture Billings Index dropped to its lowest level since the dot-com bust of October 2001.

“This is a clear indication that there could be tougher times ahead for design firms and a noticeable slowdown in commercial construction projects coming online in the foreseeable future,” said Kermit Baker, chief economist for the American Institute of Architects.

Gloomy forecasts for the Washington area could not be found in a different market forecast this week by the real estate services firm Marcus & Millichap.

While the rest of the country is confronting job losses, employers are expected to create 25,000 new jobs in the Washington area this year, Marcus & Millichap reported. Office vacancies in the District are likely to end the year at a moderately healthy rate of 9.9 percent.

“Properties in close-in suburbs become more valuable every year, and the redevelopment of old assets in areas such as College Park and Falls Church could provide significant returns for patient investors,” said Ramon Kochavi, Marcus & Millichap’s Washington regional manager.

• Construction bids are due next week on Camden USA’s planned 682,000-square-foot mixed-use apartment and retail complex at 60 L St. NE in the so-called NoMa neighborhood.

The two-building complex would be surrounded by other NoMa — North of Massachusetts Avenue — projects that are transforming the neighborhood into a vibrant business and residential submarket. The other projects include National Public Radio’s new headquarters, a new Justice Department building and Bristol Group’s NoMa Station.

Story Continues →