Growing DC Office Market Bolstered By Record-Setting Concessions
While landlords and investors have been encouraged by positive absorption and job growth in the DC region, after Q1, it's clear that DC is still a tenant's market.
In 2014, DC's central business district set a record with average tenant improvement allowances of $74.14/SF, according to a CBRE study. The average allowance is $30/SF higher than it was 10 years ago.
DC's average TIA in 2015 was the highest of major CBDs in the country, CBRE data shows, even above Houston (No. 3) where energy price crashes have turned the market upside down. DC's already a high-cost city, which doesn't help matters—but competition among landlords for prime tenants has been fiercer than we previously realized.
While law firms are the dominant tenant in the CBD and warrant the highest TIAs, their rent-to-TIA ratio, as noted in CBRE's infographic above, is actually lower than the nonprofit sector. For every dollar that a law firm spends on rent, its landlord spends $1.40. For nonprofits, it's $1.60.
CBRE head of market research Revathi Greenwood tells Bisnow reports of DC's office recovery have to be taken in context.
"I think when we are talking about rebounding of the market, we have to temper that," she says. "The DC market has turned from negative demand to positive demand, but it’s still not where it used to be."
Revathi says while law firms and government tenants are contracting overall, the nonprofit TIAs reflect the growth that sector is experiencing: nonprofit expansion counteracted more than half of the space law firms and government tenants left in 2015.
Revathi says TIAs could plateau at some point in the future—they dipped slightly between 2013 and 2014 before climbing again—but competition among landlords, which drives concessions up, will likely continue to be fierce.