RESEARCH MARKET REPORT SUBURBAN MARYLAND states/markets/district... · State of the Economy p.2...
Transcript of RESEARCH MARKET REPORT SUBURBAN MARYLAND states/markets/district... · State of the Economy p.2...
State of the Economy p.2
Leasing Activity p.3
Development Pipeline p.4
Market Outlook p.5
Market Breakdown p.6
IN THIS ISSUE
RESEARCH MARKET REPORT
SUBURBAN MARYLANDOFFICE | Q2 2017
SUBURBAN MARYLAND | OFFICE MARKET REPORT | Q2 2017 | COLLIERS INTERNATIONAL2
Two new office developments are poised to break ground in the next eight months. The first being the follow up to the first phase at Pike and Rose, 909 Rose, scheduled to break ground in early 2018. The Pike and Rose development has been extremely successful in bringing a new live-work-play environment to the North Bethesda market. The second, 7272 Wisconsin Avenue, which will sit on the site of the former Apex Building, is being developed by the JBG companies with an expected ground breaking next quarter. Both high-end office buildings are bringing much needed quality to an overall market where it has been lacking.
Economics
During the second quarter of 2017, the Suburban Maryland economy grew by 0.60 percent or by a 2.43 percent on an annual adjusted rate. This is the most growth since 2010. Despite this economic expansion, the pace of job growth slowed during the second quarter. In total, 820 office-using jobs were created, bringing the year-to-date total to 2,340 new jobs. This compares to 1,410 jobs created during the second quarter of 2016 and a total of 1,160 jobs added in the first half of last year.
This quarter’s office-using job growth was led by the government sector. The public sector added 1,620 new jobs during the quarter, bringing the total growth for the year to 2,500 new positions. Most of this job growth occurred at the state and local level as the Federal Government actually lost 40 jobs during this quarter and has only added 230 new jobs so far this year.
In contrast, private industries contracted in the Suburban Maryland market. During the second quarter, jobs were lost in professional and business services, media and telecom, and “other services” sectors of the economy, with 400, 250 and 60 jobs lost, respectively. Employment in the financial services sector was flat for both the quarter and thus far in 2017. Year-to-date, the professional and business services sectors added 180 jobs, the “Other Services” sectors lost 80 jobs, and the media and telecom sectors lost 180 jobs.
Market Indicators
Q2 2017 Office Market All Classes Class A Class B & C
Vacancy Rate 15.8% 16.3% 15.4%
Change from Q1 2017(Basis Points) 44 55 35
Absorption (Square Feet) -377,350 -240,783 -136,567
New Construction (Square Feet) 41,584 - 41,584
Under Construction (Millions Square Feet) 0.49 0.29 0.20
Asking Rates Per Square Foot Per Year
Direct Asking Rate $27.15 $28.72 $25.19
Change from Q1 2017 $0.57 $0.29 $0.59
Summary Statistics
Year-End Projection
VACANCY
Q2 2017
NET ABSORPTION
CONSTRUCTION
RENTAL RATE
Much Needed Trophy Development on the Horizon
$28.72
$25.47
$22.23
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Direct Asking Rental Rates By Class
SUBURBAN MARYLAND | OFFICE MARKET REPORT | Q2 2017 | COLLIERS INTERNATIONAL 3
Demand
A two quarter streak of positive net absorption broke with net absorption registering negative 377,350 square feet during the quarter. Despite this significant drop in demand, year-to-date absorption remains positive at just over 328,000 square feet. The negative absorption was systemic and was negative across all three classes of buildings. The most significant decrease came from Class A space where negative 240,783 square feet was given back.
Two large federal agencies, the National Institute of Health and the Agency for Healthcare Research Quality accounted for the significant negative absorption this quarter. Leases this quarter were a mixed bag in terms of predicting future demand. The top deal signed this quarter came from Kaiser Permanente, who signed at 4000 Garden City Drive for 172,863 square feet in the Lanhan submarket near New Carrollton. The New Carrollton area has now been the recipient of two significant leases this year with 2U signing in the first quarter. Both these leases will add significant positive net absorption to both Prince George’s County and the Market as a whole. In contrastm, Hughes Network Systems renewed and contracted in Gaithersburg, shedding almost 90,000 square feet.
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Suburban Maryland—Office Market | Q2 2017TENANT ADDRESS SUBMARKET - CLASS LEASE TYPE LEASED SPACE
Kaiser Permanente 4000 Garden City Drive Landover/Largo/Capital Heights - A Relocation 172,863
Hughes Network Systems 100 Lakeforest Boulevard Gaithersburg - A Renewal 111,167
FTI Consulting 16701 Melford Boulevard Bowie - A New 30,835
George Washington University 6110 Executive Boulevard North Bethesda/Potomac - C Renewal 29,263
Clarivate Analytics 1445-1455 Research Boulevard North Rockville - A Relocation 26,892
Lurn 2098 Gaither Road North Rockville - A Relocation 24,627
Montgomery County Mental Health Agencies 11002 Veirs Mill Road Kensington - B New 20,023
Guggenheim Securities LLC 702 King Farm Boulevard North Rockville - A Relocation/Consolidation 15,250
Family Health Centers 19851 Observation Drive Germantown - A Relocation 13,989
Pacific Trade International 5515 Security Lane North Bethesda/Potomac - B Renewal 13,004
SUBURBAN MARYLAND | OFFICE MARKET REPORT | Q2 2017 | COLLIERS INTERNATIONAL4
Supply
Just under 500,000 square feet is currently under construction in Suburban Maryland, with significantly more scheduled to start. In addition to the two projects mentioned earlier (909 Rose and 7272 Wisconsin Avenue), the build-to-suit for Marriot, located at 7750 Wisconsin Avenue, is just a little over a year away from commencing. It is not a coincidence that all three of these projects are located in Downtown Bethesda or in North Bethesda. These submarkets continue to be the most viable and attractive to developers due to the in-place amenities and proximity to the District. This will likely be the only areas in Suburban Maryland that see developers are willing to go speculative on their projects.
The 487,918 square feet currently under construction in Suburban Maryland is spread among five buildings. These buildings are significantly smaller than what is being constructed in the District and Northern Virginia. On average, the size of buildings under construction in Suburban Maryland is approximately 100,000 square feet. In comparison, the average size of buildings under construction in the District and Northern Virginia are just under 300,000 square feet per building.
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Development PipelineDeliveries, Under Construction
Deliveries Under Construction Availability
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Q12018
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Q42018 2019+
Sources: CoStar Group; Colliers International
SUBURBAN MARYLAND | OFFICE MARKET REPORT | Q2 2017 | COLLIERS INTERNATIONAL 5
Vacancy While the negative absorption did not completely erase the vacancy drop during the previous quarter, it did force it up by 44 basis points. The vacancy rose to 15.8 percent but remains under the five-year average of 16.3 percent. The increase in vacancy rose in all building classes in Suburban Maryland. It was, however, most apparent in Class A space, where it rose by 55 basis points to end the quarter at 16.3 percent. Both Class B and C space rose by 35 basis points ending the quarter at 15.7 and 14.2 percent, respectively.
Rental Rates
Falling demand did not affect overall asking rents. The average market rate rose by $0.57 to end the quarter $27.15 per square foot on a full service basis the highest on record. Rental rates rose across the board in Suburban Maryland, with the most dramatic increase occurring in the Class C product, where rents rose by nearly a dollar to end the quarter at $22.24 per square foot. With a delta of just over six dollars, the spread between Class A and Class C product is not wide enough for lower quality buildings to adequately compete. In comparison, the difference between Class A and C space is just over $14 in Washington, DC and $13 in Northern Virginia. As new space comes to the market, especially in Bethesda, expect the rent spreads to widen.
Outlook
Economic growth in Suburban Maryland is expected to continue to grow to levels over the next six quarters. An additional 1,730 new office-using jobs are projected through the end of 2017. Job growth is expected to be slower in 2018 with less than 2,000 new office-using jobs being generated. However, due to efficiencies created by the implementation of workplace strategies, like hoteling, teleworking and open floor plans, utilization rates are expected to fall. As a result, expect demand for office space to shrink.
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Vacancy Rate
SUBURBAN MARYLAND | OFFICE MARKET REPORT | Q2 2017 | COLLIERS INTERNATIONAL6
41,584New Deliveries(Square Feet)
-377,350Absorption
(Square Feet)
$27.15Direct Asking Rate
15.8%Vacancy Rate
SECOND QUARTER 2017
OVERALL QUICK STATS
Suburban Maryland—Office Market—Class A | Q2 2017
MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW
SUPPLY UNDER
CONSTRUCTION ABSORPTION YTD ABSORPTION
OVERALL VACANCY
RATE
DIRECT ASKING RATE
MONTGOMERY COUNTYBethesda 5,508,542 - - - -100,764 -206,966 9.0% $40.99
Gaithersburg 2,382,240 - - - 18,218 9,952 8.7% $23.89
Germantown 1,314,468 - - - 9,476 24,803 18.2% $22.00
I-270 North - - - - - - n/a n/a
Kensington 165,000 - - - 7,349 2,073 16.3% $35.82
North Bethesda 7,186,872 - - - 50,913 177,305 20.0% $30.03
North Rockville 8,017,067 - - - -130,093 -49,648 19.1% $29.22
North Silver Spring 1,399,928 - - - 6,315 6,315 0.7% $21.50
Outlying Montgomery County East - - - - - - n/a n/a
Outlying Montgomery County West 719,082 - - - - - 5.1% n/a
Rockville 4,542,614 - - - 6,562 62,165 18.5% $32.35
Silver Spring 4,193,011 - - 121,724 -23,840 -3,374 12.0% $31.03
Montgomery County Total 35,428,824 - - 121,724 -155,864 22,625 15.0% $30.74
PRINCE GEORGE’S COUNTYBeltsville 767,760 - - - -69,666 -77,042 57.5% $22.11
Bowie 688,392 - - - 4,788 3,863 18.6% $28.00
Branch Avenue Corridor - - - - - - n/a n/a
College Park 1,847,977 - - 75,000 -30,757 -30,757 7.6% $26.00
Greenbelt 2,166,286 - - - 7,165 110,904 30.3% $22.29
Landover/Largo 957,735 - - - - 14,687 22.2% $23.75
Lanham 557,000 - - - - 346,466 11.1% $22.00
Laurel 840,547 - - - - 16,376 14.3% $19.55
National Harbor 460,752 - - 95,000 3,551 -285 0.0% n/a
Outlying PG County South - - - - - - n/a n/a
Pennsylvania Avenue Corridor 232,189 - - - - - 0.0% n/a
Upper Marlboro 54,000 - - - - - 0.0% n/a
Prince George's County Total 8,572,638 - - 170,000 -84,919 384,212 21.5% $22.48
Suburban Maryland Total 44,001,462 - - 291,724 -240,783 406,837 16.3% $28.72
SUBURBAN MARYLAND | OFFICE MARKET REPORT | Q2 2017 | COLLIERS INTERNATIONAL 7
822Office Jobs Created
487,918Under Construction
(Square Feet)Inventory by Class
(Square Feet)
Class A47.3%
Class C 9.5%
Class B43.2%
Suburban Maryland—Office Market—Class B & C | Q2 2017
MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW
SUPPLY UNDER
CONSTRUCTION ABSORPTION YTD ABSORPTION
OVERALL VACANCY RATE
DIRECT ASKING RATE
MONTGOMERY COUNTYBethesda 6,003,107 - - - 9,601 -27,696 11.0% $37.09
Gaithersburg 4,240,026 - - - -7,483 34,426 11.2% $22.61
Germantown 1,818,629 - - - -5,058 -7,213 13.6% $21.67
I-270 North 631,849 - - - - -42 85.5% n/a
Kensington 1,457,017 - - - -12,051 -10,543 26.9% $24.64
North Bethesda 3,904,046 - - - -57,059 -130,415 17.0% $28.09
North Rockville 5,209,067 - - - 30,083 -40,964 17.4% $23.41
North Silver Spring 1,862,228 - 16,806 180,000 -34,016 15,142 15.2% $24.50
Outlying Montgomery County East 480,689 - - - -314 -551 9.1% $25.95
Outlying Montgomery County West 73,256 - - 16,194 -2,600 -2,796 11.8% $12.00
Rockville 5,507,938 - - - -74,544 -6,995 9.5% $29.80
Silver Spring 2,716,002 - - - -30,606 -47,968 10.8% $24.92
Montgomery County Total 33,946,854 - 16,806 196,194 -184,047 -224,615 14.8% $27.91
PRINCE GEORGE’S COUNTYBeltsville 917,417 - - - 16,110 5,106 16.1% $17.77
Bowie 1,192,631 - - - 862 8,134 8.1% $18.73
Branch Avenue Corridor 1,930,340 - - - 14,050 23,823 14.6% $14.93
College Park 2,647,368 - - - 937 29,914 23.0% $21.68
Greenbelt 1,470,198 - - - -3,637 59,639 23.4% $18.32
Landover/Largo 2,260,543 - - - -55,174 -73,406 18.0% $22.24
Lanham 1,510,534 - - - 26,368 32,069 18.4% $20.65
Laurel 1,825,416 - - - 16,353 6,997 10.2% $19.97
National Harbor 722,626 - - - -10,473 -27,214 14.7% $25.63
Outlying PG County South 108,909 41,584 41,584 - 41,584 69,939 18.4% n/a
Pennsylvania Avenue Corridor 352,495 - - - 500 9,617 15.1% $21.73
Upper Marlboro 142,690 - - - - 2,614 0.0% n/a
Prince George's County Total 15,038,167 41,584 41,584 - 47,480 146,232 16.8% $20.73
Suburban Maryland Total 48,985,021 41,584 58,390 196,194 -136,567 -78,383 15.4% $25.19
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Suburban Maryland—Office Market—All Classes | Q2 2017
MARKET EXISTING INVENTORY NEW SUPPLY YTD NEW
SUPPLY UNDER
CONSTRUCTION ABSORPTION YTD ABSORPTION
OVERALL VACANCY RATE
DIRECT ASKING RATE
MONTGOMERY COUNTYBethesda 11,511,649 - - - -91,163 -234,662 10.1% $38.35
Gaithersburg 6,622,266 - - - 10,735 44,378 10.3% $23.26
Germantown 3,133,097 - - - 4,418 17,590 15.5% $21.78
I-270 North 631,849 - - - - -42 85.5% n/a
Kensington 1,622,017 - - - -4,702 -8,470 25.8% $26.63
North Bethesda 11,090,918 - - - -6,146 46,890 19.0% $29.32
North Rockville 13,226,134 - - - -100,010 -90,612 18.4% $27.47
North Silver Spring 3,262,156 - 16,806 180,000 -27,701 21,457 9.0% $24.30
Outlying Montgomery County East 480,689 - - - -314 -551 9.1% $25.95
Outlying Montgomery County West 792,338 - - 16,194 -2,600 -2,796 5.7% $12.00
Rockville 10,050,552 - - - -67,982 55,170 13.5% $31.75
Silver Spring 6,909,013 - - 121,724 -54,446 -51,342 11.5% $29.78
Montgomery County Total 69,375,678 - 16,806 317,918 -339,911 -201,990 14.9% $29.61
PRINCE GEORGE’S COUNTYBeltsville 1,685,177 - - - -53,556 -71,936 35.0% $21.98
Bowie 1,881,023 - - - 5,650 11,997 11.9% $19.23
Branch Avenue Corridor 1,930,340 - - - 14,050 23,823 14.6% $14.93
College Park 4,495,345 - - 75,000 -29,820 -843 16.7% $22.00
Greenbelt 3,636,484 - - - 3,528 170,543 27.5% $21.04
Landover/Largo 3,218,278 - - - -55,174 -58,719 19.3% $22.33
Lanham 2,067,534 - - - 26,368 378,535 16.4% $21.04
Laurel 2,665,963 - - - 16,353 23,373 11.5% $19.82
National Harbor 1,183,378 - - 95,000 -6,922 -27,499 9.0% $25.63
Outlying PG County South 108,909 41,584 41,584 - 41,584 69,939 18.4% n/a
Pennsylvania Avenue Corridor 584,684 - - - 500 9,617 9.1% $21.73
Upper Marlboro 196,690 - - - - 2,614 0.0% n/a
Prince George's County Total 23,610,805 41,584 41,584 170,000 -37,439 530,444 18.5% $21.51
Suburban Maryland Total 92,986,483 41,584 58,390 487,918 -377,350 328,454 15.8% $27.15
8 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
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