The second quarter of 2017 proved to be a bit of a downer in the Montgomery County, Maryland office market. According to recent Costar data, absorption in the second quarter was negative 411,468 square feet.
The survey included over 1,500 buildings and 72.75 million square feet of space. The current vacancy rate stands at 13.9%, which is still only 9/10ths below the 10 year high set in 2015 of 14.8%.
The current average asking rent for the county is $28.46 per square foot with gross lease terms, and the trend continues to be to the upside. The average asking rent continues to be driven higher by the Bethesda/Chevy Chase sub-market, which will be discussed in a bit.
In the last twelve months, net absorption is negative 356,359 square feet. The total inventory is 600,000 square feet below the peak seen in 2015. A total of 220,000 square feet of new construction was started in the last twelve months with just under 400,000 square feet of space under construction, primarily located in the Silver Spring sub-market.
The newest project to be delivered will be 96,000 square feet of space located at Fenton Street and Bonifant Street in Silver Spring (seen to the right). The building is scheduled to be completed in August and 57% of the building is already leased.
Another project located at 1000 Spring Street is scheduled to be completed in May 2018.
Some potential re-development efforts are gaining traction in the Bethesda-Chevy Chase submarket, which is the strongest in the County, with market rents nearly 30% above the next strongest submarket in Rockville.
One of the primary concerns for the market is that the GSA, the largest contributor to leasing throughout the DC metro, is starting to downsize and become more efficient after lawmakers gave the GSA space efficiency guidelines.
Ultimately, along with the rest of the DC metro, Montgomery County remains a renters market, and this should continue to be the case into the foreseeable future.