Scott October 17, 2017 No Comments

Montgomery County Commercial Real EstateThe office sector continues to be the ugly stepchild of the Montgomery County commercial real estate market, although there are some positive signs.  Market rents have risen steadily over the last year while the vacancy rate is at two year lows.

The retail and multifamily sectors continue to be the top performers.  Market rents for both have continued to increase over the last year as vacancy rates remain low.

The industrial sector is best described as steady for the time being.  Let’s have a look at each sector in more detail.

 Montgomery County Office Market

The office survey was conducted through Costar and includes 1,529 buildings and 72.69 million square feet.

The current total vacancy rate in Montgomery County, including space available for sublease, was 13.7% at the end of the 3rd quarter.  This compares to the five year average of 13.8%.

Montgomery County Office Market

The average asking rent for office space in the county currently stands at $28.54/SF, gross, which is slightly above the five year average of $28.07/SF.

The office market in Montgomery County showed little improvement in the 3rd quarter, with positive absorption of 51,578 square feet.  Unfortunately, net absorption over the last twelve months is negative 293,995 square feet.  However, this is mainly due to a dismal Q42016 as absorption year to date is about 38,000 square feet.  The average time vacant space spends on the market is 21.5 months, similar to the five year average of 21.8 months.

In the 3rd quarter, 26 properties were sold at an average price of $152 per square foot.  This compares to the average of $228/SF in the last year.  The average cap rate was 8.4%, compared to 7.1% over the last 12 months and 6.9% over the last five years.

The most significant transaction during the quarter involved the Blackwell Building at 9600 Blackwell Road in Rockville.  This 102,647 square foot, Class A building sold for $25,501,000.  The building was reportedly 97.5% occupied and traded at a cap rate of 7%.  The sale price reflected a price per square foot of $248.43.

Montgomery County Retail Market

The retail survey includes 2,385 properties and over approximately 41.6 million square feet of space.

In the Montgomery County retail market, the overall vacancy rate is 3.7%, still well below the five year average of 4.3%.  The average asking rent has climbed to $30.31/SF, triple net.  The average time that vacant space spends on the market is 14.3 months.

Montgomery County Retail Rents

Over the last twelve months, over 916,000 square feet has been absorbed.  However, this pace has slowed in the last quarter as there was negative absorption of just over 90,000 square feet.  Year to date, absorption is approximately negative 100,000 square feet.

In the last twelve months, the market has seen new deliveries of over 956,000 square feet.  There is just under 119,000 square feet under construction and there were new projects totaling 137,360 square feet in the last twelve months.

In the 3rd Quarter, there were 17 sales totaling 715,960 square feet.  The most prominent of these was the auction of 402,000 square feet of small store space at Lake Forest Mall for just $47.44 per square foot.

In the last twelve months, the average cap rate has been 5.8%, compared to the five year average of 6.1%.

Montgomery County Industrial Market

The 3rd quarter industrial survey includes 642 buildings and 14.45 million square feet.

In the 3rd quarter, the industrial sector held steady with positive absorption of 40,774 square feet.  However, over the last twelve months, absorption is a negative 51,549 square feet.  Construction starts have totaled 330,000 square feet in the last twelve months.

The overall vacancy rate is 7.7%, which is in line with the five year average of 7.6%.  The average asking rent is currently $11.66/SF, just above the five year average of $11.32.  Vacant space spends an average of 12.0 months on the market.

Montgomery County Industrial Vacancy

Over the last twelve months, the average capitalization rate has been 8.2%.  In the third quarter, eight properties were sold, including a four property portfolio to Finmarc Management in August for $8.6 million.  The properties contained 127,445 square feet combined and were all located in the Rockville area.

Montgomery County Multifamily Market

The multifamily survey included 107,384 units.

The current vacancy rate is 5.5%.  Over the last twelve months, new construction starts totaled 2,098 units and total deliveries were 2,816 units.  There are 2,833 units currently under construction.

The average asking rents are: $1,361 for a studio; $1,476 for one bedroom; $1,789 for two bedrooms; and $2,132 for three bedrooms.  The average rent is just over $1.80/SF.


There were nine sales in the latest quarter involving 2,559 units.  The average price was $232,632 per unit and the average cap rate was 6.0%.  This compares to an average price of $184,423 per unit and average cap rate of 5.9% over the last twelve months.

The most significant transaction involved The Fenestra at Rockville Town Square which sold for $129 million, or $262,195 per unit for the 492 unit property.