D.C. Office Market Records Occupancy Gains For First Time In 10 Quarters

The D.C. office market saw a long-awaited glimmer of hope in the final quarter of 2024: more space was leased up than was given back.

New reports from JLL and CBRE both found the D.C. office market recorded positive net absorption in the fourth quarter, a welcome shift for a market that had previously seen 10 straight quarters of net occupancy loss, according to CBRE.

CBRE's report found positive net absorption of 209K SF last quarter, a stark contrast from the 332K SF of net loss the brokerage recorded during the third quarter.

The market's total leasing velocity also saw an uptick during the fourth quarter. A new report from Savills found 1.8M SF of leasing volume, up from 1.5M SF in Q3. The full-year leasing total of 7.2M SF was up 21% from 2023 and was the highest level in three years. 

“I see the increase in leasing velocity being a big plus for the market, especially a lot of these large relocations that we're seeing, whether that's law firms that are relocating, some of these government deals,” Savills Executive Vice President Sarah Dreyer told Bisnow.

In the fourth quarter, nine of the top 10 leases measured by Savills were government or law firm tenants. Those sectors accounted for 39% and 20% of the annual volume, respectively.

Dreyer said that's typical of the D.C. market, but the fact that more than half were relocations does indicate confidence on the tenant side.

"People are feeling comfortable about making long-term decisions again,” Dreyer said.

The largest lease of the quarter was a government tenant that added a net 283K SF of occupancy to D.C.’s leased market. The U.S. Agency for Global Media exchanged its owned headquarters in Southwest for a previously vacant building: Eastbanc’s 1875 Pennsylvania Ave. 

Tammy Shoham, who leads JLL's D.C. research team, said she expects the trend of federal government tenants swapping owned space for leased space will ramp up over the next year.

“The federal government has an enormous inventory of very old office buildings that they own in D.C. and they're just getting older, and they're not great working conditions,” she said. “And as these agencies make their next space decisions internally, in a market where terms are very tenant favorable in the more commodity office space, then I would expect to see more agencies make the same choice as USAGM.”

Another government tenant had a less positive impact on the market last quarter: the National Labor Relations Board inked 92K SF at its Navy Yard building at 1015 Half St. SE, a 40% decrease from its prior 153K SF footprint at the property. Bisnow first reported the agency had a solicitation out with the space reduction requirement in the summer of 2023.

ArentFox Schiff was the largest law firm lease and the second-largest lease of the quarter. The firm announced it will be moving into 120K SF at Carr Properties' Midtown Center — part of the space Fannie Mae plans to vacate in 2029. The move is around a 40% contraction for the firm, which occupies 208K SF two blocks away on K Street.

CBRE reported that the legal sector made up 41% of the leasing activity during Q4. 

Truman Pepper signed a deal to relocate to 1001 Pennsylvania Ave. NW, taking 71K SF. The move is a contraction from its 117K SF footprint at Market Square North, and its new location is replacing Crowell & Moring's offices, according to the Washington Business Journal. Construction is underway for Crowell’s new offices at the former WMATA headquarters across from the Capital One Arena in Chinatown. 

Quinn Emanuel, Nelson Mullins and Nixon Peabody are also contracting, taking 57K SF, 49K SF and 44K SF respectively at East End buildings. 

Milbank is taking 65K SF at 1101 New York Ave. NW, which CBRE marks as an expansion. 

The trend among legal tenants over the past year was to contract, Shoham said, but the brokerage counted 12 firms over 10K SF that grew their footprints in 2024. Of law firms over 50K SF, five grew, five shrank and two stayed the same, she said. 

The growth has been fueled by competition among larger, full-service law firms to grow in D.C. and firms that are newer to the market and are expanding with their second lease after testing the viability of the market, Shoham said. Additionally, she said one firm cut too much and then had to expand when a space became available.

“You have a few very big footprint reductions that are driving down the average,” she said. “But within this segment, you also have some meaningful growth.” 

In general, Shoham said the market is starting to see more large expansions. By JLL’s measure, 38% of leases signed in 2024 were growth leases for expansions of 10% or more than the tenants' previous space. 

Midsized tenants between 10K SF and 20K SF are leading that charge, she said, and that segment saw 3% net growth in 2024. 

D.C.’s office vacancy rate stayed relatively flat in Q4. CBRE measured a 22.5% vacancy rate, down from 22.7% last quarter. Asking rents also remained flat during the quarter at $59.09 per SF with rate abatement at 22 months for a 12 year term.