New Supply to Outpace Demand in Near Future

  • Henry M. Jackson Foundation’s renewal and expansion for 168,000 square feet was the largest lease in the second quarter of 2018. They expanded by 22,000 square feet at SkyBridge Towers in the North Bethesda submarket.
  • While there were only three leases, over 50,000 square feet in Suburban Maryland during the second quarter, nine deals were signed in the 20,000 to 40,000 square foot range.
  • Lack of deliveries and minimal positive absorption kept the vacancy rate at 14.8 percent.
  • Discovery has confirmed that they will be relocating their headquarters from Silver Spring to New York City in late 2019. As a result they will vacate the entire 550,000-square-foot building at One Discovery Place.

 

Market Overview

Despite slow deal velocity in recent quarters, vacancy in the market remained stable, as no office product has delivered in four quarters. In fact, even with very little absorption, vacancy has continued to drop and is now the lowest. This is a very different dynamic that what has occurred in the District, where vacancy has skyrocketed despite modest demand growth. This is about to change slightly in Suburban Maryland as four buildings totaling just over 460,000 square feet will deliver by year’s end and a new one just broke ground at 7272 Wisconsin. It is expected that vacancy will increase as new supply starts to outpace the new demand.

 

Outlook

Lack of consistent deal volume has been the Achilles heel in Suburban Maryland for the better part of several years. It is likely the reason that development has not as been pronounced as it has been in both the District and Northern Virginia. While new construction has picked up recently, overall, developers have chosen locations with well-established amenities to commence new projects. Two trophy buildings are under construction in downtown Bethesda and one scheduled to break ground in the Pike and Rose development in Rockville are examples. This is again unlike DC as development in the city is much more widespread across several submarkets.