The shared office space craze is no longer limited to the District and Northern Virginia with WeWork signing its largest suburban Maryland lease at 7272 Wisconsin Avenue in Bethesda. The 60,067-square-foot lease was the second largest deal done in the quarter at one of the newest trophy buildings in Bethesda.
Three of the top five deals took place in new trophy construction. In addition to WeWork, ProShares also signed at 7272 Wisconsin Avenue. The investment fund manager that specializes in exchange-traded funding took a total of 54,615 square feet on the 20th thru the 22nd floor. Federal Realty took 40,000 square feet in the next phase of the Pike and Rose development at 909 Rose Avenue in Rockville.
Demand & Supply
After two consecutive quarters of strong positive absorption, the second quarter registered significant negative demand of -403,388 square feet.
This brings the year-to-date net absorption to 25,477 square feet compared to 30,066 square feet in the first half of 2018.
The most significant cause of the negative demand was Discovery Communications move to their new headquarters in New York. After 15 years in the building, the decision was made to leave the market in early 2018. The Children’s National Health System has signed a lease to backfill about a third of the space and plans to occupy in 2020.
Vacancy & Rental Rates
The considerable amount of negative absorption created by Discovery moving out of Silver Spring resulted in the vacancy rate increasing by 30 basis points to end the quarter at 14.7 percent. This is still below the three-year average of 15 percent.
Average asking rental rates decreased to their lowest in over a year, ending the quarter at $27.78 per square foot on a full-service basis. With the trophy building at 4747 Bethesda Avenue set to deliver to the market with high-end space, asking rents are expected to increase in the upcoming quarter.