Fourth Quarter for Mid-Atlantic Tempered by Uncertainty

Cushman & Wakefield today released fourth quarter 2012 statistics for the Washington, D.C. Metro area, detailing a real estate market characterized by a cautious and conservative watch-and-wait mood.

The looming fiscal cliff - only part of which was averted as it related to tax cuts - as well as sequestration and the debt ceiling worked together to dampen activity throughout the region.

Here's a look at the four areas:

The District

In the District, the office market contracted, posting negative absorption and increasing vacancy rates.

"This was due mainly to both government and private sector tenants' drive to achieve efficiencies," said Paula Munger, Regional Research Director of the Mid-Atlantic and Southeast for Cushman & Wakefield. "Organizations are looking for economies everywhere, and that translates into occupying less space."

Leasing activity, however, increased over last year's level as several large law firms committed to space in projects under construction or still-to-be developed.

Northern Virginia
In Northern Virginia, office market indicators weakened further with total negative absorption of 2.5 million square feet, the vast majority of which was due to government agencies vacating space in Crystal City and the RB Corridor as dictated by BRAC. Like the District, new construction is attracting tenants both inside and outside the Beltway.

Suburban Maryland
The Suburban Maryland office market was also characterized by negative absorption of space, increasing vacancy rates, and lackluster leasing activity. In fact, the area saw the highest percentage of renewal activity, accounting for nearly 60 percent of all transactions closed.

Markets outside of the Central Business District continued to outperform Baltimore's Downtown. The Fort Meade district posted the highest positive absorption of all submarkets at 202,780 square feet, driven by government contractor demand, particularly those firms engaged in high-tech services such as cyber-security and cloud computing.

In the investment market, total 2012 sales volume in the D.C. Metro area fell to $5.6 billion from $7.5 billion in 2011. While some investors took a step back from Washington in 2012 due to weakening office market fundamentals, sales volumes in the District were off by only 5 percent, compared to a 48 percent decrease in the suburbs. The year 2013 will bring some good opportunities for investors who can wait for much healthier fundamentals.

"Our research does reveal a few bright spots, including new construction as well as continuing opportunities for investors willing to wait two to three years for a return," said Brian Dawson, head of Cushman & Wakefield operations in the Washington region. "We think 2013 will end some of the uncertainty and stabilize the marketplace, leading to a dynamic 2014."