Washington, DC office market report
Q1 2025
Entering Q1 2025, the DC office market started to feel the effects of cancelled GSA leases, most of which were already in holdover or in a soft-term cancellation period. While this did not affect market fundamentals significantly this quarter, the prospect of single agencies or government contractors downsizing needs to be tracked closely by investors with office market exposure. Nevertheless, a consistent highlight in the market is the robust demand for Trophy and Class A properties. Although they make up only 32% of the total inventory, they accounted for a remarkable 41% of the quarterly leasing activity this quarter. This trend reflects the continued strength of premium assets, further supported by the steady increase in FS rental rates.
Leasing velocity share in Trophy & Class A properties
The Trophy and Class A segments of the market make up roughly 32% share of the total inventory of the DC office market (138msf) but has punched above its market share in leasing velocity this quarter and through a majority of the past few years.
YTD Investment Sales volume
With 2024 investment sales seeing higher transaction totals than 2023, albeit at much lower bases than previous sales, 2025 continues the same trend but currently at a slower pace than Q1 of 2024. Early 2024 saw higher property class sales mostly made up of PRP’s acquisition of 801 and 701 Pennsylvania Ave NW, as well as other foreclosure sales. This quarter witnessed more transactions involving class B and C due to more predictable interest rates as well as continued interest in residential conversions among lower-class buildings.
Under construction office developments
The DC office development pipeline remains at its lowest point in more than 20 years, driven by factors such as elevated construction costs, high interest rates, and diminished tenant demand. 600 5th St NW continues to be the only under construction property, but 725 12th St NW should begin construction on their project this year.
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