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January’s unemployment rate for Maryland, at6.7%, was over 1.0 percentage point (pp) lessthan the average for the nation. The Bethesda-Rockville-Frederick metropolitan area was alsowell below the national average at 5.4%.Sequestration went into effect during March, but its influence on thelocal economy has not been immediately apparent.
VACANCY AND RENTS
Suburban Maryland’s overall vacancy rate ticked up 2.2 pp from oneyear ago to end Q1 2013 at 19.1%. The 358,440-square foot (sf)North Bethesda Center I in Rockville delivered in Q1 2013, but hasnot been occupied by the Nuclear Regulatory Commission yet.Additionally, such tenants as Computer Sciences Corporation,Hendricks Investment Holdings, Orbital Science and QuintilesConsulting, Inc. downsized, causing the vacancy rate to increase.Despite a positive performance in class A absorption, overallabsorption was negative 97,532 sf for the quarter. Digital ReceiverTechnology left over 100,000 sf at 20250 Century Boulevard for thenewly constructed 12409 Milestone Center Court, while theMontgomery Board of Education left 25,000 sf at 2096 Gaither Road.The average direct rental rate for the market declined 1.1% to $26.84per square foot (psf). Bethesda/Chevy Chase had the highest averageasking rent at $38.97 psf, up 6.4% due to higher than average askingrents at 7550 Wisconsin Avenue. Increased vacancy in class Bbuildings put downward pressure on the average asking rent, causingit to fall 2.6% from one year ago to $23.27 psf.
LEASING AND SALES ACTIVITY
Year-over-year, new leasing activity increased almost 21.0% to478,449 sf with the majority of activity in class A buildings – highlighting a flight to quality. Renewal activity only accounted for78,489 sf, a considerable decline from the 421,262 sf reported in Q42012. Notable transactions for the quarter included: ASRC’s preleaseof 50,000 sf at 7000 Muirkirk Road, Econometrica’s lease of 23,000 sf at 7475 Wisconsin Avenue and Lancaster Bible College’s lease of 18,575 sf at 7852 Walker Drive.Sales transactions totaled 1.3 million square feet (msf). The largesttransaction was the purchase of Air Rights Center North, East andWest by a joint venture of Rockpoint Group and MRP Realty for$205 million. The deal also includes the development site at 7300Pearl Street.
A slowing economy may see more tenants downsize; either renewingin the same building or moving to less space at a new property.Increased concessions by landlords could be a move to preventfurther price decline in asking rents. Regardless, market conditionsfor the remainder of 2013 will continue to favor tenants overlandlords.STATS ON THE GO
Q1 2012 Q1 2013Y-O-YCHANGE12 MONTHFORECAST
Overall Vacancy 16.9% 19.1% 2.2ppDirect Asking Rents (psf/yr) $27.14 $26.84 -1.1%YTD Leasing Activity (sf) 395,884 478,449 20.9%
DIRECT RENTAL VS. VACANCY RATESOVERALL OCCUPIER ACTIVITY
p s f / y r
DIRECT GROSS RENTAL RATEDIRECT VACANCY RATE
2 . 6 2 . 7 2 . 6 1 . 1 0 . 5
m s f
Q1 2013SUBURBAN MARYLAND
A Cushman & Wakefield Research Publication