Bethesda's Office Leasing Activity Dips, Inventory Stays Tight

Bethesda’s Office Leasing Activity Dips, Inventory Stays Tight

Report predicts rising rents, upswing in business activity as new buildings open

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An office building on Wisconsin Avenue was torn down this month to make way for an office tower.

Bethesda Beat Photo

Business office leasing in the Bethesda area got off to a slow start in the first three months of the year, but a recent market report suggests an upswing in deals during the rest of the year.

The vacancy rate for office space in the Bethesda/Chevy Chase area rose to 7.8% in March, up from 7.2% in the fourth quarter of 2018, according to a report from commercial real estate company Transwestern.

Despite the increase, the market still has a lower vacancy rate than other major markets in the region, lower than the 9.3% rate for the District and 12.4% in Tysons Corner, Virginia, and 19.9% in Prince George’s County.

The statistics offer a point-in-time snapshot of business activity and the report provides a glimpse of interest in projects that are being built or are on the drawing boards.

“A slow first quarter is not a predictor for the upcoming year,” said Elizabeth Norton, Transwestern’s Managing Research Director of the Mid-Atlantic region, in an email.

“This [area] has historically always performed well,” Norton said. “The new construction will evolve the landscape of this submarket, further attracting tenants. This demand will help push the vacancy rate down, albeit slightly unevenly, over the next several years and prompt rents to rise.”

The report states the Bethesda/Chevy Chase is “well-positioned to perform better than other Suburban Maryland submarkets” given its location, with easy Metro access and a strong retail scene.

Occupied space in the Bethesda/Chevy Chase office market fell by 69,000 square feet in the opening months of 2019, the report said.

The report points to three major projects that are expected to boost overall market numbers. JBG Smith is nearing completion of its space at 4747 Bethesda Ave., planned to be ready in August. Washington, D.C., developer Carr Properties is expected to deliver a project in November 2020 at 7272 Wisconsin Ave., and D.C. firm Stonebridge is close to breaking ground on an 380,000-square-foot office tower at 7373 Wisconsin Ave.

The upcoming developments will not only sustain the 2019 market, but should portend success for the coming years, Norton said.

Rents increased 0.8% in the first quarter, in line with a gradual rise over the past five years. Class A properties are currently renting for $44.38 per square foot, with Class B and C spaces going for $36.37 per square foot. Class A spaces are typically newer and higher quality compared to older and somewhat less desirable Class B and C properties.

The five-year inventory trend for the market shows static change in recent years, though Norton said this isn’t a concern. There has been pent-up demand for Class A space for several years, but minimal development, Norton said.

Carr Properties has signed renewable materials supplier Enviva PartnersĀ and Fox 5 News, while JBG Smith has reached an agreement with Chase Bank and expects to announce two more tenants in the coming months.

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