Office Market Washington Metro Area: Q1 2023

The Washington office market experienced a sharp drop in absorption in Q1 2023 amidst depressed market conditions. Nevertheless, net absorption remained positive at 231,000 SF thanks in part to WilmerHale’s 288,000 SF occupancy at 2100 Pennsylvania Ave. NW in the District of Columbia’s CBD.

The Washington area’s overall direct vacancy rate (which includes both multi-tenant and owner-occupied properties) increased 10 basis points in the first quarter, despite positive absorption driven by pre-leases (as some space entering occupancy was not pre-leased, adding to the inventory of vacant space). The metro-wide direct vacancy rate for just multi-tenant office space is 17.9%, 10 basis points higher than a quarter prior and equivalent to the rate a year ago.

We expect office demand to remain depressed in 2023 and beyond. As of now, we conservatively project that the metro-wide overall vacancy rate will be 13.9% at March 2025 (including owner-occupied space), an increase of 20 basis points from the current vacancy rate.

Effective office rents increased substantially for the first time since 2020 in 2022, but still lagged inflation. The average effective office rent for the Washington metro area is $34.65 per SF as of Q1 2023, up just 0.25% from a year prior.

Local office investment sale transactions totaled $501.5 million during the first quarter of 2023, compared to $1.95 billion in the first quarter of 2022. The average sales price for office transactions was $240 per SF during the quarter compared to $353 per SF a year prior.

Short-term investment returns for office properties in the Washington metro area continues to lag most other metro areas in the United States. The average 12-month return for properties in the Washington region plunged to -6.4% as of the fourth quarter of 2022, 300 basis points below the national average of -3.4%.

As of the first quarter, office occupancy in the metro area has returned to hovering around 50% following the seasonal dip for the holidays, according to Kastle’s “Back-to-Work Barometer.” The Washington area also continues to rank among the lowest in the nation in office occupancy according to Kastle data, ahead of only the Bay Area and some other tech-heavy markets. However, added pressure on the Biden administration to return the federal workforce to the office (from District of Columbia officials, business leaders, and GOP members of Congress) seemed to be having an effect recently, with the administration poised to issue new guidelines to cabinet agencies shortly.

Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals which has been providing consulting and subscription data services to the commercial real estate industry for over 40 years.

Please visit our website at and follow us on Twitter (@DeltaAssociates) for additional market insight and information about our services.