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D.C.’s Suffering Office Market Poses Big Risks to City’s Fiscal Health

Many see San Francisco as the poster child for a troubled office market. But another office market struggling mightily and not getting as much attention is in the nation’s capital. Washington, D.C.’s office market recorded 1.2 million square feet of negative net absorption last year, according to CBRE’s fourth-quarter market report. The D.C. office vacancy rate now stands at 20.5 percent, rising 20 basis points in the fourth quarter.

The federal government is partly to blame for the District’s office woes, with only one 10,000-square-foot lease for the public sector. The private sector had more leasing activity, but it didn’t lead to positive absorption because many tenants are shrinking their footprints. A reduction in demand for offices is expected to continue into 2023, and office owners in D.C. have their work cut out for them. This year, most of the leasing activity will likely be office landlords looking to lock in tenants with reduced footprints.

This harsh reality for the D.C. office market isn’t just bad news for landlords, either, and could significantly impact the city’s budget. Several office property owners recently signed a letter to the city’s top officials raising concerns over the troubling state of the market and its potential risk for D.C.’s fiscal health. Some estimate the city’s office market could lose nearly $6 billion in value, leading to a $100 million revenue loss for the city. Washington, D.C., is far from the only city where this could happen, so expect 2023 to be the year city governments take an even more active role in supporting their office markets.

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