CompStak’s 2024 Year-End Office Market Report: Part Four

SKIP AHEAD TO

• Office Market Highlight: Washington D.C.
• Washington D.C. Starting Rent Index Shows Mixed Performance in 2024, though Remains Down from Recent Peak in 3Q 2022
• Annual Federal Government Employment Growth Slowed in 2024 While Total Office-Using Employment Reversed 2023 Declines
• 2024 Washington D.C. Vacancy Rates Edged Upward to New High
• More Than 1/4 of Washington D.C. Office Leases Expiring by 2027 Are Government Leases, Raising Market Concerns as GSA Targets Reductions
• Average Lease Term Length for Government Deals Grew Year over Year, But Term Length for All Other Industries Gained Faster, Shrinking Government’s Premium
• The Average Ratio of Concessions to Total Deal Value Fell Year over Year in Washington D.C.
• Washington, D.C. Prime Class A Effective Rents Rise for Second Year, While Other Class A Rents Surpass 2020 Levels for the First Time in 2024
• Fannie Mae Signed Top Deal by Value in Washington D.C. in H2 2024

The office market continues to evolve, shaped by shifting work habits, leasing activity, and economic forces. While office job losses slowed, remote work trends may be stabilizing, and TAMI tenants are showing signs of renewed leasing momentum. Prime Class A rents are nearing a potential peak, and landlords are adapting with record-high tenant incentives to secure long-term commitments. Meanwhile, NYC remained a hotspot for high-value legal leases.

In this blog series, we’ll break down the major insights from CompStak’s 2024 Year-End Report, diving into what these trends mean for the office market in the years ahead.

Want the full insights? Download a copy of the report here.

Office Market Highlight: Washington D.C.

Washington, D.C. Office Rents Remain Below 2022 Peak
CompStak’s starting rent index saw a slight uptick in Q4 2024 but remained 2.1% below its 3Q 2022 peak. Continued federal lease cancellations and workforce reductions are likely to limit further rent recovery in 2025.

Vacancy Rates Hit a Record High Despite Office Job Growth
Office-using employment in D.C. grew 0.6% in 2024, reversing 2023 losses, but vacancy still climbed to 19.6% by year-end, surpassing pandemic-era levels.

Government Lease Expirations Pose a Major Risk to the Market
More than 25% of office leases expiring through 2027 are in the government sector, a weak spot for the market, as DOGE policies may target these leases for early termination or space reductions.

Concession Ratios Declined in 2024 as Landlords Held Firm on Deals
The average ratio of concessions to total deal value fell year over year, with free months on new leases dropping 14.4%, suggesting landlords may be reaching their limits on incentives.

Prime Class A Rents Rise, but Future Demand Faces Headwinds
Prime Class A rents grew for a second year, with D.C. law firms driving much of the increase. However, D.C. budget cuts and reduced government contracting could slow demand for high-end office space.

Washington D.C. Starting Rent Index Shows Mixed Performance in 2024, though Remains Down from Recent Peak in 3Q 2022

CompStak’s starting rent index, benchmarked to the third quarter of 2008, remained below its most recent peak in 3Q 2022 throughout 2024. While the index saw a slight uptick in 4Q 2024, it remains 2.1% lower than its 3Q 2022 level. With Washington, D.C.’s office market facing federal lease cancellations and workforce reductions—potentially rippling into related private industries—the starting rent index is unlikely to see further increases in 2025.

Annual Federal Government Employment Growth Slowed in 2024 While Total Office-Using Employment Reversed 2023 Declines

Washington D.C.’s private-sector, office-using jobs rose 0.6% year-over-year in 2024, reversing a 0.5% decline in 2023 and marking a 21.3% increase since February 2010’s low. Federal employment, a key driver of office demand, grew 0.5% in 2024—slower than 2023’s 1.4% rise. However, both remain below their post-2007 peaks, with federal employment down 5% and total office-using jobs down 1.1%. As of December 2024, there were 2.71 private sector office-using employees per federal government employee in Washington D.C.

2024 Washington D.C. Vacancy Rates Edged Upward to New High

Despite slight gains in the federal workforce by year-end 2024 as well as in overall office employment in Washington D.C., office vacancy rates in the nation’s capital ended the fourth quarter of 2024 on a new high, surpassing the level of vacancy seen during the pandemic. Vacancy rates hit 19.6% in Q4 2024, 10 basis points higher than in the first quarter, according to the NCREIF NPI.

More Than 1/4 of Washington D.C. Office Leases Expiring by 2027 Are Government Leases, Raising Market Concerns as GSA Targets Reductions

With more than 25% of all leases coming up for renewal through the end of 2027 concentrated in the government sector,  the market is at risk as DOGE may target these leases early for termination or seek to renew or downsize at the time of renewal. 2027 is a peak year with more than one-third of all leases expiring within the government sector in another potential warning sign for the Washington D.C. market as DOGE evaluates the federal government’s leased and owned real estate footprint.

Average Lease Term Length for Government Deals Grew Year over Year, But Term Length for All Other Industries Gained Faster, Shrinking Government’s Premium

As the federal government’s leased footprint shrinks due to recent DOGE (Department of Government Efficiency) actions, Washington D.C. office landlords face declining demand and increased uncertainty. Government leases, historically the longest, were just 7.5% longer than the market average in 2024—down from 14.5% in 2023 and 15.3% in 2022. Despite this trend, some long-term federal deals were signed, including a 180-month lease by the National Labor Relations Board at 1015 Half Street SE, helping push the average government lease term to 125.2 months, compared to 116.5 months for other industries.

The Average Ratio of Concessions to Total Deal Value Fell Year over Year in Washington D.C.

The ratio of concessions to total lease value declined year-over-year and fell each quarter in 2024, with sharper declines for new deals and expansions compared to renewals. This drop coincided with lower average work value and fewer free rent months. For new deals and expansions, free rent months fell by 2.6 months (14.4%) year-over-year. The overall decline in concession ratios may signal that landlords have reached a limit on increasing concessions relative to deal value or that transacting deals are becoming less competitive.

Washington, D.C. Prime Class A Effective Rents Rise for Second Year, While Other Class A Rents Surpass 2020 Levels for the First Time in 2024

While Class A rents rose year over year in 2024, Class B/C effective rents dipped, now down 10.7% from 2019. The rise in Prime Class A rents echoes broader gateway market trends, but potential impacts from DOGE could pressure demand and rents in the coming year. Although the federal government is not a major driver of Prime Class A space demand and rents, the broader decline in D.C.’s economy—deeply intertwined with sectors like nonprofits, consulting, and law firms—could lead to challenges for other industries and their presence in the office market. For example, legal services have been a key driver of Prime Class A effective rent growth. Without law firm deals, the average Prime Class A rent would have been 11.5% and 6.4% lower in 2023 and 6.4% lower in 2024. Similarly, legal services drove much of the rent gains for non-Prime Class A buildings in 2024—excluding law firms, rents rose just 1.1% from 2023.

Fannie Mae Signed Top Deal by Value in Washington D.C. in H2 2024
Despite persistently high CBD office vacancy, two of the five highest-value transactions in Washington, D.C., signed in Q3–Q4 2024, took place in the city’s central business district, according to CompStak data. Law firms Freshfield and ArentFox Schiff both signed at 1100 15th Street Northwest for over $100 million, placing them at number three and four on the list. Another legal services tenant, Milbank, ranked fifth in signing for 64,664 square feet for over $60 million. The top two leases by value were COSA (Court Service and Offender Supervision Agency) and Fannie Mae. The government sponsored enterprise, or “GSE”, not only inked the number one most valuable deal in the second half of 2024 in that market for over $403 million, but was also the largest transaction and the only renewal/contraction to make the list. In January 2024, Fannie Mae exercised its early out clause to vacate the property by 2029, but ultimately opted to re-sign for less than half as much space, about 380,000 square feet, according to CompStak data.