Washington D.C. Retail Market Report
Market Overview
The Washington D.C. retail market is showing signs of improvement as many submarkets in the suburbs are outperforming due to population and income gains. Available space is at seven-year lows, vacant space is at a three-year low, and leasing activity is only trailing pre-pandemic norms by about 5.0%. Rooftops and affluent renters keep pouring into Union Market, which has attracted food, nightlife, and experiential retailers.
Highlights
- Q2 2023 follows the decade-long history of leasing being between 1 million and 1.5 million SF, with roughly 1.2 million SF in deals signed.
- All but one of the market’s retail leases over 20,000 SF signed in H1 of 2023 were outside the District of Columbia, including the largest retail lease in the first six months of the year.
- Retail rents in the Washington metro area are at the highest level on record, at $32.00/SF, after increasing a record 3.3% in 2022.
Rents | Vacancy | Construction
Asking rents in Q2 2023 increased 4.0% year-over-year metro-wide.
Property owners in Washington D.C. continue to have the upper hand in most negotiations as Class A space is limited, and Washington D.C. is experiencing the lightest developmental pipeline in nearly two decades. Concessions should be regulated to nongrocery anchored centers, District of Columbia office corridors needing a boost, and retail space in mixed-use apartment projects delivering in saturated hotspots. In the last year, Washington D.C. underperformed across every retail subtype, but the metro retail market is not known for large gains. Significant asking rent movement is more commonly seen in the suburbs, where vacancy is tighter, and metro office workers are around more often given hybrid work adoption.
Retailers are eager for more development in Washington D.C. as it is one of the most in-demand metro areas in the nation. As of mid-2023, deliveries have totaled less than 300,000 square feet. Following a year in which net deliveries went negative, the region is on track for its lightest year of gross new supply in over 15 years. There are currently 1.3 million square feet under construction across the metro area today.
Sales
Washington D.C., by the Numbers in the Last 12 Months
Source: CoStar Group
- Delivered SF: 633K
- Properties Under Construction: 53
- Rent Growth: 3.1%
- Sales Volume: $1.8B
- Vacancy Rate: 4.4%
Investment in Washington D.C. has dropped as expensive borrowing costs and tightened lending capacity have increased. Brokers and bankers are confident that the demographic underpinnings of the market, alongside tight space conditions, will lead to a bounce back once capital market conditions improve. Suburban centers near high-income earners could see continued price leverage. Sales volume in Q1 2023 totaled roughly $380 million, and the 12-month sales volume is $1.8 billion.
