D.C. meet Mr. Market Failure (boldface mine):
The co-working segment is the bright spot in D.C.’s commercial real estate market right now, but there are concerns.
JLL said the office vacancy rate in D.C. is currently over 12 percent, and the most reliable sources of large leases — law firms, lobbyists and government agencies — are cutting back on the amount of office space they need.
But developers keep building.
“With eight groundbreakings in downtown D.C. (in the second quarter), we expect to see supply outstrip demand over the next 24 to 36 months,” Homa said.
Those development projects will add a total of 2.8 million square feet of office space, even as D.C.’s net absorption year-to-date is minus 372,000 square feet — meaning more office space in the District has been vacated than has been leased.
Much of that new office space is considered “trophy” space, meaning the top end of the market. Much of it will be priced 15 to 25 percent above prevailing market averages, which JLL said will drive more competition for less expensive Class B and Class C office space in good locations.
Just to be clear, even as more office space is being built, it’s harder for new businesses that don’t need deluxe offices to afford the rent. WHHHEEEEEE!!!!!
But what’s really ridiculous is that, even as the need for office space is declining, we’re building about the equivalent of 1,800 two-bedroom apartments worth of offices. In fairness, zoning laws often won’t let builders put up housing, but this is when one wishes libertarians would actually doing something useful, and get D.C.’s zoning regulations changed.