Why The Experts are wrong when it comes to the DC Market

Implications: The DC Metro market has shown its first sign of a downturn.
The stats prove the point that Delta Associates as noted in the attached article. The results of the 1st Q vacancy & absorption which are as follows....
The 1^st Q ’07 showed negative net absorption in all Suburban DC Markets.

The DC proper office market showed positive net absorption by not much, just under 300,00sq. ft. Net absorption for the overall Washington office market was negative (250,000 +/-) square feet in the first quarter 2007. This includes the suburban markets as well.



Analysis:

There is new office construction which is adding to the vacancy rate and by all accounts the industries outside of the Federal Government itself, such as the Defense Contractors have begun a retreat in their office space needs as well as the Feds.

Employment is too low to make up for the amount of vacancy therefore all those low cap rate buyers will be seeing their rents go down not up as the so called experts had predicted.

Many will say one quarter does not make a trend, and they are correct, but the above article further states what is being seen on the horizon for future leasing activity although not tragic, is definitely much more subdued than anticipated.

It will not take much vacancy to throw the properties that were purchased in the last 2 years in the low cap rate environment to be showing negative returns and that goes for leveraged and institutional investors alike.

Stay tuned....I hope those buyers had an exit strategy or are in it for the long term