The Challenges, Opportunities, and Future of Office Construction and Development in MoCo

By Richelle Wilson, Research Manager, MCEDC

In addition to being known as a hub for cutting-edge innovation and countless opportunities for business (and personal) growth and fulfillment, Montgomery County, Maryland is also home to a burgeoning construction and development era. This activity and focus, along with the challenges and opportunities that come with it, are the foundation for the County’s future and evolution. Let’s take an inside look at what’s now happening in office construction, renovation, and development, to get a pulse on future growth potential.

Challenge and Opportunity: An Inventory Update

The majority of the County’s current office inventory of properties is older, with the average age of a building in the County being 32 years. There is also a strong correlation between the age of a property and its class designation. For example, 74% of the inventory currently available was built in 1990 or prior. New construction is continuing to take place; however, with 25 office projects completed in the past 10 years.

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Figure 1 Availability of Space by Class; Source: CoStar

Class A Continues to Lead Demand, with Class B Holding the Supply

With the class designation a critical element of market demand, it is important to note the current trends with respect to sizes of blocks of space that are most attractive to potential tenants. Overall and not surprisingly, smaller blocks of space tend to occupy more quickly and steadily, as the Class A market continues to tighten, particularly for tenants seeking space in excess of 80,000 square feet. The below graphic illustrates the availability of blocks of space, by class that is on the market as of Q2 2017.  

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Figure 2 Historical Construction Deliveries 2005-2016; Source: CoStar

While new construction activity itself has declined 77% since 2011, only 364,721 square feet of space was delivered to the market¹ since 2015. This included buildings such as 12435 Park Potomac and 4500 East-West Highway. Demand continues to center primarily on Class A space, whether new or recently-renovated; however, the most available product is typically within the Class B category, which has the most options with 134 blocks of space between 0 and 50,000 square feet. This presents an interesting challenge to the overall market in terms of meeting the demand leveraging the current supply, while also continuing to evolve with the area’s tenants and business leaders. The below graph notes the historical trends in Construction Delivery over time as it correlates to square footage.  

The Forward Momentum & Future

At the end of 2016, the market in Montgomery County saw an uptick in speculative development activity. In the first quarter of 2017, there were more than 397,000 square feet of space under construction, with another 1.4 million square feet of proposed spec development moving forward. Some key projects across the area include Marriott’s new headquarters at 7550 Wisconsin Avenue, and Carr’s project at 7272 Wisconsin Avenue, part of the new Purple Line project. By 2022, 1.8 million square feet of office product is expected to be delivered to the market.

Overall, despite the contrasts in the realities of supply and ever-increasing market demand, the construction and development across Montgomery County is continuing to grow and rise to meet new challenges. Going forward, a key driver in this growth and the continual efforts to attract new and larger tenants is the tremendous host of benefits that the County delivers as the premier place to live and work.

 


¹ Inventory is any building 25,000 SF and up & non-owner occupied