Fundamental macroeconomic changes in the U.S. office market, combined with the enduring resilience of Washington, D.C., make this a unique moment for investment in the region’s office sector. Forward-thinking, data-driven analysis will uncover unprecedented opportunities.
Persistent flight-to-quality trends continue to drive a polarization of the D.C. office market more severely than the national average, with trophy vacancy lower and commodity vacancy higher than the overall U.S. office market.
Recent sharp federal government cutbacks have caused uncertainty throughout 2025, driving additional occupancy loss in the commodity segment of the market, while a resilient private sector shows seemingly endless demand for top-quality space.
Overall, midsized and large private sector tenants in the market plan to grow by an aggregate 350,000 square feet. Expected growth will be driven by law firms, higher education institutions, business and financial services firms and trade associations, including several new-to-market tenants.
As a result, standard Class A and B/C vacancy rates are hovering at historic highs of 24 percent and 26 percent, respectively, while trophy vacancy sits at a historic low of 10.2 percent. The overwhelming majority of large and mid-sized blocks of top-quality space are also encumbered.
If trophy space continues to be absorbed at the same pace of the past five years, Washington, D.C.’s office market will be fully absorbed in 2028.
These trends will continue as the pipeline for new supply will remain at 30-year lows as Washington, D.C., is particularly limited in sites primed for office development in core submarkets. Persistent high costs of construction and financing will continue to challenge new ground-up development as well.
As trophy supply dwindles, the Class A+ segment is now seeing a meaningful increase in demand. This segment comprises assets achieving the top 25 percent of taking rents, predominantly recently renovated buildings. Demand for this level of building quality has already been strong from tenants.
Spillover from an extremely tight trophy market is augmenting activity in that segment. Demand will also increasingly benefit standard Class A properties that are well capitalized and recently improved.
Broadly, while Class B/C space will continue to experience upward pressure on vacancy from federal government contraction, trophy and standard Class A properties competitive with private sector tenants have an increasingly favorable outlook.
Due to a high volume of property-level debt, many advertised options for large-block space are functionally inactive. Of the 80 large blocks of space (larger than 50,000 square feet) currently advertised, more than 30 are unable to transact, accounting for 5.6 million square feet of “zombie” space.
This smaller transactable market affects leasing decisions, with tenants flocking to the best-capitalized properties in metropolitan Washington, D.C. Since the start of 2024, buildings with reset basis or no property-level debt have captured 55 percent of all new lease volume.
Renovation projects are more likely to be financially viable, particularly properties acquired at low, reset basis. Some new owners have already successfully improved occupancy by using low basis to renovate and attract demand, driving asking rents up and a 20 percent drop in vacancy from date of purchase to present day. Meanwhile, owners simply using lower basis to drop rates have also lost occupancy.
Overall, investment sales will continue to tick upward, driven by distress as investors increasingly churn through their underperforming assets. Those properties that have gone through the process and come out with a basis reset are seeing success in capturing demand, most notably those landlords that significantly improved the quality of their building.
The buyer profile may also continue to evolve with new entrants to the D.C. office market.
— By Stephanie Jennings, Research Director, Mid-Atlantic, CBRE. This article was originally published in the November 2025 issue of Southeast Real Estate Business.