WASHINGTON BUSINESS JOURNAL: Suburban Maryland’s office vacancy hit a record high in thefirst quarter of 2024, owing primarily to moves by two major tenants in Montgomery County, according to a recent market report from brokerage CBRE.
The submarket, including much of Montgomery and Prince George’s counties, entered the new year with 232,000 square feet of negative net absorption, per the March 31 report. That brings vacancy, which has risen steadily for several years, to 20.5% — 4.9 percentage points higher than when the pandemic hit in March 2020.
The jump stems primarily from food services and facilitiesmanagement giant Sodexo reducing its headquarters footprint in a move from Gaithersburg to North Bethesda, and global alternative investment manager Ares Management Corp. (NYSE: ARES) consolidating its Bethesda operation with its office in Northern Virginia.
Ares Management, headquartered in Los Angeles, quit 63,000 square feet it had at 2 Bethesda Metro Center — a299,000-square-foot office built in 1999 and owned by an affiliate of The Chevy Chase Land Co. The company will now “operate fully from its Northern Virginia location,” per CBRE’s report.
Ares Management declined to comment. The only office its website lists in Greater Washington is at 4300 Wilson Blvd., a 2000s-era building in Ballston.
The 2 Bethesda Metro brochure lists more than 107,000 square feet of office available for lease in the building across the mezzanine, plaza and six levels. Cushman & Wakefield leases the property, located steps from the Bethesda Metro station, with a $2 per square foot cash bonus for three-year minimum deals signed through the second quarter of 2024 and $1 per square foot of cash bonus for deals singed through the third quarter.
Sodexo decamped its longtime U.S. headquarters at 9801 Washingtonian Blvd. in Gaithersburg, near The Peterson Cos.’ Rio Lakefront retail center, in favor of new space 915 Meeting St., a recently delivered trophy building in North Bethesda’s Pike & Rose. In doing so, the company cut its 140,000-square-foot office footprint by 73%, per CBRE’s report. Those figures don’t match others we’ve seen previously, suggesting a more modest drop from 117,000 square feet to 52,000 square feet; but the point remains that Sodexo’s move has measurably worsened Montgomery County’s office woes.
Newport Beach, California-based KBS Capital Markets Group LLC owns the Gaithersburg building, about 300,000 square feet built in 1989, that Sodexo vacated. A spokesperson wouldn’t comment recently about “prospective tenants” who’d take over the space. But Allen Aldridge, a KBS senior vice president, told me in an emailed statement the company has “started a multimillion-dollar renovation” there.
The state and county governments have together agreed tosubsidize Sodexo’s staying in-county to the tune of $758,000, contingent on Sodexo signing a 10-year lease in North Bethesda and other factors. It’s the second time in about a decade Sodexo has taken public incentives to stay put in Montgomery County.
Other losses in suburban Maryland during the first quarterincluded WeWork leaving 20,000 square feet at 7272 Wisconsin Ave. in Bethesda (though the coworking space provider still maintains an office there), Integral Consulting leaving behind almost 11,000 square feet at 2101 GaitherRoad in Rockville and OpenText putting 24,000 square feet on the sublease market at 9711 Washingtonian Blvd. in Gaithersburg (incidentally, a stone’s throw from Sodexo’s old digs), per CBRE’s report.
The situation is worse in Montgomery County than in PrinceGeorge’s, with vacancy in those places weighing it at 21.9% and 17.6%, respectively, according to the CBRE report. In Montgomery County, the Bethesda/Chevy Chase submarket had the highest vacancy rate at 27.3%, while North Silver Spring/Route 29 had the lowest at 7%.
However, even with vacancy at a new high, “large blocks ofquality space are limited,” with tenants on the hunt for a lot of space in trophy buildings finding scant options in suburban Maryland, analysts wrote in CBRE’s report. “The flight to quality is expected to continue and with no new office development expected to come online in the immediate future, quality options are expected to dwindle.”
