Market Segments
Washington, D.C. recorded gross leasing activity of just over 1.7 million square feet (msf) in Q3 2026, comprising 980,000 square feet (sf) of new deals and 773,000 sf of renewals. This brings year-to-date (YTD) gross leasing to 5.1 msf, a 9% decline from the 5.5 msf recorded over the same period in 2025, driven by a 14% drop in new leasing and a more modest 4% decline in renewal activity. Despite the YTD softness, leasing fundamentals remained healthy in the third quarter, with 35 leases exceeding 10,000 sf signed during the period. The quarter's largest new deal came from Google, which signed for 209,000 sf at 500 N Capitol St NE. The space will be vacated by McDermott Will & Schulte, which is relocating to BXP's new development at 725 12th St NW.
The CBD remained the primary driver of gross leasing activity in Q3, accounting for 47% of the market total. The submarket recorded more than 356,700 sf of new leasing—36% of the quarter's total—alongside 466,600 sf of renewals, representing 60% of all renewal activity. Law firms continued to underpin leasing demand, accounting for more than 300,000 sf of activity during the quarter. Notable transactions included Sheppard Mullin's 107,000-sf lease at 2033 K St NW, Greenberg Traurig's 80,100-sf renewal at 2101 L St NW, and Torridon Law's 36,500-sf sublease at 1201 Pennsylvania Ave NW.
Government leasing activity picked up in Q3 following a slow start to the year, totaling 495,000 sf across four transactions. Notable government deals included the D.C. Department of General Services' 165,000-sf renewal at 1050 1st St NE, the U.S. International Development Finance Corporation's 24,000-sf expansion at 1100 New York Ave NW, and the Federal Labor Relations Board's 18,500-sf renewal at 1400 K St NW.
Supply And Demand
The market recorded 123,800 sf of negative absorption in Q3 2026, with losses concentrated in the CBD and West End/Georgetown submarkets. In West End/Georgetown, major move-outs included EAB's departure from 38,500 sf at 2445 M St NW and Lathrop GPM's relocation from 15,000 sf at 2600 Virginia Ave NW to 1015 15th St NW. In the CBD, notable move-outs included Cadwalader placing 36,000 sf on the sublease market at 1919 Pennsylvania Ave NW, Steptoe's return of a full floor at 1330 Connecticut Ave NW, and Saul Ewing's departure from 35,000 sf at 1919 Pennsylvania Ave NW in favor of 24,000 sf at 1800 M St NW.
Absorption improved by nearly 37% year-over-year (YOY) through the first three quarters of 2026, totaling negative 469,000 sf compared with negative 742,000 sf over
the same period in 2025. A significant government move-out highlighted Q3, with the Department of Veterans Affairs vacating 77,000 sf at 425 Eye St NW. Additionally, the National Democratic Institute, a nonprofit organization, vacated 35,700 sf at 455 Massachusetts Ave NW following the loss of federal funding. In the CBD, Class B move-outs drove Q3 absorption to negative 42,500 sf, bringing the submarket's YTD absorption to negative 165,000 sf. The East End, by contrast, recorded 70,400 sf of positive absorption in Q3, driven primarily by Class A product, which posted 46,000 sf of positive absorption and brought the submarket's YTD absorption to negative 9,970 sf. Positive absorption in the East End was led by mid-sized tenants, including Chaos Industries' 20,000-sf move into 699 14th St NW, Seay/Felton Trial Lawyers' 17,000-sf lease at 601 Pennsylvania Ave NW, and Partnership for Public Service's 15,400-sf occupancy at 600 14th St NW.
Vacancy
Vacancy rose to 23.5% in Q3 2026, up 20 basis points (bps) quarter-over-quarter and 140 bps YOY. By asset class, Class A vacancy increased to 19.4%, up 80 bps YOY, while Class B vacancy rose to 28.4%, a steeper 170-bps increase that reflects greater softness in commodity space. The widening gap between Class A and Class B underscores a continued flight-to-quality trend, as tenants increasingly prioritize newer, amenitized buildings over older inventory. Trophy office—a subset of Class A—finished the quarter at 12.4% vacancy, reflecting sustained demand and limited supply among the market's top-tier assets.
Despite ongoing occupancy losses, vacancy growth has been partially offset by continued inventory reduction, as buildings are removed from the competitive stock for residential conversion or repositioning. At the same time, the limited availability of large, contiguous blocks in newer trophy assets continues to support lower vacancy at the top end of the market.
Pricing
Average full-service asking rents in Washington, D.C. stood at $55.15 per square foot (psf) in Q3, down $0.20 YOY. Class A rents rose $1.08 psf YOY to $61.56, while Class B rents declined $0.04 YOY to $53.09 psf, and Class C rents fell $0.73 YOY to $44.54 psf. This divergence highlights continued strength at the top of the market alongside persistent pricing pressure on older, commodity product.
Tenant improvement (TI) allowances remain elevated, averaging approximately $156 psf, compared with pre-pandemic levels of nearly $100 psf in 2019. Abatement packages have also expanded, averaging 1.7 months of free rent per year of term for leases over 10,000 sf with terms of five years or longer in core submarkets, compared with approximately 1.2 months in 2019. Despite elevated concessions across much of the market, trophy landlords are beginning to regain leverage amid limited availability of large, high-quality blocks. As a result, select premier assets are achieving stronger economics, with TI packages and free rent concessions trending below peak post-pandemic levels for top-tier deals.
