Foreign investors and local real estate experts are bullish on the D.C. office market, and another sign of health is the renewal of spec development in the city.
“At a conference a few months ago someone asked if spec development was occurring [anywhere in the U.S.] and the entire audience laughed,” says John Germano, executive managing director of CB Richard Ellis (CBRE), who oversees the Washington, D.C.-Baltimore region.
“When I mentioned that we are seeing spec developments like CityCenterDC in Washington, the consensus was that D.C. doesn't count. We are an anomaly here unlike any other market because of the federal government.”
While no one expects government agencies to take space in new Class-A developments, public sector tenants keep less desirable office space filled within the city borders. Law firms, lobbyists and associations are the more likely tenants in the city's new developments.
One of the projects generating the most excitement is CityCenterDC, a 10-acre, mixed-use development on the site of the former convention center.
Hines/Archstone started construction in April on this pedestrian-friendly neighborhood, which will include six buildings with retail and residential space and 520,000 sq. ft. of office space.
Nearly an acre of open space will be part of the development, which will also include a new street grid. The location, near the Washington Convention Center, museums and tourist attractions, is expected to draw local residents, office workers, tourists and convention visitors to the shops and restaurants.
CityCenterDC, a $700 million project, is the largest downtown development currently under way in any U.S. city. The anticipated completion date for the entire project is the fourth quarter of 2013. Germano anticipates that the CityCenterDC office space will be filled when that phase is ready to deliver.
Another spec development, recently completed by Boston Properties, is 2200 Pennsylvania Avenue, a mixed-use development on the site of the former George Washington University Hospital.
CBRE says the 432,900 sq. ft. building was 79.8% pre-leased at the time of delivery with law firms and technology firms among the tenants.
“The 2200 Penn development has done tremendously well and will build momentum for more development in that part of town,” says Germano. “It links the Central Business District with the West End and Georgetown and has revitalized Washington Circle.”