Doherty

Downtown D.C. has been going through a major redevelopment phase, according to Peter Doherty, managing director of Advantis Real Estate Services Company in Washington, D.C. A number of large office, multifamily and mixed-use projects are under construction or are in the planning stages of development. However, only 5.7 million square feet of space is expected to deliver in 2003 compared to a total of 9.5 million square feet delivered in the D.C. metropolitan area in 2002.

Significant ongoing projects include the Department of Transportation’s (DOT) 1.35 million-square-foot Southeast Federal Center and the Bureau of Alcohol, Tobacco, Firearms and Explosives’ 422,000-square-foot development in the “NoMa” (North of Massachusetts Avenue) submarket at New York Avenue and First Street NE. “The impact of these major projects on the periphery of downtown D.C. may provide development opportunities to surrounding properties and infill sites, effectively expanding the marketplace,” Doherty notes.

New York-based Tishman Speyer Properties, a recent addition to the downtown D.C. development community, is developing the air rights over Hecht’s department store at One Metro Center at 701 13th Street. This 421,000-square-foot office project is expected to deliver in late 2003.

The District of Columbia is the only major downtown market in the Southeast where developers and lenders have shown confidence to move ahead with speculative construction in current economic conditions, according to Doherty. Also, the lack of quality large blocks of space for tenants expected to rollover in the next 3 years in downtown D.C. has spurred developers to break ground on new projects.

Major law firms have anchored two projects that broke ground in 2002: Finnegan Henderson leased 250,000 square feet to start Boston Properties’ 537,000-square-foot project at 901 New York Avenue and Winston & Strawn pre-leased 40 percent of the 390,000-square-foot 1700 K Street, a Charles E. Smith Commercial Realty project. Five additional speculative projects totaling more than 1.4 million square feet broke ground in 2002.

A recent trend is the redevelopment of older properties in downtown D.C. for mixed-use development. One example is CarrAmerica/J.P. Morgan’s redevelopment of the former Hecht’s department store and adjacent properties formerly referred to as Square 456. This mixed-use project, located directly across from the MCI Center in the East End submarket and now known as Terrell Place, will include 443,000 square feet of office space, 38,000 square feet of retail, 49,000 square feet of entertainment uses and 29 residential units. The $150 million project is expected to deliver in late 2003.

Three blocks occupied by the old D.C. convention center will be torn down a few months after the convention center’s new 2.3 million-square-foot facility opens at Mount Vernon Square this year. The demolition of the old convention center will free for redevelopment 10 city-owned acres in the center of Washington’s booming downtown. A mixed-use project costing more that a $1 billion could begin construction by 2005, pending approval by city planners. The site is minutes, by foot, from popular venues such as the MCI Center, the International Spy Museum and dozens of new restaurants. Other nearby projects in progress include hundreds of high-end apartments, the Newseum Headquarters on Pennsylvania Avenue and the 650,000-square-foot office/residential/entertainment complex known as Gallery Place adjacent to the MCI Center.

“The District of Columbia was one of the few major downtown markets in the country to have positive net absorption in 2002 due in part to delivery of new office buildings,” says Doherty. Most of the District’s absorption was in the Capitol Hill submarket, which reflected the delivery of nearly 1 million square feet in three office buildings: Union Center Plaza 3, located at 830 First Street, containing 225,000 square feet and leased entirely by the U.S. Department of Education; 601 New Jersey Avenue, containing 257,000 square feet and leased entirely by federal government and General Services Administration (GSA) tenants including the Federal Trade Commission; and 101 Constitution Avenue, 511,338 square feet, which delivered 60 percent leased.

In addition to GSA leases, law firms and associations are major office- demand generators in the Washington, D.C., marketplace. The law firm of Wilmer Cutler & Pickering recently signed a lease for 525,000 square feet at 1801-1899 Pennsylvania Avenue, a $70 million redevelopment project by DRI Partners, Inc.

The stabilizing presence of the GSA continues to generate demand for office space from government agencies and contractors. GSA continued to lease space in the District in 2002, including the DOT’s Southeast Federal Center and the Security and Exchange Commission’s expansion of 400,000 square feet at Station Place near Union Station. The federal government leases nearly 14 million square feet of office space in the District and is in the market for an additional 1.5 million square feet. The federal government also owns 80 office buildings in the District containing 16.4 million square feet of space (not included in vacancy statistics). The new Department of Homeland Security will initially be located in an existing government-owned Navy facility along Nebraska Avenue in the Uptown submarket of Northwest Washington. A major issue of consideration for GSA in choosing office space for lease is security. GSA is leasing entire buildings on a build-to-suit basis to allow for greater security and control of the facilities. This is reflected in the Station Place and DOT projects.

As the primary office demand generator in the market, GSA has led the way into major new submarkets in the District including Southeast and NoMa. The primary GSA requirement is accessibility to mass-transit including Metrorail and Metrobus. Expect new development and leasing activity along major Metrorail corridors, including the Rosslyn/Ballston Corridor in Northern Virginia and along the Greenline in Prince George’s County, Maryland.


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