Washington, D.C.’s workplace sector ended final 12 months with blended fundamentals, in line with the newest CommercialEdge knowledge. The funding sector noticed heightened exercise in comparison with 2023, because the capital recorded a 19.8 p.c year-over-year enhance in transaction quantity.
As emptiness charges climbed, mortgage delinquencies rose, and property values dropped via the 12 months, landlords have more and more been disposing of their underperforming workplace belongings. Different various options, akin to repositioning or changing, proceed to stay well-liked decisions.
Gradual development exercise
As of December, D.C.’s workplace pipeline comprised 1.1 million sq. toes of area throughout seven properties, representing 0.3 p.c of current inventory—under the nationwide common of 0.8 p.c. Amongst gateway markets, Boston led with 3.4 p.c, adopted by San Francisco’s 2.3 p.c. When including tasks within the planning phases, the determine reached 3.1 p.c—exceeding the nationwide common of two.9 p.c and outperforming Chicago’s 2 p.c, in addition to Manhattan’s and Los Angeles’ 3 p.c.
By comparability, on the finish of 2023, a complete of three.5 million sq. toes of workplace area was below development in D.C. In December 2024, Boston was the gateway metropolis with the biggest under-construction inventory (8.7 million sq. toes), adopted by San Francisco (3.8 million sq. toes). Solely Chicago’s pipeline was smaller than the U.S. capital’s, with solely 870,344 sq. toes underway.
The most important workplace undertaking at present underway stays the 420,000-square-foot 600 Fifth St. Developed by Rockefeller Group and Stonebridge, The $375 million improvement topped out in Might, with completion anticipated by 2026.
Building begins included 964,674 sq. toes throughout three properties, accounting for 0.2 p.c of current inventory, whereas builders accomplished 2.4 million sq. toes throughout 11 properties, representing 0.6 p.c of complete inventory. Amongst vital completions in D.C. is Dulles Discovery 5, a 514,000-square-foot workplace constructing accomplished in early 2024 in Herndon, Va. Developed by Peterson Cos., the property is inside the firm’s Dulles Discovery, a 2.4 million-square-foot mission-critical improvement.
D.C.’s gross sales quantity second within the nation
On the finish of 2024, the metro’s workplace transactions totaled $2.6 billion, with 104 properties comprising 12.3 million sq. toes altering arms. Final 12 months’s funding quantity rose 19.8 p.c year-over-year, propelling the metro to second place amongst gateway markets, behind Manhattan’s $3.9 billion.
The primary quarter of final 12 months was the busiest by way of offers, ending with $947.4 million buying and selling, level after which the gross sales quantity decreased till December. Regardless of this downward pattern, Washington, D.C.’s funding exercise in 2024 picked up, in comparison with 2023, when 9.9 million sq. toes traded for $1.9 billion.
Important transactions embrace CoStar Group’s $373 million acquisition of CEB Tower at Central place, a 560,000-square-foot workplace constructing in Arlington, Va. A three way partnership between PGIM Actual Property and JBG Smith bought the Class A+ property at 1201 Wilson Blvd. in February.
One other notable deal was MRP Realty’s $225.7 million buy of Gallery Place at 616 H. St. NW, a 297,002-square-foot property in D.C.’s Seventh Road Hall submarket. In three way partnership with World Fund Investments, MRP purchased the asset after its earlier proprietor defaulted on a $179 million mortgage backed by the mid-rise constructing.
Workplace properties traded at a median sale worth of $211 per sq. foot—above the nationwide determine of $175 per sq. foot. Throughout comparable markets, Miami emerged because the priciest metro, with $400 per sq. foot, whereas the bottom sale costs had been recorded in Chicago ($85 per sq. foot).
Emptiness charge continued to climb
Washington, D.C.’s workplace emptiness charge clocked in at 18.5 p.c as of December—barely under the nationwide determine of 19.8 p.c and marking a 60-basis-point enhance year-over-year. The metro’s charge was greater than in Miami (15 p.c), Manhattan (16.6 p.c) and Boston (17 p.c). The very best emptiness charge was recorded in San Francisco, at 28.8 p.c.
Important leases in 2024 embrace Washington Put up’s 300,000-square-foot extension at One Franklin Sq.. The property totals 612,189 sq. toes and is owned by Hines and Common Motors Pension Fund.
Moreover, Fannie Mae signed a long-term dedication of 340,000 sq. toes at Midtown Heart in downtown D.C. Carr Properties and IGIS Asset Administration are the homeowners of the 867,000-square-foot constructing.
Excessive potential for office-to-residential makeovers
As vacancies elevated in most markets, office-to-residential conversions remained a horny choice for property homeowners. CommercialEdge launched the Conversion Feasibility Index, a brand new software that highlights markets with sturdy office-to-residential repositioning potential, utilizing a set of property-level scores. Powered by Yardi, the CFI rating has three tiers, with Tier I belongings being essentially the most appropriate candidates.
Washington, D.C. has 72 properties totaling 6.4 million sq. toes within the Tier I class. Moreover, there are 421 workplace buildings within the Tier II class, totaling roughly 53.8 million sq. toes.
Developer Penzance has filed plans for an office-to-residential conversion that features two buildings in Arlington, Va., inside the Rosslyn submarket. The pair of properties are at 1901 N. Fort Myer Drive and at 1911 N. Fort Myer Drive and complete 249,684 sq. toes. The proposed undertaking is ready to incorporate two residential towers with 862 condo items and a condominium tower with 82 items. The Sixties buildings maintain CFI scores of 95 and 91 factors, respectively.
Coworking positive factors floor at reasonably priced charges
Washington, D.C.’s coworking sector comprised 6.4 million sq. toes throughout 277 areas as of December. Manhattan was the gateway market with the biggest flex workplace footprint (11.3 million sq. toes), whereas D.C. outperformed Boston’s 4.9 million sq. toes. The metro continued to emerge as a hotspot for digital workplace suppliers resulting from its reasonably priced charges, which final 12 months dropped as little as $80 per thirty days, in line with CoworkingCafe.
The metro’s share of flex area as proportion of complete leasable workplace area reached 1.6 p.c—decrease than the nationwide common of 1.9 p.c and than its peer markets. Miami led the rating with a 3.8 p.c determine.
WeWork was the flex workplace supplier with the biggest footprint in D.C., with areas totaling 566,182 sq. toes. The corporate was adopted by Regus (528,779 sq. toes), Industrious (508,332 sq. toes, Areas (453,864 sq. toes) and Native Works (400,997 sq. toes).
