Quarterly: Winter 2000 - GWCAR - Greater Washington Commercial Association of REALTORS

CBQ >> Winter 2000 Issue

GREATER WASHINGTON LEADS NATION IN CONSTRUCTION AND NET ABSORPTION in 1999

Greater Washington, D.C.’s commercial real estate market led the nation at year-end 1999 in the development of commercial space, with more than 20 million square feet under construction. The region absorbed 11 million square feet of office product, the highest level of net absorption recorded in the United States this year. The metropolitan area’s availability rate was the third lowest in the country after San Francisco and New York.

In D.C., the East End and CBD submarkets experienced the largest amount of construction activity, with 2.5 million and 1.6 million square feet under way, respectively. Total office building deliveries for the year equaled 1.7 million square feet; new additions for 2000 are projected at about 2.5 million square feet.

Washington, D.C. posted its lowest amount of office inventory on the market at year-end in 10 years. Strong leasing activity in the fourth quarter contributed to the decrease in availability rates, with tenants signing for more than 2.2 million square feet, bringing the total amount of office product leased in 1999 to 7.9 million square feet. District rental rates ranged from as high as the mid-$50s per square foot in trophy-quality buildings to $23 to 24 per square foot in Class C buildings.

Signs of revitalization were also evident in the North of Massachusetts Avenue (NOMA) development zone. MCI Worldcom signed a 20-year lease for 162,000 square feet at 1845 Fourth St. N.E. for a switch center and XM Satellite Radio took 125,000 square feet at 1500 Eckington Place N.E. Douglas Development is renovating the 347,000-square-foot 77 P St. N.E., which presently commands an asking rental rate of $32.50 per square foot. NOMA may potentially act as a magnet for high tech and communications companies because of its relatively low rents and access to fiber-optic cable lines. The neighborhood will also house the new headquarters of the Bureau of Alcohol, Tobacco and Firearms and a Red Line metro stop at New York and Florida avenues.

Northern Virginia also experienced a record year in 1999. Its office inventory totaled more than 130 million square feet at year-end due to more than 12 million square feet of new construction. The volume of deals was so strong that more than 80 percent of the new space was spoken for before the buildings could be completed. Tenant interest in Northern Virginia fueled a 4.0 percent drop in the overall availability rate in the fourth quarter, shrinking from 7.4 percent in the third quarter to 7.1 percent. The furious activity produced a dramatic increase in asking rental rates. Class A rental rates in the Tysons Corner area of the Fairfax County submarket, for example, grew more than 30 percent over 1997 rates.

Fairfax County led the Northern Virginia market, accounting for 68 percent of all fourth-quarter leasing activity. The situation in Reston and Herndon was much the same. The overall availability rate in Arlington County stood at 4.9 percent at year-end, a 14 percent decline from the 5.7 percent overall availability rate of the previous quarter.

The hot topic in Suburban Maryland at year-end was the turnaround under way in Silver Spring. Discovery Communications, still in the planning stage for its world

headquarters, purchased a moth-balled retail store that it will turn into a production and data center. The American Film Institute is restoring the Silver Theater, which is being readied for fall 2000 as part of the redevelopment of downtown Silver Spring.

Additionally, other businesses lured by county and state incentives began leasing office space in the area in the fourth quarter, causing a reduction in Class A availability rates for the first time in years.

Availability rates in the fourth quarter were as low as 3.2 percent in the Bethesda and North Bethesda submarkets and 3.4 percent in Germantown. Rents were on the rise at year-end as Suburban Maryland continued to tighten due to a shortage of new construction. Average rental rates at year-end ranged around $29 to $35 per square foot in Bethesda, $28 to $32.50 in North Bethesda, $24 to $27 in Rockville, $26 to $27.50 in North Rockville, $24 to $26 in Gaithersburg and $22 in Germantown.

The tenant base in Suburban Maryland continued to include a few bio-technology companies, along with an upsurge of information technology firms flexing their economic muscles.

Exerpted from The Studley Report and Spacedata, which is a quarterly compilation of commercial real estate statistics for major markets throughout the country.