First, though, a definition is in order. Jones Lang LaSalle defines trophy building as any property that can garner rents of $65 per sf or higher, John Sikaitis, research director and co-author of the report, tells GlobeSt.com. In the District, the report says, there are 31 existing buildings that meet this criteria, with an additional seven buildings spanning 1.8 million sf under construction.
"There are other factors as well, such as location or amenities in the building. However given the rent hikes of the last few years we felt we had to include rent in the definition as well," he says, adding that examples of trophy buildings in the District include 1101 New York Ave. and 51 Louisiana Ave. Examples of two entering the pipeline, are 1999 K St. and 901 K St., both of which just broke ground.
Currently there is about 82,000 sf of available trophy space in the District, out of a total of 10.8 million sf of trophy space that exists in DC's core office market, Sikaitis says. The vacancy rate is less than 1% in other words--or 0.8%. Thus these buildings are able charge significantly higher asking rates, from $65 per sf for existing buildings to an average of $75 per sf, when the buildings in the pipeline are taken into account.
While $75 per sf may seem high to local tenants, the report has concluded that it is a bargain compared to other capital cities. "Despite rapid appreciation in rental rates, the Washington, DC trophy market still presented a compelling value relative to international markets such as London, Tokyo, Hong Kong, Paris and Midtown Manhattan--locations many global law firms and other tenants in the DC trophy market also occupy. As properties in our nation's capital remain a competitive bargain to global firms," the report says. Therefore, "A legitimate potential for sustained increases in rental rates exists over the near-term."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
