WASHINGTON, DC—There should be about $8 billion in office investment sales in the Washington, DC area this year, give or take, according to JLL's Managing Director of Capital Markets Bill Prutting. It will be a welcome achievement for the area, which has struggled to shake off the affects of the recession, the federal government's scale back of its real estate needs and BRAC. Basically, it will be the area's most active year since 2006.
Last year, the region posted approximately $6 billion in office sales and in 2013, office sales tallied $4.7 billion. Perhaps the only reminder of the slow progress of the post-recession years in 2015's numbers was the concentration of transactions in the District. DC proper took $5 billion of the $8 billion in deals. It is not surprising; given developments of the last few years investments have stuck to what is safe, namely the District's core submarkets.
But next year could well be different. Both Maryland and Virginia are positioned to post very robust office sales, Prutting said. Even this year will prove to have been good years for the states with Northern Virginia expected to deliver $2.5 billion in office sales and Maryland between $600 and $700 million.
The activity in Northern Virginia, in fact, is now comparable to what it was at the tail end of the peak years in 2005, 2006 and 2007, he said. The strongest pockets of activity are in the Rosslyn-Ballston market and the Reston-Herndon submarket.
Next year Maryland could be in the same position as activity ramps up in Northern Bethesda, Silver Spring and Rockville. "I wouldn't be surprised to see a 50% increase in sales velocity," he said.
As for the reasons behind this growth, it's simple, Prutting said.
"Yields in Downtown DC are very aggressive now and investors realize they can get better yields in the suburbs for comparable credit profiles."
One only has to look at the recent trades in DC to drive home the first part of that statement: 1333 H St., NW, to name one example, just traded for $604 per square foot and a 4.8% cap rate. Core and core-plus assets have been pursued hard in particular, with Trophy transactions such as Blackstone's partial interest purchase in Market Square and Prudential's purchase of 500 8th St., NW helping to drive average pricing to a record high. As sales in the suburbs pick up, more investors will look again there for value, Prutting said. As more and more transactions close, investors that had once written these submarkets off revisit to see what had changed, he said.
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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.
