The Motley Fool's 115,000-SF Renewal in Alexandria Came With Major Concessions. This Should Not Be a Surprise.

2000 Duke St. Photo by JLL.

ALEXANDRIA, VA—Last month Cresa Washington announced it helped The Motley Fool negotiate a 115,000-square foot renewal at 2000 Duke St., in Alexandria, Va. The Cresa team — Rich Rhodes, Jon Olmstead, and Rusty Meadows — negotiated a rental rate reduction and concession package that reduced The Motley Fool’s annual obligation 15 months prior to it lease expiration, it reported. In addition, for the first time in its history, the City of Alexandria kicked in some incentives as well, including a direct cash grant and assistance in negotiating additional benefits. Part of the eagerness on the part of the building owner and city was Motley Fool’s sizable footprint in the area and marque name. It is the lead anchor tenant in the Old Town office building that is part of the Carlyle Community mixed-use park, occupying four floors. The landlord, JP Morgan Investment Management , was represented by David Goldstein and Yorke Allen of JLL . But even without these advantages, chances are extremely good that the company could have gotten something similar from the landlord. In short, leases here are still being fueled by very generous concessions. DC Has Highest Lease Concessions Earlier this year, a CBRE report noted that Washington DC’s concession packages have become increasingly generous over the past few years, with the District of Columbia having one of the highest lease concessions among the major US CBD markets. This was due, CBRE said, partly to rising fit-out costs but mainly to the local market’s supply and demand dynamics. The turning point came after 2012 when tenant improvement allowances rose significantly in the wake of law firm contractions and a slowdown in federal government leasing. TIAs for private-sector leases, when normalized for 10-year terms, now average $74 per square foot and abatements have more than doubled since 2008, currently approximating one free month per year of term, CBRE said. Supply-Demand Fundamentals Are In Charge This report came out in May. Since then, there has been little sign that the trend is slowing. In its Q2 earnings call, Piedmont Office Realty Trust CEO Don Miller said that the Washington DC market continues to require the largest leasing concessions. Again, it is clear that the supply-demand fundamentals are driving this particular bus. As Miller said during the call:

DC, I would say….just continues to bump along the bottom. We are getting some deals done. We are making incremental progress. It is two steps forward, one step back.

Piedmont is lucky in that it doesn’t have a lot of lease rollover this year. There are some rolling over next year and then, according to Miller, virtually none for several years thereafter. But leases are getting inked or renewed. The Motley Fool lease is one example. There are others from Piedmont’s local portfolio. Amazon signed a 50,000-square foot new lease for seven years at 4250 North Fairfax . Also, the accounting firm CliftonLarsonAllen is taking 24,000 square feet in a 10-year-plus new lease at Arlington Gateway. And as Piedmont’s EVP for the Mid-Atlantic region, Bob Wiberg said during the call, the company had a good week for tour activity recently. “Overall, the market is slow, but we have pockets of good activity.” But, clearly as landlords close these and other leases in the area they continue to give up significant concessions.