WASHINGTON, DC–Year-to-date there have been about $1.6 billion in office sales for the District, according to Newmark Knight Frank's second quarter analysis. The area, in other words, remains attractive to investors especially foreign ones.

It writes:

Japanese firm UNIZO Holdings Company's acquisition of two assets totaling 436,959 square feet at 1325 G Street NW and 1341 G Street NW for $259 million, or $593/SF, represented the largest transaction during the second quarter. The second-largest transaction was the sale of 600 New Hampshire Avenue NW in the West End submarket. The 309,837-square foot building sold to Washington REIT for $135 million, or $436/SF. Lincoln Property Group acquired the 35,000-square foot building at 615-619 14th Street NW for $37.3 million, or $1,065/SF, with an additional $19.8 million on top of the building purchase price to include adjacent vacant land parcels. Lincoln Property plans to redevelop the site into an 11-story office building.

Other transactions GlobeSt.com has reported recently show that top pricing for office properties have gone beyond the $1,000 per square foot point. A JV between Norges Bank Real Estate Management and Toronto-based Oxford Properties Group has acquired 900 16th St., NW. A source has told us that it traded for $160 million, or $1,250 per square foot — one of the highest sales prices for a District building on a per square foot basis. A source has also told us that Norges and Oxford Properties have under contract 1101 New York Ave., NW, for $418 million or $1,069 per square foot.

As pricing inches upward, NKF has come to the conclusion that it has peaked for this cycle.
This is true for both the District and the metro area, Research Manager Bethany Schneider tells GlobeSt.com.

“Our conclusion is mostly because of this point in time in the economic cycle,” she says. “We are not seeing any declines in pricing but we are also not seeing any evidence that pricing will increase any further. The economic cycle is peaking and so is the sales cycle.”

Lopsided Supply-Demand

One related reason why pricing has hit the ceiling could be the area's supply-demand fundamentals, which are becoming increasingly lopsided due to incoming supply. Currently, vacancy is at 16.2% for the metro area; by June 2019 NKF expects it will reach 17%.

The exception is Class A office — particularly the trophy and A plus — which is outperforming 2016. Year-to-date net absorption of Class A space is 1.5 million square feet compared with 1.1 million square feet for all of 2016.

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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.