WASHINGTON, DC–Something significant happened in the District during Q2: Sales volume declined by more than $1 billion quarter to quarter*, but the average price per square foot rose to $339 per square foot — a 7% increase year-over-year and 13% compared to Q1, according to Yardi-Matrix's calculations. That is a significant jump in pricing, Doug Ressler, director of Business Intelligence for Yardi-Matrix tells GlobeSt.com and it has ramifications for how investment sales will shake out for the remainder of the year and probably beyond.
The increase in price per square foot occurred primarily in the District's Downtown area, he noted, which means that more acquisitions will likely take place in the suburbs, namely Northern Virginia. “Pricing is getting too steep in the city's core,” he says.
This, of course, has been a trend for a while, but Ressler says that Q2's increase is the beginning of an inflection point. “At the lower end that makes the alternative options in the suburbs that much more appealing. Even at the higher end it is having an impact.” Indeed, the top deal of the quarter was Morgan Stanley's purchase of the Waterview high-rise in Arlington for $460 million
The differential in pricing is also having a secondary effect — investors are more likely to buy vacant buildings in Northern Virginia and repurpose them.
One factor, though, could shift these dynamics: the expected increase in defense spending doesn't materialize or at least not at the expected level. “There is the perception that policy and spending could have an adverse impact on office buildings and sales in Northern Virginia but this is not an immediate concern. Rather, Ressler says, it is something to watch four to six months from now.
* Q2's dollar volume climbed 32% year over year from $928 million to $1.2 billion but dropped significantly compared to Q1 from $2.3 billion to $1.2 billion.
WASHINGTON, DC–Something significant happened in the District during Q2: Sales volume declined by more than $1 billion quarter to quarter*, but the average price per square foot rose to $339 per square foot — a 7% increase year-over-year and 13% compared to Q1, according to Yardi-Matrix's calculations. That is a significant jump in pricing, Doug Ressler, director of Business Intelligence for Yardi-Matrix tells GlobeSt.com and it has ramifications for how investment sales will shake out for the remainder of the year and probably beyond.
The increase in price per square foot occurred primarily in the District's Downtown area, he noted, which means that more acquisitions will likely take place in the suburbs, namely Northern
This, of course, has been a trend for a while, but Ressler says that Q2's increase is the beginning of an inflection point. “At the lower end that makes the alternative options in the suburbs that much more appealing. Even at the higher end it is having an impact.” Indeed, the top deal of the quarter was
The differential in pricing is also having a secondary effect — investors are more likely to buy vacant buildings in Northern
One factor, though, could shift these dynamics: the expected increase in defense spending doesn't materialize or at least not at the expected level. “There is the perception that policy and spending could have an adverse impact on office buildings and sales in Northern
* Q2's dollar volume climbed 32% year over year from $928 million to $1.2 billion but dropped significantly compared to Q1 from $2.3 billion to $1.2 billion.
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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.
