Washington, D.C.’s workplace sector ended final yr with blended fundamentals, in line with the most recent CommercialEdge knowledge. The funding sector noticed heightened exercise in comparison with 2023, because the capital recorded a 19.8 p.c year-over-year improve in transaction quantity.
As emptiness charges climbed, mortgage delinquencies rose, and property values dropped by means of the yr, landlords have more and more been disposing of their underperforming workplace property. Different various options, reminiscent of repositioning or changing, proceed to stay common selections.
Sluggish building exercise
As of December, D.C.’s workplace pipeline comprised 1.1 million sq. ft of area throughout seven properties, representing 0.3 p.c of present inventory—beneath the nationwide common of 0.8 p.c. Amongst gateway markets, Boston led with 3.4 p.c, adopted by San Francisco’s 2.3 p.c. When including initiatives within the planning phases, the determine reached 3.1 p.c—exceeding the nationwide common of two.9 p.c and outperforming Chicago’s 2 p.c, in addition to Manhattan’s and Los Angeles’ 3 p.c.
By comparability, on the finish of 2023, a complete of three.5 million sq. ft of workplace area was underneath building in D.C. In December 2024, Boston was the gateway metropolis with the biggest under-construction inventory (8.7 million sq. ft), adopted by San Francisco (3.8 million sq. ft). Solely Chicago’s pipeline was smaller than the U.S. capital’s, with solely 870,344 sq. ft underway.
The biggest workplace venture at present underway stays the 420,000-square-foot 600 Fifth St. Developed by Rockefeller Group and Stonebridge, The $375 million growth topped out in Might, with completion anticipated by 2026.
Development begins included 964,674 sq. ft throughout three properties, accounting for 0.2 p.c of present inventory, whereas builders accomplished 2.4 million sq. ft throughout 11 properties, representing 0.6 p.c of whole inventory. Amongst important completions in D.C. is Dulles Discovery 5, a 514,000-square-foot workplace constructing accomplished in early 2024 in Herndon, Va. Developed by Peterson Cos., the property is throughout the firm’s Dulles Discovery, a 2.4 million-square-foot mission-critical growth.
D.C.’s gross sales quantity second within the nation
On the finish of 2024, the metro’s workplace transactions totaled $2.6 billion, with 104 properties comprising 12.3 million sq. ft altering fingers. Final yr’s funding quantity rose 19.8 p.c year-over-year, propelling the metro to second place amongst gateway markets, behind Manhattan’s $3.9 billion.
The primary quarter of final yr was the busiest by way of offers, ending with $947.4 million buying and selling, level after which the gross sales quantity decreased till December. Regardless of this downward pattern, Washington, D.C.’s funding exercise in 2024 picked up, in comparison with 2023, when 9.9 million sq. ft traded for $1.9 billion.
Vital transactions embody CoStar Group’s $373 million acquisition of CEB Tower at Central place, a 560,000-square-foot workplace constructing in Arlington, Va. A three way partnership between PGIM Actual Property and JBG Smith bought the Class A+ property at 1201 Wilson Blvd. in February.
One other notable deal was MRP Realty’s $225.7 million buy of Gallery Place at 616 H. St. NW, a 297,002-square-foot property in D.C.’s Seventh Avenue Hall submarket. In three way partnership with International Fund Investments, MRP purchased the asset after its earlier proprietor defaulted on a $179 million mortgage backed by the mid-rise constructing.
Workplace properties traded at a median sale value of $211 per sq. foot—above the nationwide determine of $175 per sq. foot. Throughout comparable markets, Miami emerged because the priciest metro, with $400 per sq. foot, whereas the bottom sale costs had been recorded in Chicago ($85 per sq. foot).
Emptiness fee continued to climb
Washington, D.C.’s workplace emptiness fee clocked in at 18.5 p.c as of December—barely beneath the nationwide determine of 19.8 p.c and marking a 60-basis-point improve year-over-year. The metro’s fee was increased than in Miami (15 p.c), Manhattan (16.6 p.c) and Boston (17 p.c). The best emptiness fee was recorded in San Francisco, at 28.8 p.c.
Vital leases in 2024 embody Washington Put up’s 300,000-square-foot extension at One Franklin Sq.. The property totals 612,189 sq. ft and is owned by Hines and Common Motors Pension Fund.
Moreover, Fannie Mae signed a long-term dedication of 340,000 sq. ft at Midtown Middle in downtown D.C. Carr Properties and IGIS Asset Administration are the house owners of the 867,000-square-foot constructing.
Excessive potential for office-to-residential makeovers
As vacancies elevated in most markets, office-to-residential conversions remained a beautiful possibility for property house owners. CommercialEdge launched the Conversion Feasibility Index, a brand new device that highlights markets with sturdy office-to-residential repositioning potential, utilizing a set of property-level scores. Powered by Yardi, the CFI rating has three tiers, with Tier I property being probably the most appropriate candidates.
Washington, D.C. has 72 properties totaling 6.4 million sq. ft within the Tier I class. Moreover, there are 421 workplace buildings within the Tier II class, totaling roughly 53.8 million sq. ft.
Developer Penzance has filed plans for an office-to-residential conversion that features two buildings in Arlington, Va., throughout the Rosslyn submarket. The pair of properties are at 1901 N. Fort Myer Drive and at 1911 N. Fort Myer Drive and whole 249,684 sq. ft. The proposed venture is ready to incorporate two residential towers with 862 condominium models and a condominium tower with 82 models. The Nineteen Sixties buildings maintain CFI scores of 95 and 91 factors, respectively.
Coworking features floor at inexpensive charges
Washington, D.C.’s coworking sector comprised 6.4 million sq. ft throughout 277 areas as of December. Manhattan was the gateway market with the biggest flex workplace footprint (11.3 million sq. ft), whereas D.C. outperformed Boston’s 4.9 million sq. ft. The metro continued to emerge as a hotspot for digital workplace suppliers resulting from its inexpensive charges, which final yr dropped as little as $80 per 30 days, in line with CoworkingCafe.
The metro’s share of flex area as share of whole leasable workplace area reached 1.6 p.c—decrease than the nationwide common of 1.9 p.c and than its peer markets. Miami led the rating with a 3.8 p.c determine.
WeWork was the flex workplace supplier with the biggest footprint in D.C., with areas totaling 566,182 sq. ft. The corporate was adopted by Regus (528,779 sq. ft), Industrious (508,332 sq. ft, Areas (453,864 sq. ft) and Native Works (400,997 sq. ft).
