Office: Real Estate Market Could Be Reviving Now
The local office market has a few promising areas. Plus, the first-ever commercial real estate professional achievement awards from us.
- It’s no secret that many offices have been sitting empty for more than four years.
- Kastle Systems, a company that analyzes weekly office visits, has shown that less than 50% of workers in the DC area commute to their places of employment.
- The office market in the area does, however, have two bright spots: structures constructed after 2020 and historically significant structures constructed prior to 1950.
- These are the only kinds that, according to Melina Duggal, senior director of market analytics for Washington, DC, at commercial real estate data analytics company Costar, have seen a greater number of tenants move in than out over the previous year.
- Duggal says the reasons are straightforward. Many businesses are shrinking when their leases expire and, according to her, are making the move to a newer structure with all the bells and whistles in an effort to “fly to quality.”
- When we talk of quality in this context, we also mean older historic structures, which can be very charming.
- This commercial real estate market has more than one trend.
Naturally, the most talk concerning conversions from offices to homes is about them.
- Converting office space comes with several obstacles, despite being hailed as a potential solution to both rejuvenate downtown and address the housing need.
- Rent Cafe’s 2024 research indicates that despite this, the District has the highest number of conversions underway (5,820 units) among big cities.
- The submarkets with the highest vacancy rates, including Washington, DC’s East End and Central Business District, are where we expect the most interest, according to Duggal.
Historic buildings are attractive here as well. “
Areas like Alexandria, Leesburg, and Frederick, which have historic buildings with smaller footprints and facilitate conversions, are also more likely to see conversions.”
According to Kelly Mangold, a principal with the real estate consulting firm RCLCO, our region will probably witness more office-to-residential conversions in the coming years due to the scarcity of sites for new construction and the high cost of existing buildings.
Conversions are made simpler by incentives including 20-year tax abatements, loosened zoning laws, and expedited permit approval processes.
Not that the regional office market isn’t having difficulties, though.
According to Duggal, “the DC area has some of the worst numbers nationally by many metrics that Costar tracks, and no significant changes appear to be on the horizon that would change the current trajectory.”
She and Mangold do observe encouraging patterns. First, according to Mangold, mixed-use communities like Logan Circle, the Wharf, and National Landing are doing well. These areas allow residents to live, work, and play.
And the apartment market in the neighborhood is booming, whether it’s because of the posh pools or the local demography.
According to Duggal, “the multifamily market in Washington, DC, outperforms the country on multiple metrics.”
It’s among the top markets in the nation for annual rent growth, and supply and demand have been stable.
The demand for apartments in the Washington region has been boosted by population growth through 2024.
The region’s modest rate of new construction combined with rising demand, particularly in Northern Virginia, means that Matt Genevan, senior vice president of real estate development at JBG Smith, anticipates that this impressive performance will continue.
Effective Formula
The Westerly apartment complex, with its glass exterior and curved balconies close to the Southwest Washington DC waterfront, is more than just a gorgeous face.
It serves as an illustration of how innovative finance can be used to add affordable housing to a high-end structure.
Hoffman & Associates, the company that developed the Westerly, chose not to rely on conventional funding sources for affordable housing, such as the DC government’s Housing Production Trust Fund, and instead financed the apartment building through a joint venture with the global investment and development firm Grosvenor, two federal low-income housing tax credits, and three construction loans.
According to Jon McAvoy, chief investment officer at Hoffman & Associates, “we successfully implemented a complex structure that not only secured the necessary funding but also allowed us to address the need for affordable housing in the community.”
The building won Costar’s Multifamily Development of the Year for DC as a result of this strategy.
The Westerly is located three blocks from the Wharf and less than a block from the Waterfront Metro station.
It is a collaborative venture of Hoffman & Associates, Affordable Homes & Communities (AHC), and real estate developers City Partners and Paramount.
Approximately thirty percent of its 449 apartments are affordable housing; of those, half are reserved for families earning 30 percent or less of the median income in the area ($45,630 for a family of four), and the other half are for families earning 50 percent ($76,050) of the median income.
Market-rate apartments ($1,886 to $4,930) and affordable apartments ($768, $1,669) are located side by side on every floor.
According to Paul Bernard, president and CEO of AHC, Hoffman & Associates created space on the bottom floor for Appletree Public Charter School, along with a cultural-event area open to the neighborhood.
The family-run Good Company Doughnut Café and a branch of the veterinarian clinic Good Vets are also located on the retail floor.
“We have created a vibrant and inclusive community by fostering affordable housing and attracting locally owned businesses, cultural spaces, and early-childhood-education facilities,” says McAvoy.
Conversation Around Town
Many have speculated about Amazon’s effects on the DC area and the area now known as National Landing ever since the firm announced in 2018 that it would locate its second headquarters there.
And although pre-Coved expectations of a deluge of new hires flooding Washington haven’t materialized, phase one of Amazon’s HQ2 has generated some excitement.
The judges of Costar’s Impact Awards were likewise impressed, and they named it DC’s Commercial Development of the Year.
Known as Metropolitan Park, the two 22-story office towers with retail and dining spaces are located on either side of a brand-new public park.
The judges praised Amazon and developer JBG Smith for their commitment to sustainability as well as for changing the area for residents and staff.
Met Park was constructed using low-carbon concrete, engineered wood, electric energy-efficient operations, water-reuse systems, and two acres of landscaped roofs with native plants.
Met Park is completely powered by renewable energy. The facility is predicted to consume 24% less energy than a comparable new office structure.
In order to prevent bird strikes, JBG Smith and Amazon also fitted non-reflective glazing.
They also looked after people: Met Park has a wide variety of merchants, such as doughnuts, pizza, and health food stores. In addition, there are modern art spaces, cycling shops, and fitness centers.
“With the cooperative input of the local community, Arlington County, and other stakeholders, Amazon expanded and transformed the park into an integral part of the neighborhood for residents, workers, and visitors to enjoy,” says Matt Genevan, senior vice president of real estate development at JBG Smith.
Uninteresting Offices, Revised
Office Properties Income Trust owns 20 Massachusetts Avenue, Northwest, a former government office building that is ahead of its time in terms of office conversions.
The architects at Leo A.
Daly have converted the seven-story building from the 1970s into a ten-story mixed-use complex featuring offices, retail space, and a Royal Sonesta hotel. Yet the remodeling wasn’t sparked by Coved.
More than two years were spent planning the conversion before 2020, according to Leo
A Daly vice president Irena Sava ova.
“The team was halfway through design development and going through agency approval processes when the pandemic struck.”
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