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Out-Of-Town Investors And Tenants Drawn By Amazon's HQ2 Are Coming To National Landing

As work on Amazon's HQ2 continues, investors and tenants from around the world are showing more interest in becoming a neighbor.

A flag is raised during a topping out ceremony for the Met Park 6, 7 and 8 buildings, part of the first phase of Amazon's HQ2.

The National Landing area, which encompasses Crystal City, Pentagon City and part of Potomac Yard in Arlington, has an $8B development pipeline, $2.5B of which is from Amazon, National Landing BID President Tracy Sayegh Gabriel said at Bisnow's National Landing Update event Tuesday.

That development is set to take advantage of the more than 25,000 workers Amazon plans to bring to the region, and its presence is now visible in the skyline as the first two office towers topped out last week. Neighborhood leaders, developers and brokers said that HQ2 is drawing new global investors and commercial tenants to seek opportunities in the area. 

"We’re the only place in the region that has a guaranteed job growth trajectory that is pretty astounding," Gabriel said. "No question that a number of other employers would want to follow suit and be a part of the exciting energy that is taking place here."

Panelists at Tuesday's event said the knock-on effects of Amazon's HQ2 were already manifesting across the real estate market, attracting new retail and office tenants and high-priced multifamily deals in an area that sorely needs it.

Tracy Sayegh Gabriel speaks during a panel at Bisnow's National Landing Update event on March 21, 2022.

In January, UIP Cos. and Churchill Living acquired The Millennium, a multifamily building overlooking Metropolitan Park and across from Amazon's new office towers. The price wasn't disclosed at the time, but property records now show it sold for $200.5M.

That price tag came in part because investors looking to make a National Landing multifamily building a piece of their core portfolio anticipated double-digit rent growth, CBRE Senior Vice President Jonathan Greenberg said.

"If you're looking to buy a project within National Landing ... there is going to be a very competitive crowd," Greenberg said.

Greenberg, a member of CBRE’s multifamily investment team, said he fielded "18 calls at all hours of the night" from investors all over the world, including Europe, Asia and South America, who were interested in owning real estate in the submarket. CBRE received over 200 expressions of interest for The Millennium, Greenberg said.

"[The market] is very difficult," Greenberg said. "It's national. It's international. There’s all kinds of equity sources."

Pillsbury's Jamie Bobotek, Federal Realty's Geoff Sharpe, LCOR's Josh White, CBRE's Jonathan Greenberg, JBG Smith's Jack Kelly and ZOM Living's Andy Cretal speaking at Bisnow's National Landing Update event.

ZOM Living, an Orlando-based developer, paid $32M in December to acquire a 2-acre site in National Landing and secured $150M in construction financing for a new 492-unit development. The project, in partnership with Switzerland-based Partners Group, is expected to deliver in 2024.

The National Landing office market is also attracting major global investors. At the end of December, Starwood Capital Group acquired a 308K SF office building at 1400 Crystal Drive for $188.5M, one of the biggest deals of the year according to the Washington Business Journal

The building had been repositioned following the base realignment that hollowed out Crystal City, and at $612 per SF brought a tidy sum for the affiliates of Lincoln Property Co. that sold the building.

Meanwhile, the office leasing market in National Landing is still firmly in recovery mode even as some tenants sign leases ahead of HQ2's build-out.

In 2021, National Landing experienced negative net absorption of 889K SF, according to market data published by Lincoln Property Co. Asking rates for office leases in the submarket averaged about 1.8% lower in 2021 than they did in 2020.

Still, there were some signs the market was stabilizing. Lockheed Martin in October signed a lease renewal in Crystal City for 180K SF, though that was 18% less space than its prior lease. The General Services Administration signed an 87K SF renewal for the Department of Defense at 201 12th St., according to Lincoln Property Co.

JBG Smith, the largest property owner in National Landing, sees positive signs for the future of the neighborhood. Evan Regan-Levine, executive vice president at the REIT, said roughly 50% of the tenants looking to rent office space from the developer in National Landing are coming from outside the D.C. region, compared to 20% in a typical building outside the area.

Evan Regan-Levine speaks during a panel at Bisnow's National Landing Update event on March 21, 2022.

Many of those tenants are tech-focused, according to Regan-Levine. Last year, then-Gov. Ralph Northam announced French startup incubator ZeBox would open its first U.S. location in Arlington County. The startup, backed by logistics and shipping giant CMA CGM, will assist startups focused on technologies like augmented reality, blockchain and the Internet of Things at its 15K SF space at 1550 Crystal Drive, a JBG Smith-owned property.

Regan-Levine said the digital infrastructure that JBG Smith is building out, including its 5G network, was a major reason tech-focused tenants were attracted to the area, and that Amazon proved the tech talent newcomers need is already present in the market.

"Now companies from out of market say, ‘Wow, let me look at D.C., D.C.’s got a deep well of tech talent and Amazon is plumbing that well,'" Regan-Levine said. "That’s the same thing that happened in Seattle, and we're seeing it maybe a little sooner than they did."

Walsh Colucci Lubeley & Walsh's Nick Cumings and AT&T's Andrea Raney speaking at Bisnow's National Landing Update event.

Meanwhile, retail landlords are also seeing resurgent demand, thanks in part to National Landing’s hot multifamily market. 

JBG Smith reported in its Q4 earnings report that it had tenants leased or committed to 100% of its Central District retail spaces, which includes an area bounded by Crystal Drive and South Bell St. that's northeast of the Crystal City Metro station

The developer also worked with Amazon to identify and execute 14 more retail leases at its Metropolitan Park offices.

Jamie Bobotek, partner at Pillsbury Winthrop Shaw Pittman, and Geoff Sharpe, vice president of creative planning and development at Federal Realty Investment Trust

In October, Federal Realty Investment Trust also announced it had completely leased up Westpost, the 14-acre retail center previously known as Pentagon Row that sits near the Pentagon City Metro station.

Geoff Sharpe, vice president of creative planning and development at Federal Realty, said the landlord had to get creative in keeping tenants in business through outdoor dining and curbside pickup, but that he believed Westpost had become an integral "urban hangout" within National Landing.

"Sometimes we got it right, sometimes we didn't quite get it right," Sharpe said. "But you look at the vibrancy of some of our assets and the fact that we were able to retenant for those few instances where tenants did fall out, [and] I think we're coming out of the pandemic in a pretty good place."