Georgetown Gaining Momentum With Office, Retail Activity Despite New Waterfront Options
Washington is quickly becoming a waterfront city, with new buzzy developments drawing consumers and office tenants to Capitol Riverfront and soon to The Wharf. But despite the rise of these hot new areas, D.C.'s original waterfront market is picking up steam.
Georgetown's office market is the healthiest it has been in 12 years, with overall vacancy down to 3.5%. On the retail side, deals such as Capital One's record-breaking M Street buy, where it plans to open one of its first two D.C. café locations, and Amazon's first-in-D.C. bookstore signal that the submarket is strong as ever.
One of the neighborhood's most well-known mixed-use developments, Washington Harbour, has exemplified Georgetown's recent office momentum. A group of South Korean investors, advised by Principal Real Estate Investors, bought the building in 2013 and retained JLL in 2015 to lease up a vacant 17K SF second floor in the eastern building at 3000 K St. NW.
Dealing with a floor plan that was difficult to subdivide, the landlord, along with property manager MRP Realty and JLL's leasing team of Nathan Beach, Evan Behr, Doug Mueller, Kristin Mathis and Mac Hall, created a new amenity space in the center of the floor for tenants to share. Branded as Harbour Town, the shared space is modeled after a co-working environment and features a kitchen with coffee, countertops, couches and a shuffleboard table.
Sacrificing the square footage to create the shared amenity space improved the floor's appeal and allowed the JLL team to quickly bring the vacant floor to 100% leased. It signed Orr Associates, DKC Communications, Gerard Fox Law, Hilltop Public Solutions and Workaround, with leases ranging from 3K SF to 7K SF.
The indoor shared space is not the only new amenity at Washington Harbour. The development also recently introduced D.C.'s first security robot, Steve, who fell into the fountain on his now-infamous first day, but has since been replaced.
While they were filling up the second-floor space, the brokers found out other large tenants were leaving from the first and third floors. In the ground-floor space, they signed a 12K SF lease with law firm Three Crowns to fill the former Coldwell Banker office. The 60K SF third-floor space will come available next year, and the brokers have already secured leases for 52K SF of it. They could not yet disclose the tenants but said a majority of the space will be occupied by a tech company.
“Tech is growing in Georgetown, and we’ve obviously embraced that,” Beach said. “We’ve seen a huge spike in tech that had never really been at Washington Harbour before, but now it is."
The new leases as Washington Harbour come as the Georgetown submarket reaches a 12-year low for office vacancy. After peaking at more than 20% in 2007, its Class-A vacancy rate is down to just 2.4%.
The Georgetown office market's improvement shows that even as new waterfront markets emerge, tenants are still drawn to the one that was there first. Capitol Riverfront has attracted a series of new office tenants to The Yards and the Ballpark area, and a wide variety of tenants have already signed on at The Wharf ahead of its October grand opening. But Beach said the increased competition has not hurt Georgetown's appeal.
“We brand it as the authentic Georgetown experience that other waterfront neighborhoods can’t compete with,” Beach said. “Could they have other retailers? Yes. But can you go up to M Street and experience that in a different part of the city? Absolutely not."
M Street has experienced its own recent surge of momentum on the retail front.
Capital One earlier this month acquired a newly renovated retail property at the M Street and Wisconsin Avenue intersection for $50.2M, setting a D.C. record at $5,720/SF. It plans to open its new Café concept in the space in late 2018, one of its first two D.C. Capital One Café locations.
“Clearly somebody values it at the highest value of any property in D.C., so we feel good about that,” Georgetown BID President Joe Sternlieb said.
Amazon this spring picked Georgetown as the neighborhood for its first D.C. bookstore, signing a 10K SF lease to take part of the former Barnes & Noble space at 3040 M St. NW.
“There are a lot of other emerging markets throughout D.C., but it seems like retailers keep coming back to Georgetown for the safe bet,” said CBRE’s Michael Zacharia, who represented Capital One in its acquisition.
Sternlieb said Georgetown's retail market earlier this year had risen a point or two above its typical 5% vacancy, and Dochter & Alexander's Spring-Summer market report pegged the submarket's retail vacancy at 6.8%. But Sternlieb said a recent string of deals, including multiple new restaurant leases yet to be announced, will likely bring the submarket's vacancy down to about 4%.