Lean Job Numbers Highlight Our State of Office Event Yesterday
While many observers believe the DC office leasing market has bottomed out, we may be in for a few more lean years, said Transwestern research guru Elizabeth Norton at our DC State of Office event yesterday at the Willard. The reason? Job growth. The DC market has only added 10,000 new jobs in the past year, compared to as much as 90,000 in past post-recession periods. And many of those new jobs are in non-office using sectors like leisure and hospitality, which don't help backfill vacant space. But it's not all doom and gloom, Elizabeth says: Scores of Millennials continue to move here, and DC's overall walkability outpaces that of the New York metro, according to one outlet.
Vornado/Charles E. Smith boss Mitchell Schear (middle, with DLA Piper's Jay Epstien and JBG's Todd Rich) is more optimistic, proclaiming that "the market has thawed" from the chill of the budget crisis and sequestration. But smaller office deals are leading the way, he adds. Todd says the right building improvements made at the right time can work wonders for owners facing big vacancy problems, citing the investment Tishman Speyer made at Arlington Tower in Rosslyn. After several large tenants departed recently, a new rooftop deck, among other interior upgrades, was able to net Tishman new deals at top of the market rents.
Suburban office markets in both Maryland and Virginia are struggling, but FCP's Erik Weinberg (with Donohoe's Lou Campanelli) says there are bright spots to invest in, if you know where to look. Earlier this year, FCP scooped up One Preserve Parkway in Rockville from Boston Properties for $61M, which had the lure of a long-term lease with Booz Allen Hamilton. But the building is also on the new side (built in '08) and sits right along I-270, which connects the area to a huge base of tenants' employees. Quality assets with durable cash flows and solid commuting patterns will continue to succeed, Erik says.
One of our panels explored the tech sector's influence on DC leasing, and went behind the recent deal digital agency iStrategyLabs (here's CEO Peter Corbett with JLL's Evan Behr) signed at Douglas Development's Wonder Bread Building in Shaw. While landlords clamor for young, growing tech companies to fill vacancies, Peter admittedly says those firms can be high-maintenance. Evan's team repped Douglas in the iStrategy deal, and Peter says he and his colleagues demanded allowing pets and having bike storage at Wonder Bread, "or we won't move." He added that those features weren't necessarily top priorities for iStrategy, rather a "litmus test" for seeing how much creativity the firm would be able to let loose in the space. iStrategy will move into its ground-floor, 16k SF space by the end of the year.
The Ezra Co's Ezra Weinblatt (right, with Wingate Hughes' Gavin Daniels) repped iStrategy and says startup tenants often look for design elements that aren't really possible, such as open ceilings. But landlords that are willing to be flexible—both with design demands and deal structure—are the ones winning deals, he says. Gavin says that design efforts with startups and tech firms are about designing with the client, instead of to the client. (A relationship is about give and take. And tech clients would know, since every relationship now begins with online dating.) Stay tuned tomorrow for more coverage of our office event.