Big Law Firms Seeking New Space Could Revive D.C. Office Development

Earlier this year, the deal BXP struck to demolish a 1990s-era downtown office building and build a ground-up trophy tower on the site — with around 90% of the space already preleased — sent waves through D.C.’s commercial real estate industry. 

The news that the REIT inked an agreement to build a 320K SF office development at Metro Center, anchored by law firm McDermott Will & Emery, provided a signal: New office development is still possible in today’s market.

And it led Pete Otteni’s phone to start ringing off the hook.

“I've had conversations with other developers, congratulatory calls and just investigative calls about how this all came together and how could either they themselves or we together duplicate this kind of a thing,” said Otteni, BXP co-head of the D.C. region.

Several office brokers in D.C. told Bisnow that the top law firms and office developers in the city are hungry for the next opportunity to do what BXP did at 725 12th St. NW. 

“Every developer in town is clamoring for that kind of site, and every law firm tenant is clamoring for that,” Newmark Vice Chairman Doug Mueller said. “It’s a dynamic I’ve never seen in my career.”

With some of the city’s largest law firm leases expiring within the next six years, and with a relatively low availability of trophy space, ground-up development could be one of their only options. 

“There’s this wave of demand with really no place to go right now,” CBRE Executive Vice President Phillip Thomas said. 

Trophy vacancy stood at 12.2% in the first quarter, with rents hitting new highs, according to CBRE. Just eight of the city’s 47 trophy buildings had more than 50K SF of contiguous space. And just one of those buildings also has a top floor available: 801 17th St. NW.

And the pipeline is nearly dry, with just one office development under construction: Stonebridge and Rockefeller Group’s redevelopment of the former WMATA headquarters at 600 Fifth St. NW, set to deliver early next year. 

The top five floors of that building are preleased to Crowell & Moring, as are the top five floors of BXP’s 725 12th St. NW to McDermott. 

Private sector office completions in the District totaled roughly 500K SF in 2023 and 700K SF in 2024, well below the prepandemic totals of 2.9M SF in 2018 and 3.4M SF in 2019, according to the Washington DC Economic Partnership.  

And as the supply that is left wanes, the demand is picking up.

“There's no question that firms want trophy, especially large blocks. There's very few options now, and there are soon to be less options,” CBRE Vice Chairman Lou Christopher said. 

Some of D.C.’s largest law firms renewed in the middle of the 2010s. With many receiving 15-year leases at the time, those expirations are scheduled to come due in the early 2030s. 

Newmark has tracked 21 law firms with lease expirations between 2026 and 2031 that are on the market, seeking a total of nearly 1.3M SF. 

Some of those are large enough and looking far enough in advance to possibly kick off a new development. 

Two firms on the market with 2029 expirations are seeking a combined 245K SF, according to Newmark data. One firm with a 2030 expiration is looking for 150K SF, and two are on the market with 2031 expirations, seeking a combined 340K SF.

Sidley Austin has a 289K SF lease that expires in 2031 at 1501 K St. NW, the Washington Business Journal reported in 2013. Latham & Watkins has 241K SF at 555 11th St. NW that expires in January 2031, according to Morningstar Credit. 

Blank Rome’s 168K SF lease at International Square is expiring in July 2029, according to Morningstar Credit. And White & Case signed for 149K SF at 700 13th St. in 2014.

“If you're larger and existing buildings aren't meeting your needs, you're looking at new construction,” Savills Vice Chairman Tom Fulcher said.

BXP’s deal at 725 12th St. NW is now the gold standard for making new construction work in a difficult financing environment.

But a lot of things had to go BXP’s way leading up to that early January day when it unveiled the project, the city’s first ground-up office development announcement in several years. 

The building BXP purchased was vacant, so it didn’t have to buy out tenants — the property was under contract for a live-work conversion before those plans fell through at the end of 2023.

It was also able to secure the site for a low basis. The REIT paid $34M for the existing 302K SF office building. And because BXP is a REIT, it was able to self-fund the acquisition and development. 

BXP in January locked in anchor tenant McDermott for 150K SF — nearly 50% of the building’s footprint — and it was far along in conversations with another large tenant, Cooley LLP, which preleased 126K SF a few months later.

Those tenants were willing to pay rents at the top of the trophy spectrum, which brokers say is necessary to get new development done today, amid high construction costs and interest rates. Brokers say big law firms’ strong performance in recent years has given many the financial wherewithal to pay higher rents for top-quality space. 

Linda Mangini, chief of administration for McDermott, told Bisnow earlier this month that the law firm “probably reviewed every single building in the D.C. market” before deciding to do a ground-up development. 

“We're building a space for how we work today,” she said. “You might be paying more money per square foot, but you are also cutting the amount of space you're paying for, so it becomes very economic.”

While those two firms were able to make the math work to pay higher rents, brokers say many other firms aren’t in the position to pay those types of rents. 

There is also the question of finding a site to make a project work. 

Nearly every broker Bisnow spoke with mentioned 2100 M St. NW as another site the market was eyeing for new construction, given that it is vacant and sits on a prime corner on the west side of downtown.

Post Brothers has plans for a residential conversion at the 300K SF building. Its loan went to a foreclosure auction last month, but to the market’s surprise, Post Brothers repurchased it. The developer declined to comment for this story. 

“In my view, that's one of the two or three closest to ready to go, good development sites in downtown D.C. right now,” CBRE Vice Chairman Randy Harrell said.

Gould Property Co. and Oxford Properties Group's 900 New York Ave. NW, a site near CityCenterDC that was once planned for a 620K SF office building, is another option getting attention.

CBRE's Thomas, who represents the owners of 900 New York, said the potential to develop that site has become more of a conversation since the BXP deal. 

“The rent levels of those two leases make the economics of new developments potentially viable,” he said.

The majority of law firms with lease expirations will ultimately end up renewing or relocating to slightly lower-tier space if they can't find trophy space on the market, brokers said. 

But if all the pieces come together — a large, motivated, well-capitalized firm, a development site at a low basis, and a well-financed developer — the demand likely exists to push through a few more new development deals. 

Christopher said he expects to see one or two more of these office development deals within the next 18 months. 

“I mean, they all want to chase it, right?” Stream Realty Partners Executive Managing Director Kyle Luby said, adding that several of the largest developers in D.C. are looking for these deals. 

As other firms look to replicate its success, BXP is trying to notch back-to-back victories. Otteni said the REIT has had conversations with tenant brokers and is looking at other potential development sites.

“We are definitely among the developers who would like to do the next 725 12th St.,” he said.

Jon Banister contributed to this story.