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D.C. Office Owner Cuts Asking Rent In Half As Anchor Tenant Prepares To Vacate

The office building at 1875 Pennsylvania Ave. NW that WilmerHale will vacate in 2022.
The office building at 1875 Pennsylvania Ave. NW that WilmerHale will vacate in 2022.

Concessions and vacancy in D.C.'s struggling office market have risen to all-time highs as landlords try to lure tenants without bringing down a building's base rent, but one Pennsylvania Avenue owner is pursuing a different strategy. 

EastBanc announced Tuesday it is reducing the triple-net rental rate at 1875 Pennsylvania Ave. NW from about $60 per SF to $29 per SF while offering no concessions and a flexible lease term.

Average asking rents in the District last quarter were $56.62 per SF, according to Cushman & Wakefield's Q2 report. The D.C. office market had a record-high vacancy rate of 16.3% in Q2, according to the report, a metric that was already elevated before the coronavirus as new supply outpaced demand. 

The rent reduction comes as the building's anchor tenant, law firm WilmerHale, is preparing to relocate in 2022 to Boston Properties' new development at 2100 Pennsylvania Ave. NW. WilmerHale occupied all of the 290K SF building, and EastBanc is looking to lure another tenant to lease the full property. 

The building, designed by Shalom Baranes Associates, was developed in 2006. Cushman & Wakefield is representing EastBanc in leasing the building.  

EastBanc sees the strategy as mutually beneficial because the tenant can have a more flexible lease term and occupy a Class-A office building for an unusually low rental rate, while the reduction could help the landlord land a tenant and bring in revenue in an office market with historic levels of landlord competition.

The lower rent would also reduce EastBanc's tax burden, as property taxes are calculated based on rental income. EastBanc said it is cutting the rent in lieu of renovating the property, a strategy many landlords have pursued that often costs millions of dollars. 

“Our tested practice to reduce incentives and focus on low net rent leases with flexible exits is working, and we are signing leases and generating interest in a market where deals are rarely getting done," EastBanc principal Philippe Lanier said in a statement. "It's a structure that’s a win to both landlord and tenant."