GSA Thaw Heats Up DC Office Market
The GSA’s starting to work through its leasing backlog and the private sector's looking as strong as it has in years. That’s good news for the office market in the DC region and among the reasons we’re excited to host the DC State of Office event, Wednesday, Sept. 16, at 440 First St NW, starting 7:30am.
“Summer was really busy,” says Brookfield director of leasing and speaker Dave Bevirt, “so we’re anticipating a very strong leasing season.” No one has felt the highs and lows of dealing with the GSA like Dave (right, with Cushman & Wakefield’s Brian Dawson at a Bisnow event) over the past month. Brookfield lost TSA in its two-building, 550k SF portfolio in Pentagon City after the agency elected to consolidate at Victory Center in Alexandria. Less than three weeks later, Brookfield got the Department of Homeland Security to renew a 120k SF lease at 1110 N Glebe Rd in Ballston. “Government agencies are looking for price-driven deals, so you’re always at risk of losing your tenant,” Dave says. “I don’t think anyone feels they can leverage a tenant.” Brookfield didn’t have the space for what TSA wanted, but after DHS had invested in beefing up its building’s security, it didn’t issue a prospectus when the lease was up. “The negotiation went better than we thought it would,” Dave says. “You never know with GSA negotiations, often they’re very protracted.”
Brookfield is not unique among landlords in DC in that a big chunk of its portfolio is occupied by the federal government: 18%, Dave says. And when a massive anchor tenant like the TSA leaves a big hole in the portfolio, it means going back to the drawing board. “We’re exploring our options” with the two buildings in Pentagon City that TSA will vacate (above). Brookfield will survey the federal leasing landscape and see if anything fits, and it could also try to attract a private tenant after sprucing it up. Mixed-use—with the Pentagon City Mall undergoing a massive, street-facing renovation across South Hayes Street from the two buildings and Vornado planning 1.8M SF mixed-use right behind them— could also be an option. No jurisdictions in the region have been hit by GSA’s recent stall worse than Arlington, and the high vacancy rate, paired with the still-empty 1812 N Moore have kept private leasing tagging behind the CBD.
When Bisnow spoke to CBRE’s Randy Harrell (right, with Axent Realty's Steve Fischer) for our recent piece on NoMa, he put in perspective just how significant the office downturn was. “The whole market has been, since the end of 2010, just kind of bumping along the bottom until the last year,” he says. “It’s the longest down cycle I’ve been through in my 30-year leasing career.” That’s what DC is trying to pull itself out of, and it’s finally doing it. Rents were up to $51.55/SF overall in the District, according to Colliers International, and Randy says landlords are asking for up to $65/SF in the East End. The rising tide in the core could help spur activity elsewhere as people search for bargains. The net absorption in the region was over 1M SF just in Q2, and most project Q3 to beat that number.
Trophy and new buildings are capitalizing on the fact there have been so few new deliveries this year. Like Brookfield’s 2001 M St NW (above), which pre-leased Bracewell & Giuliani for nearly 50k SF, or MRP Realty’s 900 G St NW, the only building to open in Q2, when it was 75% pre-leased.
MRP’s Zach Wade will join Dave, GSA Public Buildings Service commissioner Norman Dong and others on stage on Sept. 16 at 440 First St NW at 7:30am for our DC State of Office. This one figures to be a can’t miss event. Sign up here!