Rents Hitting New Highs In D.C.'s Trophy Office Market

The D.C. office market was just starting to stabilize when the federal government threw a wrench in the plan, fueling a new sense of uncertainty across the city. But the top echelon of the market is facing a vastly different reality, new data shows.

The market for trophy office space is getting tighter every quarter. With the construction pipeline nearly dry, it is only getting more constrained, and tenants vying for the limited available space are pushing rents to new highs. 

While the overall vacancy rate in the District was 22.6% at the end of last quarter, trophy office vacancy stood at 12.2%, according to CBRE. 

“It’s the space that's in demand right now,” CBRE mid-Atlantic Research Director Stephanie Jennings told Bisnow. “The industries that prefer that level of space are doing well — it's law firms, government affairs, it’s top business services, some tech. It's just a preference for top-quality space. And there's just not that much of it.”

Meanwhile, the segment is largely safe from the federal government's cuts to its leased portfolio because agencies don't lease space at the highest rent levels, Jennings said.

Asking rents in the trophy segment averaged $91.21 per SF in D.C. last quarter, up from $89.85 the quarter prior and $86.74 in Q1 of last year. 

Achieved rents for trophy space in D.C. averaged $96.10 per SF last quarter, a 9.1% year-over-year increase, according to CBRE. 

JLL's first-quarter report found that trophy rents increased to $92 per SF, a trend it expects to continue. 

“What we're seeing is the supply is getting increasingly constrained, therefore, the prices are going up,” JLL Director of Research Tammy Shoham said.

According to CBRE, just eight of the city’s 47 trophy buildings have more than 50K SF of contiguous space. And just one of those buildings also has a top floor available: 801 17th St. NW.

Only one trophy building is set to come online over the next two years: Stonebridge and Rockefeller Group’s renovation of the former WMATA building across the street from Capital One Arena. Crowell & Moring preleased 52% of the 398K SF property, kicking off its construction in 2023. That project is expected to deliver in 2026.

As supply gets increasingly strained, following that predevelopment playbook may be tenants’ only option to get the space they are looking for.

That is what McDermott Will & Emery did last quarter when it signed a 152K SF lease for the top five floors of a planned downtown trophy building from BXP. The deal is allowing the office REIT to kick off demolition and redevelopment of the 1990s-era office building at 725 12th St. NW. That project is expected to deliver in late 2028. 

“We could start to see more of that in the coming years,” Jennings said.

But the rent prices required to get those kinds of developments underway are reaching record highs. CBRE’s report says developers are quoting between $80 and $100 per SF triple net to kick off any new construction, “reflecting a new high watermark for the Trophy market.”

Doug Mueller, a top landlord representative broker who joined Newmark in February as vice chairman, said trophy office deals signed in recent months have been hitting new highs for rent. 

“In the worst leasing environment that we’ve seen in a while, you’ve seen the trophy rent market explode. The top just popped off,” he said. 

With millions of square feet of additional law firm leases expiring in the next few years and with a limited amount of trophy space available, he said the demand will trickle down to the Class-A buildings one tier below. 

“From the top down, you’re going to see buildings at or below the trophy level that stand to benefit in the very near term because there are so few trophy options,” he said. 

Other large leases in trophy space this quarter include Freshfields’ 117K SF lease at Midtown Center, where it is taking some of the space Fannie Mae is vacating, and Clark Hill’s 28K SF lease at The Homer Building at Metro Center, which is undergoing a major renovation, according to CBRE.

Lou Christopher, a vice chairman at CBRE who represents tenants including big law firms, said all of his clients are looking for quality space with high ceilings, outdoor space and a variety of amenities in the building and the surrounding neighborhood. He said this demand is leading rents to go up, but only at the top tier of the market. 

“Some landlords are trying to group their product in with trophy, but when I think of trophy, I think of the best 20 buildings in town,” he said. “For those buildings, rents are continuing to grow and will keep going up.”

Jon Banister contributed to this story.