Cover story
Our Dynamic and Determined City

Ernest Drew Jarvis
CB Richard Ellis

 

The District of Columbia is leading the country's economic recovery, boasting one of the strongest local economies in the United States. Setting the pace in residential development, office investment and retail activity, the wheels of development continue to move forward at an unprecedented rate, exemplified by the city's more than 600 exciting and innovative development projects planned or underway – from Anacostia to Adams Morgan, from Brookland to Benning Road, and from Columbia Heights to the Central Business District.

The Washington, DC Marketing Center estimates that a staggering $27 billion worth of development projects in the District have been recently completed, are under construction, are commencing construction or have been proposed for future development. Heading the list are the internationally acclaimed new Convention Center and the redevelopment of the existing Convention Center site, which has the potential of becoming the new gathering place downtown, offering a unique combination of retail, housing and public spaces. The Spy Museum is a phenomenal attraction, not only for tourists but also for city residents. If you haven't done so already, take the time to tour it. It is one more reason to frequent the burgeoning East End. And the city eagerly awaits the relocation of the Newseum, moving from Rosslyn to its new location at 6th and Pennsylvania.

Batter up! One of the most anticipated decisions, and one that will significantly impact the city, is soon to be rendered – I hope Major League Baseball can hear the cries of support emanating from Washington, DC fans and grants the city a team. I personally have very fond memories of watching the Senators with my father. If for no other reason, baseball should return to the nation's capitol to allow other fathers and sons, as well as mothers and daughters, the opportunity to create their own memories. Perhaps Mayor Williams should start practicing now to toss out that first pitch!

To generate growth in the city and to expand the tax base, the Mayor has announced an aggressive initiative to attract more than 100,000 new residents to the District. These new residents have a plethora of housing choices, evidenced by the thousands of residential building permits issued in the recent past. Fueled by public policy to create more housing in the city, in addition to strong demand and lower cost of funds, housing developers are constructing and renovating at a voracious pace. Ten years ago I clearly recall the city government's difficulty in persuading developers to build downtown housing. Now – finally – the long awaited goal of creating a "living downtown" has materialized. There are approximately 3,000 units of housing under construction in the downtown area by The JBG Companies, Akridge, CarrAmerica, also known for their landmark office projects in downtown. Several of the largest include Paradigm's Meridian at Gallery Place (462 units), JPI's Jefferson at Penn Quarter (405 units), Pritzker's Massachusetts Court (371 units), Greystar/Jemal's Square 517 (275 units), Sovereign Square (JBG 166 units) and Avalon at Gallery Place (203 units).

While the vast majority of us applaud this downtown housing trend, there exists some concern about the absorption rate of this number of units and some wonder if the East End is saturated with new housing. In fact, a number of projects are considering converting their development platform to condominium. Moreover, there is evidence that leasing rates have begun to decrease slightly. That may not be bad news (unless you're a banker) as there is also growing concern about providing "workforce housing." For those who may not follow rent levels, they are typically $2.25 to $3.00 per square foot; and for condominium sales, generally $400 to $600 per square foot. Not cheap. I'll share a statistic I heard recently that the demographic attracted to downtown housing is a 30 year old professional single woman. Hmmm!

Other notable developments worthy of mention are the Hope VI project at the former Arthur Capper/Carrollsburg dwellings, which comprise 1,150 units; The Wingates at 4660 Martin Luther King Avenue, SW, comprising 717 units; Henson Ridge at 2001 Stanton Road, SE, comprising 600 units, and Capitol Gateway Estates at East Capitol & 58th Street in northeast. The Marketing Center reports there are nearly 30,000 residential units recently completed, under construction, planned and/or proposed for DC – located throughout the City. This is remarkable!

Regarding the office market, ask any office professional around the country what office market is the most active and you'll hear a resounding chorus – "Washington, DC." The stabilizing presence of the General Services Administration is a great influence on our city and has significantly contributed to this continued momentum. With one of the lowest direct vacancy rates in the country – at 6.62% (8.24% when including sublease space), the District's office market is one of the stronger markets in the country. To the contrary, my fellow CB Richard Ellis associates around the country lament the decline in their markets, and the fact that most have not experienced any noticeable improvement. Think of the difference in transacting business in San Francisco with a vacancy rate of nearly 26%, or Atlanta with a vacancy rate of 23%, or even in neighboring Northern Virginia with a vacancy rate of nearly 20%.

Due to the slight decline in rental rates, Class A sublease space now competes directly with Class B prime space in many cases. That's good news if you're a tenant. Only high-end/trophy space, which is generally new development, is able to command the premium rents of $50 per square foot and higher. However, some smaller tenants, who have a wider array of choices, are opting for the lower rents available via sublease or prime leases in Class B and lower Class A properties.

Through the hard work of visionary and gutsy developers, who relentlessly shape the physical landscape of downtown, there is a new inventory of landmark buildings. With a finite amount of undeveloped land in the District, much of the new development is actually a redevelopment of older properties. One such example is Terrell Place, the former Hecht Company building on 7th Street, across from the MCI Arena. It will consist of 443,000 square feet of office space, 38,000 square feet of retail, 49,000 square feet of entertainment space and 29 high-end residential units. The Venable law firm is the lead office tenant and has committed to approximately 220,000 square feet. I'd like to commend CarrAmerica for uniting old Washington with new Washington by naming the building in honor of Mary Church Terrell, a prominent African American activist who organized demonstrations and picketed Hecht's because of Hecht's refusal to allow "people of color" to patronize its store. Her actions initiated the integration movement in the District of Columbia.

If you've passed the intersection of Connecticut Avenue and K Street recently, you surely noticed the massive demolition project on the southwest corner. Under construction is a 390,000 square foot building developed by a partnership between Charles E. Smith and Potomac Investments (Gewirz family). The law firm of Winston & Strawn is the lead tenant leasing approximately 150,000 square feet. Less than two blocks to the east is the JBG redevelopment project at 1601 K Street, the former Solar Building. The law firm of Kirkpatrick & Lockhart is currently negotiating a lease for over 70% of this approximately 215,000 square foot building, scheduled to deliver first quarter of 2006.
Also under construction closer to the new Convention Center is 901 New York Avenue, an approximately 530,000 square foot development by Boston Properties. This project will be occupied almost in its entirety by law firms with Finnegan Henderson, Shea & Gardner and Powell Goldstein all having committed to relocate upon building completion in the fourth quarter of 2004.

One of the more intriguing downtown projects is the Tishman Speyer air rights development over the current Hecht Company store located directly across from Metro Center at 701 13th Street. This 450,000 square foot speculative office development is expected to deliver in late 2003 and has a signed commitments with the law firm of Ropes & Gray for approximately 50,000 square feet and Knight Ridder Newspapers for approximately 40,000 square feet.

While the federal government is the single largest employer in the Washington area and accounts for much of the commercial real estate activity in our market, many federal agencies are choosing to renew existing leases rather than relocate. As shown by the activity noted above, law firms make up an ever-increasing percentage of the larger tenants seeking relocation alternatives in the District. Several of these include Dickstein, Shapiro (300,000 square feet), Williams & Connolly (200,000 square feet), Morrison and Foerster (100,000 square feet), and Howrey Simon (300,000 square feet), just to name a few.

The most significant private sector transaction completed in this market recently also involved a law firm. Wilmer Cutler & Pickering executed a lease for 525,000 square feet in the 1800 block of Pennsylvania Avenue, NW, comprising four buildings: 1899 Pennsylvania Avenue on the west corner – a just completed project by DRI; and 1801 Pennsylvania Avenue, sitting on the east corner, built in 1991 by CarrAmerica for MCI and now owned by The Mark Winkler Company. In addition, two older mid-block buildings owned by Winkler will be demolished and a new centerpiece building constructed, replacing the existing Federal Bar Buildings.

With all the new retail development taking place, you can now "shop till you drop" in the nation's capitol. The District has literally gone through one of its most significant transformations in the world of retail and is now perceived as the number one retail investment location in the country. This is based upon retail growth potential, job creation, personal income and a host of other related factors. Washingtonians should do their part to keep our economy humming by ensuring they frequent and spend at these new and planned stores. Gallery Place, among one of the more notable projects that sits atop the Gallery Place Metro, will offer many shopping opportunities in its 260,000 square foot retail area, including several new restaurants and a 14 screen movie theater. And you won't want to overlook the shopping at the new 37,000 square foot H&M – opening soon in The Woodie's Building.

Other new or planned retail outlets in DC include a new Target store in Columbia Heights; a planned Costco at Fort Lincoln New Town; and a Best Buy in the former Hechinger's store in Tenley Town.

Any world-class city could not be world class without world-class restaurants (try saying that ten times). My new personal favorite is Zola, adjacent to the Spy Museum. Stop in on a Thursday night and I'll buy you a drink. The interior of Zaytinya, located in the new Pepco building on 9th Street, adds a certain chic to Washington's more traditionally conservative restaurants. Located in the Hotel Monaco, Poste offers a taste of the hip South Beach atmosphere. With restaurateurs pushing the envelope with regard to interiors and menu selections, Washington DC will continue to strengthen its appeal to a broader base of travelers, suburbanites contemplating restaurant options and potential DC residents.

Washington, DC combines a city rich in history along with an attitude warmly welcoming all new residents. As an international and national leader, Washington continues to demonstrate its resiliency and sets a new standard for other cities to follow.