Skip Ribbon Commands
Skip to main content

News release

WASHINGTON, DC

High Growth Tenants Choosing Low Rents, Spending on Build Outs

Occupancy in Trophy buildings remains high but DC’s fastest growing tenants want low-cost space they can make unique according to JLL’s 2015 Skyline Review


WASHINGTON, June 16, 2015 – There’s no space like Trophy space. The premiere office towers that make up Washington’s skyline boast—by far—the most expensive office space to rent, garnering 43 percent more than non-Trophy space, according to JLL’s 2015 Digital Skyline. Average Trophy rates in the first quarter of 2015 were $75.37 per square foot compared to $52.61 per square foot in non-Trophy buildings.

However, a growing segment of tenants is turning away from Trophy buildings in favor of non-core Class A and Class B buildings across Washington. The perception of an “address” has been replaced by the desire for highly customized office space, particularly among fast growing tech and other creative companies.

Over the past four quarters, Trophy buildings captured just 5.8 percent of scientific and technical lease transactions larger than 20,000 square feet, while Class A and B buildings caught 46 and 48 percent, respectively.

“Tech users and other creative firms want unique space. They’re generally indifferent to building quality as long as the buildings are well located and the companies are able to design attractive, creative environments that provide a sense of community for their employees,” said Doug Mueller, Managing Director with JLL’s Agency Leasing in Washington. “They have shown a preference in recent years for leasing space in buildings that provide communal amenities as this allows for collaboration with neighbors, not isolation from them.”

But the trend does not stop there: today, many companies are trying to mimic tech whether through business strategy, people strategy or even real estate strategy. The growing millennial workforce and their employers are increasingly drawn to Class A and B buildings located in dense neighborhoods packed with amenities. Among the notable transactions fitting this trend are Urban Compass’ 15,000-square-foot lease at the Star Laundry building, 1776’s 35,000-square-foot lease at 1133 15th St. NW and WeWork’s 33,000-square-foot lease at the Wonder Bread Factory.

“Tenants such as National Public Radio, National Association of Broadcasters and some deals actively in the pipeline are quickly shifting some submarkets from ‘emerging’ to ‘now’,” added Mueller.

The emergence of Class A- and B+ buildings as viable contenders in the competition for high-growth tenants has led to a revitalization of submarkets and neighborhoods not typically coveted by office-using industries.

o Washington’s Mount Vernon Triangle has started to see Trophy developments in the form of both 600 and 601 Massachusetts and attracted AmLaw firms to anchor those buildings.
o Douglas Development and Boston Properties/Steuart are planning other developments at sites in the Mount Vernon Triangle.
o Association and media-centric tenants are considering markets like Southeast and NoMa as viable alternatives. New development in these markets is priced between $50 and $55 instead of the $75 for submarkets such as the East End, CBD and Capitol Hill.

“As demand for creative space intensifies, more buildings will undergo thoughtful renovations in an attempt to establish a point of differentiation relative to the rest of the market,” said Scott Homa, Mid-Atlantic Research Director. “Over the next several years, this may permanently change how owners choose to invest capital as they reposition buildings and attempt to create a unique work environment.”

JLL’s proprietary 2015 Digital Skyline identifies and tracks micro-segments of 47 city centers across North America.  The Skyline features Trophy and Class A buildings where tenants and investors alike focus demand for office space in a flight to quality and efficiency.

About the Skyline Review
For the first time, investors and tenants alike can now access JLL’s Skyline Review via a digital platform.  The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment into 47 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets.  In addition, the site will offer videos and infographics. All information will also be available via mobile access.  Users can also directly access information about Richmond’s Skyline.

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.