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Scarcity of top-tier office offerings leads to new pricing records downtown

  • In the first quarter of 2018, 900 G Street NW sold for $144 million, or $1,278 p.s.f., topping the $1,252 p.s.f. record set last year by the sale of 900 16th Street NW. Perhaps a more notable record, however, was set in the non-Trophy Class A segment: 1440 New York Avenue NW achieved a price p.s.f. of $1,189 p.s.f., surpassing the previous non-Trophy high watermark by nearly $200 p.s.f.

  • Offerings of Trophy-quality buildings in the DC core are scarce – at time of writing, just two are actively marketing – and that scarcity, coupled with strong demand from foreign and institutional investors, has led demand to spill over into both the non-Trophy / Class A segment and the emerging submarkets outside the core.

  • Foreign capital chased top-tier assets aggressively in the first quarter. Overseas buyers were involved in 96% of Trophy and Class A investment volume inside the city, and were responsible for setting both of the aforementioned pricing records. The share of DC investment coming from overseas has increased steadily since the early 2000s, accounting for more than half of all sales volume since 2013 and comprising 66% in Q1 2018.

  • Despite challenging leasing fundamentals in the DC market, foreign demand is likely to drive activity, maintaining upward pressure on pricing. A mere five Trophy and Class A buildings are for sale in the core, and of these, all are more than 75% leased and three have law firm anchors expiring in 2024 or later. Over the rest of the year, these assets will likely be joined by a handful of others that are currently burning off free rent periods, creating a small but highly desirable crop of investment opportunities.

Source: JLL Research

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