Replacement costs continue to set records in the Washington DC region, putting pressure on the development pipeline
Replacement costs for Trophy/Class A buildings in DC and the suburbs continue to reach all-time highs, averaging $1,040/s.f. and $895/s.f., respectively, in 2019.
October 16, 2019
- Replacement costs for Trophy/Class A buildings in DC and the suburbs continue to reach all-time highs, averaging $1,040/s.f. and $895/s.f., respectively, in 2019.
- Breaking the costs down further, land pricing alone is averaging $365/s.f. in the District, while core and shell hard costs are up 71% since 2015, averaging $325/s.f. The suburbs have experienced the sharpest increases, where average hard costs more than doubled since 2015, from $275/s.f. to $560/s.f.
- As a result, the average return on cost for developers has declined from 7.0% to 5.9% over the last four years in DC and from 8.0% to 6.8% in the suburbs. The decline is putting a strain on the future development pipeline, and requiring developers to achieve higher rents in order to maintain the same level of return.
- In the District, asking rents for new Trophy construction are expected to increase from $85 p.s.f. FS today to over $88 p.s.f. by 2021. In the suburbs, rents for similar construction are expected to increase from $66 to $68 p.s.f. FS by 2021 in Bethesda and from upper $50s today to lower $60s p.s.f. FS in the next wave in most of Northern Virginia.
Source: JLL Research