Shapiro, Lifschitz & Schram

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3 Reasons Why D.C. Commercial Real Estate Property Prices Are on the Rise

Last month, the Wall Street Journal published an article about the commercial real estate market in Washington, D.C., “Commercial-Property Prices in D.C. Go Their Own Way: Up,” that provides some insights into what would look like a counterintuitive trend to anyone outside the commercial real estate industry.

In brief, the article states that, despite D.C.’s high vacancy rates and plateaued rents, investment in Class A and trophy properties is hot, with prices on the upswing. A chart that accompanies the article tells the story succinctly: Prices paid by square foot for Class A commercial properties in D.C. have risen year over year since 2009. In fact, prices have now exceeded what they were before the real estate shake-up of 2008. Other major metropolitan business hubs have not fared as consistently well as D.C., with Boston, San Francisco and New York all experiencing erratic growth and loss over the past few years. 

As an attorney who is deeply involved with the D.C. commercial real estate market, I can attest that what the Wall Street Journal article identifies as a trend is true. Anecdotally, I have helped facilitate six recent building purchases and sales, and all have been record prices for the types of properties they are. Mind you, these weren’t all Class A and trophy properties, but there is a definite demand for quality product in the D.C. commercial real estate space. 

So why is D.C. such a hot market right now? The article outlines a few reasons for the trend, which I think are true. Here are my own thoughts below: 

  • Competitive pricing: For the level of quality the market has to offer, D.C. commercial real estate prices per square foot are still generally lower than a similar product in other gateway cities. As the chart in the Wall Street Journal article shows, the D.C. average is $611.39 per square foot for Class A property while Boston is at $641.79, San Francisco is at $652.29 and New York is at $701.42.
  • Supply and demand: There are a lot of institutional investment dollars out there right now that fund managers are looking to invest. Fund managers have identified that high-quality properties are a smart investment, but D.C. only has a limited number of such properties at the moment. When you have a lot of capital but limited supply, you see prices go up.
  • Debt is cheap: Not only do you have capital that needs to be deployed, but financing also is currently relatively inexpensive, creating a perfect real estate storm. With interest rates as low as they are, it’s affordable and more profitable for investors to take on debt at today’s low rates to finance these commercial real estate purchases.

I believe these three factors are the driving force behind the D.C. real estate upswing, but other factors also are influencing the market. For one, the city’s tech community has grown rapidly over the past few years, creating a market for such high-end real estate. In any case, until the factors that have contributed to this rise in real estate prices subside – e.g., investment funds are no longer flush with cash, supply catches up to demand, interest rates increase, etc. – this is a trend that likely won’t be going away anytime soon. 

Found In: Articles, Real Estate

Did You Know . . .

Members of the SLS trial group have tried in excess of 50 jury trials and 75 bench trials?

The SLS construction group has worked on sports stadiums across the country including Orioles Park in Baltimore and Paul Brown Stadium in Cincinnati?

The SLS construction group has worked on power plant projects across the country?

In 2007 SLS was selected for an Honorable Mention as one of the Best Places To Work in Washington DC?

Ron Shapiro, Steve Schram and Judd Lifschitz have all been selected as SuperLawyers by Law and Politics?

The SLS office building is an historic townhouse constructed in the late 1800s?

SLS has been selected by Martindale-Hubbell as a Preeminent Law Firm?

SLS trial lawyers have argued appeals in the U.S. Circuit Courts of Appeal for the 4th, 5th, 9th, D.C. and Federal Circuit?

SLS trial lawyers have been lead trial counsel in cases in Arizona, California, District of Columbia, Florida, Louisiana, Maryland, New Jersey, New York, North Carolina, Oregon, Texas, and Virginia, - to name just a few?

Virtually all the cases that SLS trial lawyers mediated have been favorably settled at mediation?

The transactional group at SLS was lead counsel on one of the largest, most complex mixed-use projects in downtown Washington, DC involving 4 lenders and 6 property owners?

In appreciation for the outstanding efforts of each of its employees during 2007, SLS gave everyone (attorneys, paralegals, and staff) a 4 day/3 night expense paid trip to Key West, Florida?

The transactional group at SLS has represented tenants in more than 200 retail leases in the Mid-Atlantic region?

Every attorney in the transactional group at SLS has at least 15 years experience?

The transactional group at SLS has represented developers in the purchase, construction, financing and/or sale of more than 75 multi-family apartment projects?

The transactional group at SLS has represented real estate investors and developers with respect to property in Pennsylvania, West Virginia, Delaware, Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee, Michigan and the U.S. Virginia Islands?

Attorneys in the transactional group at SLS have represented eight national banks in commercial real estate loans?

Attorneys in the transactional group at SLS have represented the FDIC, the Resolution Trust Corporation and several banking institutions in loan workout transactions throughout the Mid-Atlantic region?

The transactional group at SLS has represented homebuilders and commercial real estate developers in work-outs of individual loans and also for work-outs of large portfolios involving dozens of properties in several states?

The trial lawyers of SLS have numerous reported decisions to their credit?