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:
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.
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