Office bust hits suburban Washington D.C.: metro area awash in vacant office buildings

Most of the building and buying is happening within the city’s limits.

July 23, 2015 |
Office bust hits suburban Washington D.C.: metro area awash in vacant office buildings

Photo: Carol M. Highsmith

There are 71.5 million sf of vacant office space in the Washington D.C. region. The national real estate brokerage Marcus and Millichap expects one-fifth of metro D.C.’s total office space to be empty by the end of this year. And another 1 million sq of office space could come onto this market over the next several years as businesses vacate older buildings once their leases expire.

The D.C. suburbs are fast becoming the latest American ghost towns, according to the Washington Post, as work styles have changed, preferences have shifted toward walkable commutes, and government—the area’s biggest employer—has shrunk.

The corporate campus is far from dead—just ask Google, Facebook, and other Silicon Valley companies that are building massive new headquarters and reinventing this concept to be transit-oriented and Millennial-friendly.

The D.C. suburbs are fast becoming the latest American ghost towns, as work styles have changed, preferences have shifted toward walkable commutes, and government—the area’s biggest employer—has shrunk.

The U.S. Bureau of the Census’ latest estimate for the value of private office construction put in place was up, year-to-year, 24.6% in May to $55.4 billion. Spending on public office construction in May rose 26.9% to $46.6 billion.

But in certain states, there have been mass evacuations of office spaces. In New Jersey, pharmaceutical firms that once operated sprawling suburban campuses have left millions of square feet of office space, warehouses, and labs deserted.

Empty office buildings have been a fact of life in D.C. and its suburbs for a while. By mid-2014, 11 Montgomery County, Md., office buildings totaling 2.25 million sf stood almost or totally vacant, and another nine, totaling 1.4 million sf, were “almost totally available”.

A portion of vacancies is attributable to federal government cutbacks. The Post reports that government agencies have been evacuating office and warehouse spaces in droves. They vacated 7,315 buildings with 47 million sf of office space in 2014 alone, reports Federal News Radio.

Still, office construction continues in D.C., and some developers and AEC firms view this market’s office space surfeit as an opportunity, although most of the recent activity is occurring within the city’s limits.

Skanska disclosed last week that it is investing $116 million in a new office building in D.C. The giant contractor will develop and build a new 11-story, Class-A office building with ground floor retail and four below-grade parking levels in Washington’s Capitol Riverfront submarket. The total leasable space will be about 22,000 sm (237,000 sf). Construction is scheduled to begin later this summer.

Tishman Speyer recently paid $30.5 million to acquire 2020 M Street N.W., the longtime D.C. bureau of CBS News, which it will redevelop into a modern office, newsroom and studio space for the media giant.

On July 21, Carr Properties, a local owner/operator/developer, acquired Columbia Center, a 393,815-sf, 12-story Class A office building in Washington D.C., for an undisclosed amount. In May, the Post reported that Carr Properties had raised $300 million from Alony Htez Properties and Investments, one of Israel’s largest real estate investment companies, to invest in local office buildings and development projects.

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