Executive Summary
- 2017 records highest Q1 sales volume in the past 4 years
- average price per square foot drops 8.8% year-over-year to $300
- largest office sales of Q1 closed by Asian investors
- three office developments on track for Q2 delivery
Despite the tumultuous political environment of the past year, and uncertainty regarding new policy changes that could affect the commercial real estate realm, investors were bullish on the Washington, D.C, office market in the first quarter of 2017. The market started the new year in full force, bolstered by strong employment gains in the region—the District of Columbia unemployment rate dropped to a record low of 5.7% in February, per government data.
Using Yardi Matrix data, we analyzed all sales for office buildings larger than 50,000 square feet (see ‘Methodology’ section). Using the same data source, we also analyzed new office projects scheduled for completion in Q2 in the D.C. metro area.
Q1 Office Sales Volume Surges 46% Y-o-Y
After closing the fourth quarter of 2016 with nearly $2.6 billion in sales volume, the D.C. metro office market continued firing on all cylinders in the first months of 2017. Though total sales volume dropped 9% from Q4 2016, the first quarter of 2017 recorded the highest Q1 sales numbers in the past 4 years. 23 office assets changed hands in the first three months of the year, for a total of $2.3 billion—a 46% increase from Q1 2016. Moreover, Q1 2017 turned out to be the third-best quarter in terms of sales volume over the past 4 years; the market peaked in Q4 2014, closing that year with $2.6 billion in office sales volume. The D.C. metro area saw 7 office deals close in Q1 2017 for a total of $1.2 billion, followed by the NoVa (Northern Virginia) area with 12 deals totaling $984 million. The Maryland region recorded 4 office transactions in Q1, for a total of $108 million in sales volume.
Average Price per Square Foot Drops 8.8% Y-o-Y
Though the first quarter of 2017 proved fruitful in terms of sales volume, the average price per square foot for an office building in the D.C. area recorded an 8.8% drop from Q1 2016 (our calculation of the average per-square-foot price excluded partial stake, ground lease and portfolio deals). Nonetheless, though the average price landed just shy of the $300 mark in Q1, it remained roughly on par with the average price per square foot recorded in Q3 2016 or Q4 2015.
Unsurprisingly, the highest per-square-foot prices for office assets in the region were recorded in the District of Columbia. Seven office transactions closed in the area in Q1 2017 at an average of $530 per square foot (excluding partial stake, ground lease and portfolio transactions). In the Maryland and NoVa areas, office assets sold in Q1 traded for an average of $165 and $153 per square foot, respectively.
Top 3 Largest Sales in Q1 Closed by Asian Investors
Lafayette Center, Washington, D.C. (Yardi Matrix)
There were 23 office transactions over $5 million and exceeding 50,000 square feet to close in the D.C. area in the first months of 2017, for a total of $2.3 billion. The top three largest deals were all closed by Asian-based investors, namely GIC Real Estate and Unizo Holdings. This should come as no surprise, as Asian investment in U.S. office assets is hitting new records, mostly concentrated in markets like New York and California.
The largest sale recorded in Q1 was the $404 million trade of Lafayette Centre in Washington, D.C. Singaporean sovereign wealth fund GIC Real Estate acquired the property at 1120 20th St., NW., from Beacon Capital Partners, as part of a $1.05 billion investment in the D.C. office market. That portfolio sale also included the second-largest office sale on our list—GIC shelled out nearly $380 million for the Pentagon Center in Arlington, Va. Japan-based Unizo Holdings closed the third-largest office transactions of the quarter, paying $259 million to acquire 1325 G St., NW., in D.C. from Westbrook Partners and Tier REIT.
Yet the most active player buying and selling office properties on the D.C. market in Q1 was Beacon Capital Partners. The Boston-based company disposed of three D.C. assets in the first quarter of 2017, selling Lafayette Centre and Pentagon Center to GIC Real Estate, and Tysons Metro Center in McLean, Va., in metro Washington, D.C. to Meridian Group, for a combined price tag of $1.01 billion. Beacon also closed one acquisition in Q1, paying $14 million to acquire 4114 Legato Road in Fairfax, Va., from First Potomac Realty Trust.
See the full list of major D.C.-area office transactions below:
| Property name | Sale price | City | Buyer | Seller |
|---|---|---|---|---|
| One, Two, Three Lafayette Centre | $404,000,000 | Washington | GIC Real Estate | Beacon Capital Partners |
| Pentagon Center - Zachary Taylor Building & James Polk Building | $379,500,000 | Arlington | GIC Real Estate | Beacon Capital Partners |
| 1325 G Street & Colorado Building | $259,000,000 | Washington | Unizo Holdings | Westbrook Partners + Tier REIT |
| Tysons Metro Center I, II, III & IV | $227,000,000 | McLean | Meridian Group | Beacon Capital Partners |
| 1875 K Street NW | $151,404,869 | Washington | Carr Properties | Shorenstein |
| Capitol View | $148,000,000 | Washington | Unizo Holdings | Clark Enterprises |
| Liberty Center I, II & III | $110,525,000 | Chantilly | RMR Group | LaSalle Investment Management |
| 1620 L Street NW | $98,500,000 | Washington | Liberty Mutual Group | LaSalle Investment Management |
| National Square | $93,000,000 | Washington | Goddard Investment Group | AFL-CIO Building Investment Trust |
| 1600 International Drive, 8300 Greensboro Drive | $90,000,000 | McLean | Rockpoint Group | American Realty Advisors |
| 1901 L Street NW | $75,000,000 | Washington | Meridian Group | New York Life Real Estate Investors |
| Stonecroft I & II | $73,500,000 | Chantilly | Drawbridge Realty Trust | Duke Realty |
| 11200 Rockville Pike | $43,250,000 | Rockville | Peel Properties | TA Associates Realty |
| One Rockledge Centre | $42,353,067 | Bethesda | Boyd Watterson Asset Management | Spaulding & Slye Investments |
| Fairview Park - 3120 Fairview Park Drive | $39,000,000 | Falls Church | Velocis | Corporate Office Properties Trust |
| Inglewood Business Center 6 & 7 | $16,500,000 | Upper Marlboro | Rosenthal Properties | Atapco Properties |
| Dulles Creek | $14,600,000 | Herndon | Pinkard Group | Brickman |
| One Fair Oaks Plaza | $14,000,000 | Fairfax | Beacon Capital Partners | First Potomac Realty Trust |
| Sudley North Business Park - Building D | $13,200,000 | Manassas | RMR Group | Halle Companies |
| Lakeside I @ Loudoun Tech Center | $9,975,000 | Sterling | Golden Eagle Development Group | Wells Fargo Bank - REO |
| Fairview Park - 3160 Fairview Park Drive | $7,150,000 | Falls Church | Washington Property Company | CSC |
| Eastpoint I | $6,250,000 | Lanham | Chesapeake Real Estate Group + Thompson Creek Window Co. | Mack-Cali Realty |
| Courthouse Plaza | $5,850,000 | Fairfax | R. L. Travers & Associates | ACS Democracy Investments, LLC |
What’s Next? Office Projects on Track for Q2 Delivery
Though there were no new large projects to come online on the Washington, D.C., office market in Q1, three developments are currently underway and scheduled for completion in the second quarter of 2017. The largest one is the 257,731-square-foot Uline Arena, a mixed-use office and retail redevelopment project at 1140 3rd St., NE. in D.C. Spearheaded by Douglas Development, the project involves an overhaul of the historic Arena building, Ice House building and two parking structures. Upon completion, the project will feature 140,000 square feet of office space, 70,000 square feet of retail and a four-level parking garage. Two other notable projects set for Q2 delivery are Tishman Speyer’s 234,576-square-foot development at 2000 K St. in D.C. and Buchanan Partners’ 72,500-square-foot BerkleyNet Center @ Innovation Park in Manassas, Va.
Methodology
- Parameters: over 50,000 square feet, over $5 million in sale price;
- Transactions recorded up until April 11th, 2017;
- We excluded ground lease, ownership stake, controlling interest and portfolio deals from our calculation of the average price per square foot;
- Data source: Yardi Matrix.
