The office market in Washington, DC has lagged behind that of other major cities. The federal government has made budget cuts and corporations have slashed costs, which have meant vacancy rates for office space has increased and rents have stalled in The District.
These factors have not had the expected effect on the prices paid for office buildings, however. Instead, they have been climbing.
An example is the recent transaction involving the sale PNC Place, a 12-story office building. The property was sold for $392 million, or $1,075 per square foot. This was the highest price paid per square foot for an office building in Washington.
In April, Property Group sold the building across the street from PNC Place for $948 per square foot. This figure represented the highest price ever paid until the PNC place deal.
PNC place is located two blocks from the White House and is 84% leased. PC Financial Services Group, which sold the building, is planning to lease it back as its regional headquarters.
This modern, energy-efficient building offers features that occupiers are looking for, such as a fitness centre, an atrium, and a rooftop deck. The building also features a ground-level bakery. These amenities are extremely useful when attracting top-level tenants and long-term investors feel confident about committing to purchasing this type of “trophy building” for a premium price.
Prices in the area are rising quickly. During the first half of 2014, office building buyers have paid an average price of $367.91 per square foot, an increase of 29 percent over the same period last year, according to figures released by CoStarGroup, a real estate data firm.
Class A buildings in the Washington’s central business district are selling for $611 per square foot, which is lower than similar properties located in downtown Boston, San Francisco or Manhattan, where the average price for a similar property ranges from $642-$701 per square foot.