DC commercial real estate news

Aerial photo of Downtown DC with the Rosslyn-Ballston corridor in Arlington, Virginia in the middle left upper section of the photo.

1.  Long term, the market for commercial office space is likely to decline because of the turmoil in the law firm market as firms merge, go bankrupt, and close.  See "Shrinking law firms leave gap in DC real estate market" from the Washington Post.

This could lead to a decline in rent prices, which would allow a broader range of tenants being able to rent space in the Central Business District, rather than the market being dominated by those firms most likely to bid up space seen as valuable because of its proximity to federal government agencies and offices.

One example of this potential trend is how the Washington Design Center is moving to a Downtown DC location on 14th Street NW, which not too long ago, would have been out of the question.  See "The Washington Design Center is Moving to Franklin Court" from the DC by Design blog.

2.  On the other hand, after criticism of how the DC Office of Tax and Revenue handled commercial property tax assessments and appeals and an audit, the agency is basing property assessments on market value primarily, rather than tenancy, vacancy and other criteria.  See "D.C. property owners facing sticker shock over new assessment method" from the Washington Business Journal.

From the article:

Under a system that has been rife with controversy and rampant appeals, those assessors embarked on an annual effort to evaluate buildings’ rent rolls, occupancy rates and other key data to come up with an assessable value for those properties. But starting in 2015, the District will switch to a new method based on market value, putting less emphasis on what’s going on inside those buildings and more on how similar properties are valued on the open market, bought and sold by deep-pocketed investors.

The switch comes at a tense time for many D.C. landlords, as I’ve reported on numerous times over the past year, since federal agencies and private companies alike are significantly reducing the amount of space they lease in the District. That has forced many landlords to offer free rent, tenant improvement costs and other amenities to get and keep new tenants, amenities the new assessment method will not be able to take into account.

It will be interesting to see what happens with this change.

It makes sense to systematize the process for valuing properties rather than having a more idiosyncratic process (e.g., see the report from 2012, EVALUATION OF THE DISTRICT'S MANAGEMENT AND VALUATION OF COMMERCIAL REAL PROPERTY ASSESSMENTS, from the DC Inspector General's Office).

At the same time, with increased competition from Tysons Corner because of its expanded access to the Metrorail system via the soon to be opened Silver Line, and the decline in demand from law firms, except for foreign participation in the market ("Foreign Investors Snap Up D.C. Real Estate," WAMU Radio), which is likely to remain high because of comparatively higher turmoil in their home markets, it seems like property values are likely to decline or stabilize in DC's Central Business District.