Current Economic Outlook
The U.S Capital is a boldly designed city planned out by Pierre Charles L'Enfant. He incorporated wide, tree-lined streets reminding one of Paris. The city is much more than the political center of the nation. Washington, D.C. ranks as a world-class city due to its thriving diverse economy, multiple cultural attractions, outstanding higher educational institutions, readily available mass transit, abundance of museums, sustainability of its attributes and more. The D.C. metropolitan area is the seventh largest in the country. Today this diversified economy makes the city a top place for commercial real estate investment.
Commercial Growth Opportunities
Professional associations, lobbying firms, non-profit organizations, large legal firms, both civilian and defense contractors, trade unions and industrial trade groups are among the largest commercial property users in the D.C. area. Along with these are well established industries such as consumer production, energy companies, professional services, the hospitality industry, defense organizations, a variety of media sources and financial institutions. Growth industries in 2012 included healthcare, scientific research, public policy application and public, parochial and higher educational institutions.
The Association of Foreign Investors in Real Estate (AFIRE) gave Washington, D.C. ranking as the fourth American city for investment in real estate in 2013. It also gave it the tenth ranking for real estate investment worldwide. Many D.C. real estate organizations are involved in community activities. For 17 years, one has acted as a proud presenting sponsor of the Annual Race for Hope, D.C. to benefit both the National Brain Cancer Society and Accelerate Brain Cancer Cure. Begun in 1997, this Race has gradually become the largest fundraiser for brain tumor research in the country.
Commercial Property and Office Market
The recovery that has already taken place appears to be about to bud into robust growth. Along with breakthroughs in fiscal policy, strong economic figures provide an optimistic outlook that the coming year will deliver a GDP growth of better than 3%. Office space demand has exceeded new construction for the last two years. Increased job creation will keep this trend going for the current year at least. Vacancy levels ought to decline until there is equality in need and production by mid-year. The pendulum in real estate has already shifted mostly in the technical and energy markets. The majority of the country is experiencing rising rental rates according to the U.S. Office Sector Trends Report. Commercial volume real estate sales in 2013 surpassed the previous year and local historic averages. Comparing the current progress with the nation as a whole, D.C.'s total commercial sales volume accounted for more than 7%.
The District accounted for 50% of all regional sales volume. Prices averaged a little more than $349 per square foot; up $10 per square foot compared to 2012 pricing. Downtown assets are drawing closer to $1,000 per square foot. Pricing expectations between sellers and buyers are becoming more closely aligned. There is a great difference between commercial property in the city and its surrounding suburbs, with increased suburban activity is anticipated in 2014.
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Increase in Foreign Investors
As in other major U.S. cities, foreign investors have increased activity in the D.C. area. Up to a quarter of all transactions came from outside the U.S. Total purchases from across the border buyers have jumped to almost 50%. Washington, D.C. provides a stable, safe, world-class business environment.
Sales volume during 2013 came to $3.4 billion. This economic progress has continued to improve bringing the record high-price of $544 per square foot. Thirty-three buildings were sold to a variety of buyers in 26 transactions. Centrally located properties that have well-maintained leased spaces were the most desirable. These interactions indicated strong improvement over 2012-2013. Investors look forward to the area's continuing rebounding.
One trend contributing to current growth is much more robust GSA leasing activity. The contentious political environment had to no small extent put a damper on buyer's confidence. With greater fiscal certainty due to Congress' agreement to fund the government through 2015, long-term real estate agreements are more viable and are gradually bringing the economy closer to statistics found prior to the recession. The office construction pipeline began delivering greater square footage in 2014 with 79% pre-leased. This will result in lower vacancy rates when coupled with the continuing improvement in economic conditions.
Estimates indicate that the D.C. region will see the creation of nearly 200,000 net new jobs over the next four years, with about half of them falling into the "office using" category.
Federal leasing activity stalled over the past two years due to the lack of fiscal clarity from Congress. With a budget now in place GSA leasing should increase. Fewer "core" deals will be available this year causing investors to lean toward opportunistic and value-added deals. Recent completions and new construction continue to capture the largest portion of leasing deals.