DC Class A Office Vacancies to Top 20% in Next Two Years

DC’s K street

WASHINGTON, DC–Boston Properties is in active discussions with potential tenants for pre-leasing opportunities at 2100 Pennsylvania Ave., NW, according to comments its CEO Owen Thomas made during the REIT’s recent earnings call. Last year Boston Properties struck a deal with George Washington University to redevelop that building and GWU’s Rice Hall at 2121 Eye St., NW. That deal is subject to securing 480,000 square feet of entitlements, but once that happens Boston Properties will enter into a long-term ground lease with GWU to develop and own a leasehold interest in the property. According to Thomas:

This is one of the most attractive development sites in the Washington, DC CBD, and we have substantial pre-leasing interest for the project. Entitlements could be completed and development commenced in 2019 for a 2022 delivery.

Thomas’ enthusiasm may seemingly be overstated based on the office supply and demand fundamentals that are coming to a head in the Washington DC area.  The REIT naturally doesn’t think so and we will get to in a minute.

JLL, in its Chart of the Week, estimates that class A vacancy will go beyond 20% in the next 24 months. Specifically, it says that the low pre-leasing activity at core redevelopments and off-core ground-up development sites will be the driver of the higher vacancies.