(To listen to a replay of the webinar, click here)

WASHINGTON, DC-All things being equal, the DC area’s fundamentals point to a supply-driven spurt of growth on the horizon. Namely, there has been little office or retail construction for the past two years and the pipeline of deliveries is expected to exhaust itself in the medium term.

These are not “all things being equal” times, though. The demand piece of that equation is still very much an open question. So said participants in Wednesday’s RealShare webinar, “Investment Sales in Washington: Where Are We Now? Where Are We Going?”

Gerry Trainor, executive managing director of Transwestern’s Institutional Commercial Group, pointed to the DC area’s solid numbers. “There is 4.6 million square feet under construction and 51% of that is pre-leased,” he said. “Historically, we absorb eight million square feet. And for the first half of 2010 we absorbed 2.2 million square feet. So, in theory, by the end of year the pipeline could be fully absorbed--and don’t forget we historically grow eight million square feet every year based on job growth.”

This growth in the supply side will manifest itself through higher rental rates and falling vacancies, Trainor predicted, some of which the market is already seeing. Bethany Allen, vice president of leasing for Monument Realty, though, is not so sure the demand will materialize, at least not by the end of the year. “We still have too much inventory and not enough demand,” she said. “Yes, we are experiencing job growth but not enough to bring supply and demand into perspective.” 

Bottom line, J Street Development president Bruce Baschuk concluded, the signs are a mixed bag. “We are seeing the return of normal vacancy rates and there is also a flight to quality for tenants, which is causing a run on core space.,” he noted. “But we are not seeing the return of core private sector demand--from associations or law firms. These companies are still making due with the space they have.”

But none of the participants disputed the return of liquidity for area borrowers. “It is now very clear there has been a significant return of liquidity to the debt markets here,” HFF executive managing director Stephen Conley said. He pointed to Washington Harbour’s financing, which was secured earlier this year. Several months later, he said, the borrowers could have closed at a 100 basis point difference. DC’s fundamental drivers are key to lenders, noted Bill Prutting, senior vice president with CBRE. “Because of the federal government’s presence, investors and lenders prefer DC.”