(To listen to a replay of the webinar, clickhere)

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WASHINGTON, DC-All things being equal, the DC area’sfundamentals point to a supply-driven spurt of growth on thehorizon. Namely, there has been little office or retailconstruction for the past two years and the pipeline of deliveriesis expected to exhaust itself in the medium term.

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

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Gerry Trainor, executive managing director of Transwestern’sInstitutional Commercial Group, pointed to the DC area’s solidnumbers. “There is 4.6 million square feet under construction and51% of that is pre-leased,” he said. “Historically, we absorb eightmillion square feet. And for the first half of 2010 we absorbed 2.2million square feet. So, in theory, by the end of year the pipelinecould be fully absorbed--and don’t forget we historically groweight million square feet every year based on job growth.”

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This growth in the supply side will manifest itself throughhigher rental rates and falling vacancies, Trainor predicted, someof which the market is already seeing. Bethany Allen, vicepresident of leasing for Monument Realty, though, is not so surethe 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 supplyand demand into perspective.”

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Bottom line, J Street Development president Bruce Baschukconcluded, the signs are a mixed bag. “We are seeing the return ofnormal vacancy rates and there is also a flight to quality fortenants, which is causing a run on core space.,” he noted. “But weare not seeing the return of core private sector demand--fromassociations or law firms. These companies are still making duewith the space they have.”

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But none of the participants disputed the return of liquidityfor area borrowers. “It is now very clear there has been asignificant return of liquidity to the debt markets here,” HFFexecutive managing director Stephen Conley said. He pointed toWashington Harbour’s financing, which was secured earlier thisyear. Several months later, he said, the borrowers could haveclosed at a 100 basis point difference. DC’s fundamental driversare key to lenders, noted Bill Prutting, senior vice president withCBRE. “Because of the federal government’s presence, investors andlenders prefer DC.”

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