WASHINGTON, DC-In the past few weeks the number of trophy office buildings in the Washington DC area with unencumbered space available for blocks over 50,000 square feet has dropped to five from eight, according to Jones Lang LaSalle Managing Director Amy Bowser. On one hand this dwindling of available trophy office space in large blocks has been an ongoing theme in the District. On the other there is something about the number five that tends to raise alarm bells.

"It will only continue to drop," Bowser tells GlobeSt.com. "The soonest new trophy product could come to market is within 24 to 38 months. The only other way space could free up if tenants left these buildings to move into commodity space, but that rarely happens."

In other words, for tenants that have to be located in a trophy building – and such companies are still out there in significant force – their options are steadily declining. It is almost enough to call the DC trophy office a landlord's market, except Bowser says TIs and other concessions are still generous enough to the tenant to make that particular leap.

"The reality is for large tenants that must have a trophy building, they will have to scramble."

It is not just large users feeling the constraints. Tenants with small requirements, such as government affairs groups, looking for well-situated spaces within high quality buildings in the East End, also are finding their options limited, according to JLL.

This trend -- constrained supply of trophy office space -- was one of the main observations noted by JLL in its fall 2013 Skyline Report. According to the report, the average trophy rent is about $51.40 triple net, with TIs clocking in between $90 to $100 per square foot.

In general, trophy asking rents are about $49.00 triple net, while trophy properties with view space commanding higher rental rates at around $53.44 triple net. Asking rates for trophy buildings under construction averaged $53.42 triple net per square foot.

The report also noted that activity in the first half of 2013 suggests that face rents may see a slight uptick, particularly for top-tier trophy product. The report noted that Miller & Chevalier's rental rate in its letter of intent at 900 16th St., NW, "is rumored to be in the low $60's triple net." Honeywell, as well, "hit the $60.00 triple net mark with its renewal at 101 Constitution Ave., NW."

JLL also reported that vacancy rates for existing product closed at 11.8% at the end of the first half of 2013.

A number of reasons are behind the modest supply pipeline of trophy buildings. Conservative underwriting and tighter financing requirements have done their part to tamp down speculative construction activity. "Most developers elected to delay groundbreakings until finalizing an anchor tenant – as was the case with JBG at its 900 16th Street, NW development site, and Mitsui/Akridge at 1200 17th Street, NW," JLL said in its report.

Overall, trophy inventory that is under construction was 66.7% preleased at the close of the first half of 2013, a slight dip from year-end 2012 as a result of the lack of preleasing at 900 G Street, NW and 799 9th St., NW. The report predicts that preleasing levels should pick up by year-end once the law firms' leases are finalized at 799 9th St., NW.

Another bright spot for tenants on the prowl for trophy space: a few smaller sized projects have launched--by Carr Properties, MRP Realty/ASB, Brookfield and Douglas Development.

"Many developers remained hesitant or unable to start construction on new, larger projects without an anchor tenant," JLL said. "However, some developers may again consider speculative options, including Oxford and Gould at 600 Massachusetts Avenue, NW."

Instant Insights /

DC Trophies: A Tenant Market in Name Only

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