CBRE: At $7.4B, Office Did Remarkably Well in 2011

WASHINGTON, DC-The Washington, DC area closed more than $7.4 billion worth of office investment sales transactions in 2011, according to CBRE calculations. That is a remarkably strong number for any year in the DC area, EVP Bill Kaye tells GlobeSt.com—to say nothing of the lackluster economic environment that characterized 2011.

“It is a 60% increase over 2010 sales,” he notes. “It includes some very large transactions such as Monday Properties’ portfolio recap by Goldman Sachs for $1.2 billion and the Market Square transaction.” The Goldman Sachs recap was a major deal for the Rosslyn submarket—clocking in at $1.2 billion it compromised the majority of the $3.1 billion in total sales there. Market Square, a 679,710-square-foot complex at 701 and 801 Pennsylvania Ave., traded for $615 million, or $904 per square foot, in March 2011. It was one of the highest per square foot prices for the city. 

2012 should be a good year for the DC as well, Kaye adds, although clearly at the start of the year it is impossible to predict what the total will be by December. However, he expects that “core assets will continue to perform well.”

This is obviously an election year, which means complete paralysis on the part of the government. This translates into a slowdown in government leasing activity. However, many of the other deal drivers of last year are still in place, CBRE notes, and should fuel activity in 2012.

These drivers include a robust job engine—Moody’s Analytics forecasts Washington, DC metro to be the seventh highest generator of new jobs in the coming five years. Also, the low interest rate environment is expected to continue, which means pricing levels for core assets will remain aggressive. CBRE says it doesn’t expect to see much of a change in pricing over 2011 levels for ‘core plus’ opportunities, however it does predict that price per square foot against replacement cost will become a significant factor in the valuation of suburban office assets.

One new area of opportunity is expected to emerge this year: partnership interests. “With a significant number of loan maturities nationally in 2012, opportunities for recapitalizations and partnership interest purchases may be available,” CBRE says in the report.