WASHINGTON, DC—It took a few years but this year it finally happened: leasing fundamentals finally caught up to the pricing that investment assets in DC typically command. In recent years there had been tension over this disconnect as office leasing struggled after the recession, JLL's Bill Prutting tells GlobeSt.com.

But since the start of the year there has been an increase in tenant demand, strong employment growth and absorption.

There was also, JLL Research Director Scott Homa tells GlobeSt.com, "net effective rent growth for the first time in a long time."

The result has been increased owner confidence and more aggressive underwriting, they say.

Also, an increase in investment sales, at least for the District. According to JLL, through the end of the third quarter, 18 properties traded within the District of Columbia, totaling nearly $2.9 billion, an increase of nearly 33% year-over-year compared to 2014 and the highest sales volume achieved in recent history.

The suburbs did not experience a significant jump, but even among submarkets there are some positive developments trending.

Year to date, $1.8 billion has closed in Northern Virginia and $423 million in Maryland.

"We are starting to see more offerings in the suburbs; more desire for infill locations," Prutting says. "There is a significant pipeline of opportunities we are marketing as well as pursuing."

Other stats from JLL:

  • 64.2%  of Metro DC transaction volume was concentrated in the District of Columbia, underscoring investor appetite for assets located in core locations. Sales volume is expected to remain strong through the end of the year with approximately $785.0 million under contract and nearly $1.0 billion expected to close before year end.
  • Year-to-date pricing remained at record-high levels, averaging $714 per square foot.
  • 500 8th Street, NW traded for $977 per square foot, the third highest price ever achieved by a downtown DC office property.
  • Six transactions, totaling approximately $1.2 billion, traded during the third quarter of 2015.
  • Notable sales included 500 8th Street, NW; 1750 Pennsylvania Avenue, NW; 1401 Eye Street, NW; and 1152 15th Street, NW.
  • Stabilized Class A, CBD assets traded at cap rates between 4.25 and 5% and despite slight increases in interest rates, the yield premium relative to Treasury rates continued to justify the record-high pricing achieved by recent transactions.
  • Competition for the limited number of offerings within the District of Columbia persisted. While foreign buyers remained active in the District of Columbia, accounting for 63%  of transaction volume thus far in 2015, domestic institutional investors balanced the high influx of foreign capital witnessed earlier in the year, most notably Prudential's purchase of 800 5th Street, NW and BlackRock/TCRS's purchase of 1401 Eye Street, NW.
  • Foreign investors in 2015 include capital inflows form Korea, Norway, Germany and the United Kingdom.
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