2018 Washington, DC and Northern Virginia - Investment Sales Office Report Colliers International DC Capital Markets Team
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2018 Washington, DC and Northern Virginia Investment Sales Office Report Colliers International DC Capital Markets Team
WASHINGTON, DC INVESTMENT SALES ACTIVITY - 2018
East End Sale Volume Doubles CBD Activity in 2018 Sale Activity by Submarket
The 27 investment sale transactions in the downtown Washington, DC market in 2018 totaled $3.98
Submarket Deals Total SF Total $ Volume YOY Change
billion, a 13.4% decrease from the total transaction volume in 2017.
East End 12 2,931,862 $2,159,345,000 +$961 M
• ‘Core’ / ‘Trophy’ asset sales accounted for over half of the gross value generated, and
West End 4 1,431,012 $849,800,000 +$550 M
capitalization rates averaged 4.69%; initial yields for ‘core plus’ assets averaged 5.5%;
CBD 7 1,525,002 $749,500,000 -$1.1 B
• While the CBD has historically accounted for the majority share of sales in the market - both
in terms of gross dollar value and square footage - the East End dominated the sales market Southwest 2 406,372 $169,885,000 -$689 M
in 2018. A combination of the larger inventory of office space (34 million square feet) and NoMa 1 65,473 $27,500,000 -$450 M
positive net absorption (922,174 square feet) are contributing factors to this volume: Capitol Hill 1 36,269 $23,775,000 -$316 M
»» 54.3% of the market share in terms of dollar volume; Total 27 6,395,990 $3,979,805,000 -
»» 91.4% increase from 2017 ($1.13 billion in nine (9) transactions);
»» This submarket posted high-water mark sales of $1,274 per square foot (900 G Street,
NW) and $1,190 per square foot (1440 New York Avenue, NW) – both assets were The Investor Pool Profile
Other
acquired by cross-border investors; 4.8%
In comparing year over year investor profiles,
»» Five (5) of the eight (8) ‘core’ transactions and six (6) out of the twelve (12) ‘core plus there is consistency with cross-border
transactions occurred there; investors continuing to bid for the ‘core’/
Cross-Border
»» With one (1) building under contract and six (6) additional office properties on the market ‘trophy’ assets. Cross-border and
Private 38.1%
in the East End, we anticipate the velocity within the submarket to continue into 2019. Institutional capital sources accounted 25.8%
for 61.3% of the purchases in 2017 and
• As of the end of the year, there were thirteen (13) assets on the market totaling 2.8 MM sf; 62.2% in 2018 (in terms of gross dollar
the majority of these assets have a ‘core plus’ or ‘value add’ profile and are located in various value). Private equity capital investment
submarkets within the District. Institutional
was consistent year over year also with
24.1%
25.8% of the activity. Noticeably absent from any
acquisition activity were the REITs; JBG Smith was a
‘Core’ Assets Generate Majority of 2018 Gross Volume net seller, but the downtown market otherwise did not see
any purchases from REITs. REITs have not been active in acquisitions
primarily because their costs of capital and dividend requirements are strategically accretive
$2,500
- particularly given the return metrics in the downtown Washington, DC office submarkets.
$995/sf
$2,000
Sales Volume ($ Millions)
The leasing market is presenting some interesting dynamics for investors. As noted in the
$487/sf leasing observations to follow, office absorption levels were strong in both the East End
$1,500 and CBD submarkets, and Class A and Trophy assets were the beneficiaries of much of this
absorption. With low unemployment rates in the metropolitan Washington, DC market, the
$1,000 competition for skilled employees is stiff and many tenants see new buildings with amenities
and work place efficiencies as critical to both retaining existing and recruiting new employees.
$500 $438/sf The absorption numbers bear this out in that the Class B and C spaces in the city suffered
$602/sf
significant amounts of negative absorption. With a strong pipeline of new development
$0 underway, this part of the market may remain under pressure, but this pressure may also
Core Core Plus Value Add User create buying opportunities for investors willing to take on repositioning/redevelopment risk.
NOTABLE 2018 TRANSACTIONS - WASHINGTON, DC
‘Core’ Sale Transactions
2550 M Street, NW 900 G Street, NW 1440 New York Avenue, NW
Sold 11/15/2018 Sold 1/26/2018 Sold 1/24/2018
$167,000,000 $144,000,000 $254,500,000
$806/sf $1,274/sf $1,190/sf
5.50% Capitalization Rate 4.20% Capitalization Rate 4.50% Capitalization Rate
Seller: Clarion Partners
Seller: Mirae Global Seller: MRP Realty, ASB
Capital Buyer: Eastbanc JV Munich
Buyer: Menlo Equities Real Estate
Comment: Law firm credit plus Buyer: EXAN Capital
Comment: Law firm credit plus
lease duration Comment: New construction lease duration
‘Core Plus’ Sale Transactions
1299 Pennsylvania Avenue, NW 1225 19th Street, NW 1250 Eye Street, NW
Sold 12/28/2018 Sold 8/15/2018 Sold 4/30/2018
$376,500,000 $41,900,000 $100,000,000
$615/sf $573/sf $562/sf
Seller: JBG Smith 4.60% Capitalization Rate Seller: RREEF Asset
Buyer: CBRE Global Investors Seller: Invesco Management
Comment: Lease up / Buyer: Marcus Partners Buyer: DSC Partners
repositioning Comment: Cosmetic renovation Comment: Cosmetic renovation
plus lease up
‘Value Add’ Sale Transactions
1333 New Hampshire Ave, NW 2445 M St, NW 1771 N Street, NW
Sold 11/30/2018 Sold 6/28/2018 Sold 1/22/2018
$132,500,000 $101,600,000 $36,100,000
$353/sf $313/sf $608/sf
Seller: Boston Properties Seller: Washington REIT Seller: National Association of
Buyer: The Meridian Group Buyer: Beacon Capital Partners Broadcasters
Comment: 100% lease up / Comment: 100% lease up Buyer: Stream Realty Partners
repositioning Comment: 100% lease up /
repositioning
WASHINGTON, DC LEASING ACTIVITY - 2018
2018 Market Leasing Observations Development Pipeline
• While there has been limited rental rate growth and although lease transaction costs
remain high, Class A and Trophy space posted strong results in 2018 in the traditional CBD East End NoMa Capitol Hill
1.03 MM SF 1.54 MM SF 1.07 MM SF 560,000 MM SF
submarkets of the CBD and East End; collectively, these submarkets registered 1.9 million
25.6% Pre-Leased 42.5% Pre-Leased 93.2% Pre-Leased 3.7% Pre-Leased
square feet of positive absorption;
• Class B and C space was under pressure with negative absorption in three submarkets
(CBD (1,233,550 sf), East End (531,886 sf) and Uptown (343,176 sf) totaling 2.1 million
square feet;
»» Move-outs/relocation of both private sector tenants (Akin Gump, Urban Institute,
Chadbourne Park, National Geographic) and government tenants (Department of
Justice, Fannie Mae) were part of the exodus from this Class B/C product;
»» Increased transaction costs/concessions have put pressure on net effective rent
growth;
• The development pipeline includes 4,319,544 square feet to be delivered in 2019-2021
timeframe; approximately 46% of this space has been preleased:
• Co-working tenants and occupiers absorbed approximately 1.35 million square feet over
the last 24 months, representing approximately 1.4% of the total office inventory in the
downtown market;
Capitol Riverfront
• Both landlords and tenants are intensely focused on “flexible work space,” and many 124,928 SF
landlords are investing capital in speculative suites to help meet the demand. 58.5% Pre-Leased
Leasing Statistics by Submarket
Market Existing Inventory New Supply 2018 New Supply Under Construction Q4 Absorption 2018 Absorption Overall Vacancy Rate Direct Asking Rental Rate
Capitol Hill 3,601,540 - 425,420 560,000 67,078 140,178 20.6% $62.39
Capitol Riverfront 4,041,467 - 231,616 124,928 -1,906 168,542 7.7% $53.30
CBD 22,745,919 101,850 1,363,092 1,031,081 2,700 982,148 11.6% $62.60
East End 34,220,782 1,047,874 1,152,874 1,535,162 457,332 922,174 14.5% $64.51
Georgetown 1,641,799 - - - -100,586 -126,123 15.6% $50.67
NoMa 9,001,182 - - 1,068,373 78,969 309,082 9.6% $53.52
Southwest 9,885,094 215,000 482,560 - 132,034 378,758 14.2% $48.75
West End 2,884,870 - - - -295,130 -290,040 22.2% $51.18
Uptown 2,193,535 - - - -11,443 -502,403 26.9% $51.16
Total 90,216,188 1,364,724 3,655,562 4,319,544 329,048 1,982,316 15.88% $55.34
NORTHERN VIRGINIA INVESTMENT SALES ACTIVITY - 2018
Northern Virginia Sales Market Remains Stable Sale Activity by Submarket
The Northern Virginia investment sales market remained steady in 2018 with 50 transactions (over
Submarket Deals Total SF Total $ Volume YOY Change
$10 million) totaling nearly $3.0 billion, which is comparable to the $2.99 billion of volume in 2017.
Herndon 6 2,882,939 $732,420,000 +$521 M
• There were six (6) ‘core’ transactions and the capitalization rate for these averaged 6.48% - a
significant premium to ‘core’ asset yields in the downtown Washington, DC market; Rosslyn-Ballston 5 1,296,391 $549,841,180 -$255 M
• ‘Core plus’ sale transactions comprised nearly 50% of the gross dollar value Tysons 7 1,932,449 $508,600,000 -$281 M
• The Reston-Herndon submarkets had significant gross dollar volume with $1.06 billion in total
Reston 7 1,289,199 $327,977,000 +$280 M
sales in 13 deals:
»» Two (2) transactions comprised 50% of that volume with Rockpoint Group’s Old Town Alexandria 5 769,963 $203,250,000 +$172 M
recapitalization of Brandywine Realty Trust’s Dulles Corner portfolio ($312 million) and
I-395 4 1,429,224 $152,117,260 +$98 M
Harbor Group’s purchase of 13200 Woodland Park Road ($226 million);
• The next highest grossing submarket in terms of dollar value was the Rosslyn-Ballston Eisenhower Ave 3 889,594 $141,800,000 +$142 M
submarket with five (5) transactions totaling $550 million:
Route 28 South 4 576,152 $141,120,000 +$16 M
»» The second largest transaction in Northern Virginia was Arlington Tower (398,000 square
feet), which sold in January 2018 for $250 million to Washington REIT; Fairfax/Oakton 4 881,129 $103,300,000 +$12 M
• Tysons continued to perform strongly with seven (7) transactions totaling $476 million (an Route 28 North 3 592,744 $95,942,300 -$28 M
average price per square foot of $272);
McLean 2 98,775 $25,700,000 +$10 M
• Although the Route 28 Corridor (with nearly 370,000 sf of positive net absorption) also had
seven (7) sales, the total transaction volume for that submarket was only $237 million (with an Total 50 12,638,559 $2,982,067,740 -
average price per square foot of $203).
‘Core Plus’ Assets Generate Majority of 2018 Gross Volume The Investor Pool Profile Other
REIT 2.2%
Private sector investors remain the most
$2,000 12.7%
prevalent capital source in the Northern
Virginia region, investing in over $1.2 Institutional
$1,600 $289/sf
Sales Volume ($ Millions)
billion in assets and accounting for 40.3% 34.1%
of the gross dollar value and 60% of
$1,200 the transactions in 2018. Institutional
$400/sf
investors were also active, accounting Private
$800 $157/sf 40.3%
for $1.03 billion - 34.1% of the gross dollar Cross-
value. Cross-border capital sources invested Border
$400 in only two (2) Northern Virginia assets this year 10.6%
$136/sf
- Harbor Group Management Company as previously
$0 noted in reference to 13200 Woodland Park Road and Kawa
Core Core Plus Value Add User
Capital Management who purchased Braddock Place in Old Town Alexandria.
NOTABLE 2018 TRANSACTIONS - NORTHERN VIRGINIA
‘Core’ Sale Transactions
14360-14370 Newbrook Drive 13200 Woodland Park Road 1300 North 17th Street
Sold 4/11/2018 Sold 2/28/208 Sold 1/24/2018
$95,000,000 $226,000,000 $250,000,000
$297/sf $560/sf $629/sf
6.75% Capitalization Rate 5.46% Capitalization Rate 6.25% Capitalization Rate
Seller: Equus Capital Partners Seller: Federal Capital Partners Seller: Tishman Speyer
Buyer: Hines Buyer: Harbor Group Buyer: Washington REIT
Comment: Leased with credit, Management Co. Comment: In-fill location;
duration Comment: Lease duration quality asset
‘Core Plus’ Sale Transactions
1550-1560 Wilson Boulevard 8180-8200 Greensboro Drive 1310-1340 Braddock Place
Sold 11/16/2018 Sold 6/7/2018 Sold 1/19/2018
$102,500,000 $142,000,000 $93,000,000
$365/sf $277/sf $260/sf
6.10% Capitalization Rate 5.50% Capitalization Rate 7.60% Capitalization Rate
Seller: Brookfield Office Properties Seller: Beacon Capital Partners Seller: Washington REIT
Buyer: Empire Leasing Buyer: Altus Realty, Velocis Buyer: Kawa Capital Mgmt.
Comment: Moderate lease up; Comment: Lower cost provider Comment: Metrorail access
lower cost provider in strong submarket with some re-lease
‘Value Add’ Sale Transactions
13100-13150 Worldgate Drive 200 Stovall Street 8320 Old Courthouse Road
Sold 9/25/2018 Sold 2/22/2018 Sold 5/31/2018
$44,920,000 $45,000,000 $11,000,000
$127/sf $73/sf $123/sf
Seller: Fannie Mae Seller: Hoffman Management Seller: Tycon One, Inc.
Buyer: MRP Realty Company Buyer: Carderock Investment
Comment: Short term lease, then Buyer: Perseus Realty Comment: Repositioning; low
repositioning Comment: Repositioning/ cost provider
conversion to multifamily
NORTHERN VIRGINIA LEASING ACTIVITY - 2018
2018 Leasing Market Observations
• The US Government continued to be a driving force in • Northern Virginia saw an increase in office inventory in • Vacancy for the Northern Virginia region hit its lowest rate
various quadrants of Northern Virginia by executing large- 2018: 1.46 million square feet of office product delivered in since 2013 this past summer at 17.2%;
scale leases such as: the third quarter alone:
• Not unlike what has happened in the District, Class A space
»» The Drug Enforcement Administration’s 511,487 sf, 15- »» Capital One’s new headquarters building at their Tysons has outperformed Class B and C space; Class A buildings
year renewal at 600-700 Army Navy Drive; campus added 975,000 sf; throughout the Northern Virginia market absorbed 2.5
million square feet, and Class B / C buildings absorbed
»» The U.S. Customs and Border Protection Agency’s new »» Comstock commenced the construction of the second
148,787 square feet.
lease at five Quantum Park buildings for 445,000 sf; office building in their Reston Station project;
»» The CIA’s 480,000 sf build to suit in Chantilly;
Leasing Statistics by Submarket
Market Existing Inventory 2018 New Supply Under Construction Q4 Absorption 2018 Absorption Overall Vacancy Rate Direct Asking Rental Rate
Carlyle/King St Metro 7,785,309 - - 101,331 69,982 10.7% $38.74
Eisenhower Ave Corridor 792,985 - - 2,721 12,107 8.3% $29.27
I-395 Corridor 8,550,121 - 24,410 -35,398 -2,591 34.0% $29.72
Old Town 5,670,367 - - -105,853 -49,394 11.3% $33.56
Falls Church 4,498,818 - - 2,164 -4,674 9.7% $32.85
National Landing 12,680,262 100,000 735,687 193,410 468,104 16.2% $37.99
Rosslyn/Ballston Corridor 24,888,541 175,000 240,000 285,936 570,935 21.5% $42.58
Fairfax/Oakton 13,581,416 - - 70,953 120,160 18.7% $26.90
Herndon 12,144,186 - - -82,313 -17,930 21.3% $31.52
McLean 1,558,716 - - -3,261 -13,925 9.7% $48.62
Merrifield 8,747,561 - - 94,060 101,570 16.7% $30.92
Reston 18,968,800 179,152 346,457 152,196 -351,611 15.2% $32.46
Route 28 Corridor South 14,960,067 480,000 - 7,068 368,835 15.9% $26.81
Tysons Corner 29,644,963 975,000 580,419 14,895 1,007,748 16.9% $32.83
Vienna 1,607,934 - - 9,848 14,784 10.8% $28.16
Route 28 Corridor North 9,571,272 - - 17,022 192,931 15.6% $25.44
Route 7 Corridor 4,296,769 - 35,700 -8,841 35,764 7.3% $25.28
Total 179,948,087 1,909,152 1,962,673 715,938 2,522,795 15.28% $32.57
REGIONAL ECONOMIC FORECAST
Regional Demographics Interest Rate Trends Job Change by Sector - 2017 to 2018
(000’s)
8.0% Professional/Business 15.1
Current Population 7.0%
Health/Edu 10.5
(2018)
Federal Gov. -5.9
5,556,400 6.0%
State & Local Gov. 5.9
Interest Rate (%)
5.0% Hospitality 8.3
Projected Population 4.0%
Retail Trade 2
(2023) Other Services 3
5,901,840 3.0% Construction 4.2
(6.2% increase)
Financial Activities 2.5
2.0%
Info Services 0.6
Median Household 1.0%
Transportation/Utilities 3.2
Income (2018)
$101,290
0.0% Wholesale Trade -0.6
2011
2010
2012
2013
2014
2015
2016
2017
2018
2007
2008
2009
Manufacturing 0.5
10-Year T Federal Reserve Prime -10 -6 -2 2 6 10 14 18
Average Household Size
The Changing Structure of the Washington, DC Regional Economy
2.7
2010 2017
Local Serving Activities
12.0% 15.3%
Unemployment Rate Non-local Serving Businesses
(Oct. 2018)
3.3% Total Total
Federal Wages & Salaries,
Procurement, Other Federal
Federal Federal
39.8% 31.2% International
S
Median Home 34.8% 38.0% Hospitality
Value (2017)
$408,400 Associations
Health/Education
3.5% 3.8% Other
Education Attainment
College Diploma:
1.6% 4.5% 1.8% 2.1% 1.5% 5.8% 1.8% 2.6%
57.9%
Source: The Stephen Fuller Institute at the Schar School, GMU
COLLIERS DC CAPITAL MARKETS TEAM
William E. Kaye David B. Gast Michael D. Blunt Kate S. Howarth John Broderick
Executive Vice President Executive Vice President Executive Vice President Senior Vice President Senior Vice President
202.728.3515 202.728.3534 202.534.3614 202.534.3609 617.330.8047
bill.kaye@colliers.com david.gast@colliers.com michael.blunt@colliers.com kate.howarth@colliers.com john.broderick@colliers.com
David W. Parker William Ide Rob Hartley Hilary Sayre Julia Howard
Regional Managing Director Senior Financial Analyst Director of Research Client Services Specialist Sr Client Services Coordinator
202.728.3541 202.728.3545 703.394.4852 202.728.3549 202.534.3622
david.w.parker@colliers.com william.ide@colliers.com robert.hartley@colliers.com hilary.sayre@colliers.com julia.howard@colliers.com
Team Capabilities
104 $19 B
The Colliers International Washington, DC Capital Markets team is led by experienced team of brokerage professionals with a
proven record of delivering compelling returns for stakeholders over more than 30 years. Our team consists of professionals who
work collaboratively to provide real estate expertise to our clients, acting in an advisory capacity to help each client maximize
investment returns, whether as a seller, purchaser or borrower. We have the knowledge and experience necessary to meet the
needs of both our institutional and private capital clients, recognizing that these client groupings have different requirements. Combined Years Gross Volume
Our platform is enhanced by our national Debt & Equity Financing (DEF) producers who help both our institutional and private
of Experience of Deals
capital clients. This specialized group assists with debt and equity capital for new development, acquisitions, refinance and
expansion or renovation of commercial real estate assets of all sizes and geographies.
Colliers International
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