- The Washington Times - Friday, January 10, 2003

Real estate investors looking to get away from the low returns on many office space properties should look toward their local Home Depot or Wal-Mart.

While a slow economy continues to cause high vacancy rates and low returns on many office properties around the District, owners of neighborhood shopping centers are reporting stable tenant bases, and, in some cases, new tenants.

The success of retail centers appears to be connected in part to the construction of new homes. Builders of planned developments, such as Reston Town Center and Shirlington, have worked with retailers to combine new housing with new grocery stores and neighborhood-style shops.

"Developers will continue to expand hand-in-hand with new planned unit developments, especially in Loudoun County and outer Montgomery County," said a report this week from Grubb and Ellis, a real estate services firm with offices in and around the District.

Furthermore, retail sales are relatively strong, and the majority of retail tenants are able to sign and honor long-term leases. Same-store retail sales across the nation rose 2.57 percent in 2002, according to Bloomberg news service.

In this area, median household incomes are between 5 percent and 75 percent higher than the national average, depending on the locality. This bodes well for retail developers looking to move into the area, analysts said.

The District is likely to be a hot spot for retailers during the next several years, analysts said. D.C. Mayor Anthony A. Williams has pushed the D.C. government to offer incentives to retailers willing to locate in underserved areas.

The Southwest and Southeast portions of the District will get new retail developments in coming years, and the downtown area is poised for more retail development with the refurbishing of the old convention center site. The new convention center is also expected to attract retail to the surrounding neighborhoods.

What's more, Grubb and Ellis said, the District is filled with fairly wealthy yet underserved neighborhoods, such as upper Northwest and Capitol Hill.

"Retailers can expect favorable conditions within the District in the foreseeable future," Grubb and Ellis said.

The recent bankruptcies of big retailers such as Kmart and Ames have meant that vacant pieces of large, "big box" space can be had cheaply, analysts said, and this could open some opportunities for other large retailers looking to move into the Washington area.

COPT is top REIT

Corporate Office Properties Trust, a Columbia, Md.-based owner of office parks in the Washington suburbs, was the top performing company of its kind in 2002. The Real Estate Investment Trust registered a total return, including dividends, of 25.8 percent, more than seven times the average of REITs nationwide.

COPT owns 111 buildings in the D.C. and Baltimore area, totaling more than 9 million square feet. More than 95 percent of the properties are occupied, and about 40 percent of the company's revenue stems from the defense and intelligence sectors.

In other news

•International developer Grosvenor paid $17.1 million, or about $288 per square foot, for 1777 F St. NW. The building, near the White House, has 59,000 square feet and is fully leased.

•CarrAmerica and Douglas Development said they would build an office and retail development at 950 F St. NW. The 10-story Atlantic Building will include 290,000 square feet of space. Ground is scheduled to be broken in November.

Property Lines runs Fridays. Tim Lemke can be reached at [email protected] or 202/636-4836.

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