- The Washington Times - Wednesday, May 24, 2006

Most of the Washington area continues to buck the national trend of a slowing commercial real-estate market, according to a report this week from the commercial real-estate services firm Grubb & Ellis.

Only Northern Virginia showed any lagging, and Grubb & Ellis said that is likely to be no more than short term.

Real-estate and financial executives say they have noticed a slackening but remain optimistic.

“In terms of supply and demand, things are not moving as quickly as they used to,” said Jenny Shtipelman, assistant vice president of business development for Bethesda-based EagleBank, a commercial real-estate lender.

In areas where the real-estate market is slowing, rising interest rates are a contributing factor, “but if you compare them to the 1980s, they’re still low,” she said. “There’s definitely still demand.”

Grubb & Ellis reported that the office vacancy rate in the District for the first three months of 2006 remained the same as the previous three months at 6.7 percent, while the average rental rate increased by 91 cents per square foot. Office rents are averaging $40.49 per square foot in the District.

Renovations of older buildings are raising the quality of the buildings but also the lease rates, in some cases by $1.85 per square foot for office space that would have been rejected by corporate clients only a few years ago.

The downtown Washington office market has built up so quickly in the past five years, about the only way to build a new building is to tear down an old one, according to real estate brokers.

“It’s very, very hard to get a site in D.C.,” said Jayne Shister, vice president of commercial real estate brokerage firm Cassidy & Pinkard. “There’s a real limit to what can be built.”

The story is slightly different in Northern Virginia, where the suburban area’s outward edge still gives developers space to build.

Grubb & Ellis described the Northern Virginia commercial real-estate market as “sluggish” and having “static vacancy.”

The market is hurting from uncertainties about the Defense Department’s Base Realignment and Closure initiative, the federal deficit, an extension of the Metro line to Washington Dulles International Airport and natural disasters.

“However, the effects of these issues are beginning to become clear, which will bring stability back to Northern Virginia,” Grubb & Ellis reported.

Nevertheless, only 249,227 square feet of office was leased during the first three months of this year, compared with 1.4 million square feet in the previous three months.

Suburban Maryland has avoided any commercial real-estate slowdown because of its vibrant economy and job growth.

About 430,000 square feet of new commercial space was leased in the first quarter.

“In terms of the number of tenants actively looking for space, the leasing velocity is increasing,” Grubb & Ellis reported.

Montgomery County edged out Prince George’s County for new leases.

In other news …

Real-estate developer Douglas Jemal has struck a deal to purchase five buildings on the southwestern corner of 10th and F streets Northwest for an undisclosed sum. He plans to tear most of them down and replace them with an 80,000-square-foot office building. The current tenants consist of mostly small retail shops.

Property Lines runs on Thursdays. Call Tom Ramstack at 202/636-3180 or e-mail [email protected]

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