- The Washington Times - Wednesday, January 17, 2007

Rents for midpriced office space in the Washington area are on their way up again this year, especially in Northern Virginia, according to the latest forecast from commercial real estate firm Cushman and Wakefield.

The firm predicts rents to rise at least 10 percent in both Arlington and Tysons Corner to an average of $40 per square foot. Reston and Herndon rents are less likely to rise significantly because the large number of projects leaves tenants many choices. Suburban Maryland rents are expected to rise by about the same percentage.

The forecast is similar to reports from other real estate information firms.

The surge in commercial construction in the past five years, combined with a strong job market, is producing millions of square feet of office space and enough tenants to fill it through the end of 2007, Cushman and Wakefield market analysts said during a briefing last week.

Investors in the projects will be trying to recover the money they paid for “tremendously escalated construction costs,” said David Millard, Cushman and Wakefield’s Northern Virginia senior director.

Class B buildings, which represent the middle market for office rents, are showing the biggest increases in value, he said. Typically, their tenants are government agencies and nonprofit organizations.

Class A, B or C categories depend on the age, location and quality of buildings, with A being the best category.

Class B buildings usually fluctuate the most in rent prices because demand depends heavily on general economic conditions, the analysts said. Class A office space, with rents that can run about $70 per square foot in downtown Washington, tends to serve niche markets that do not change much from year to year. Class C rents differ with the condition of each building.

Much of the Northern Virginia construction has been focused on Arlington, Tysons Corner, Reston and Herndon.

“Most of that delivers in 2007,” Mr. Millard said.

The General Services Administration’s expansion plans in Northern Virginia include more rental space for the Defense Department, the Justice Department and the Social Security Administration.

About 35 percent of the government offices in Northern Virginia managed by the GSA are scheduled for lease renewals in 2007 and 2008, many for contracts of five years, said Pete Marcin, managing director for Cushman and Wakefield’s federal practice group.

Mr. Marcin predicted that “2007 is going to be a big GSA year.”

Commercial space in suburban Maryland also is likely to increase in rent in 2007 as new commercial projects are completed and government agencies expand, said Andrew Masters, Cushman and Wakefield’s executive director for Maryland.

“Montgomery County is poised again to be a very tight market,” Mr. Masters said.

Rents are likely to increase by about 10 percent this year in Montgomery County to an average around the mid $30s to upper $30s per square foot for Class A buildings, he said.

The Cushman and Wakefield analysts said office rents are least likely to climb greatly in downtown Washington, which they describe as a “mature market.”

If there are rent increases, they would be in Southeast and the area north of Massachusetts Avenue, where several commercial developments are nearing completion, the firm reports.

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

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