- The Washington Times - Thursday, January 17, 2008

Washington’s commercial property market will not be bad in 2008, just not as good as the past five years, several real estate executives predicted yesterday.

“It’ll take longer to do deals because a lot of people will take a wait-and-see attitude,” said Sandy Weiss, vice president of real estate firm Grubb & Ellis Co.

Ms. Weiss spoke during a meeting of Washington-area real estate executives at a downtown hotel.

All of them agreed that economic uncertainty caused by the collapse of the subprime mortgage market is depressing the tendency of companies to seek new office space and slowing sales of homes, especially condominiums.

Although the uncertainties hurt the ability of landlords to make a profit, “it could be that there are more concessions for tenants,” Ms. Weiss said.

The concessions are unlikely to include lower rents, which would stay high because of escalating construction costs and taxes, she said.

Brendan R. Owen, chief leasing officer for Vornado/Charles E. Smith, said he noticed a decline in the Washington area’s commercial real estate market in the second half of 2007 as a credit crunch cut into the nation’s economy.

“Returns have been dwindling,” he said.

However, only specific segments of Washington’s commercial real estate market are likely to suffer this year.

Demand for “trophy” buildings — defined as the top 2 percent in any market — in Washington’s central business district is strong enough that they would not be affected by the credit crunch, Mr. Owen said.

Owners of buildings slightly below the trophy level are “vulnerable” in their ability to attract and retain tenants, he said.

With the downtown area inundated by new construction and tenants in recent years, developers are looking to build in sections of the city where lower land prices make them ripe for new projects, he said.

Chief among them are the North of Massachusetts Avenue neighborhood, the area around the new Washington Nationals baseball stadium and the District’s Southwest Waterfront. That is where land is available, Mr. Owen said.

In the North of Massachusetts Avenue, or NOMA, neighborhood, landlords could offer rents $10 per square foot cheaper than the central business district but have equal amenities, he said. The only drawback is that tenants would need to travel a few blocks farther from NOMA’s location in Northeast to downtown instead of being centrally located.

Grubb & Ellis made similar predictions in its annual real estate forecast.

The District will be the region’s real estate pacesetter in 2008, the Grubb & Ellis report said.

“While there may be softening in some submarkets due to construction, core markets will remain very competitive,” the report said.

“Inside and outside the Beltway markets will function differently in 2008 but, taken together, Northern Virginia will remain one of the strongest commercial markets in the nation.

“Rental rates in suburban Maryland are expected to rise in 2008,” the report said. “Look for a boost in construction near Metrorail stations and in proposed development related to the Intercounty Connector.”

Property Lines runs on Thursdays. Call Tom Ramstack at 202/636-3180 or e-mail tramstack@washingtontimes.com.

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