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CoStar: Rents higher near White House, Capitol

By erica champion,

Lobbyists and political action committees have been gearing up for the presidential election, which sparks a real estate-related question: Are certain office tenants willing to pay premium rents for office space located just down the street from Washington’s most elite addresses?

The answer appears to be “yes.” Office space within a 10-minute walk to the White House commands an 8 percent premium over the D.C. average, and properties within the same distance to the Capitol achieve a 19 percent premium. The greater the distance from the seat of the executive or the legislative branch, the more diluted the rent premiums are, as of year-end 2011. For instance, the rent premium drops to an average of 5 percent for properties within the “donut” radius of 0.5 miles and 1.0 mile around the two landmarks.

Although the famous K Street corridor currently hosts only one of the heaviest hitters in the industry, tenants still lobby to be within a power walk of the nation’s elected leaders. Half of the top 20 lobbying firms by revenue have an office within a 10-minute walking distance to the White House or to the Capitol, and all are located within one mile of the two centers of power.

Even more interesting are the patterns over history. During President Obama’s administration, the office rent premiums within a half-mile radius averaged 8 percent. During the Bush era, tenants forked over only 3 percent extra.

Presidential elections also have a clear impact on the desirability of properties near Capitol Hill, with rents dramatically spiking at the height of the season, except in 2008, when the entire real estate market was depressed. While exposure to the federal government looms as a downside risk for the D.C. office market as spending cuts are expected to replace spending increases, it turns out that the presence of power provides a serious boost for surrounding office properties.

Erica Champion is a senior real estate economist with the CoStar Group in Washington.

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