When it comes to office development, D.C.’s center of gravity has shifted eastward

Over the past couple of decades, the focus of office development in Washington has drifted east of the so-called “Golden Triangle” covering the area between the White House and Dupont Circle along sections of Connecticut and K streets NW.

For confirmation, one has only to consider law firm Arnold & Porter’s decision last week to jump across 7th Street NW, moving its offices to the planned Boston Properties project east of Mt. Vernon Square. This decision, of course, comes just on the heels of Covington & Burling’s plans to move to CityCenterDC.

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This eastward drift of the D.C. office market is also borne out in the latest leasing and development numbers. During fourth quarter 2012, the District’s office tenants moved into more than 1.7 million square feet of office space. The northeastern NoMa (north of Massachusetts Avenue) area accounted for an increase of approximately 425,000 square feet of leased office space, close to 25 percent of the District’s office leasing activity while containing only 6 percent of its total office inventory.

The eastward shift is also evident by the areas where developers are adding new office space. Since 2009, the largely established central business district and East End neighborhoods have added less than 3 percent of their total office inventory. The Southwest neighborhood, added only 10.66 percent of its office space since 2009, while the NoMa added a whopping 23.74 percent of its office space during that time.

In terms of potential office space, developers have proposed new projects since 2009 that amount to an additional 10.8 percent more office space to NoMa’s existing inventory. This is a far higher percentage than the 1 percent more office space proposed in the central business district, 3.5 percent in the East End, and 6.4 percent in the Southwest office submarket.

What does this mean for the office market’s future? As demand rises, and development continues, NoMa’s saturation levels may inevitably force rents to climb to the $50-$55 a square foot seen for the more established areas. Developers and tenants alike may then look to other areas where developers have staked out projects, such as a proposal to build atop a stretch of Interstate 395 inside the city.

Kevin Harrington is a research analyst for CoStar Group in Washington.

 
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