NoMa Gets Gentrified, Now Waits For Tenants
Monday, August 11, 2008
When National Public Radio said in March that it would build its new headquarters in NoMa, politicians and developers heralded it as a key boost for the rapidly developing neighborhood.
NPR said it was drawn to the area north of Capitol Hill and Union Station for its proximity to official Washington and because of a desire to invest in a new neighborhood. The media company also received lucrative tax subsidies from the District.
"Over a period of time, neighborhoods change and improve, and we have a real commitment to diversity in our organization," said Dennis Haarsager, NPR's interim chief executive. "I feel that that neighborhood has great potential."
NPR plans to open its building in 2012. The Justice Department, which one day after NPR's announcement said it would move its criminal division to NoMa, is set to arrive in 2010.
In the meantime, about 880,000 square feet of office space in NoMa, or about 10.4 percent of the total market, sits vacant, according to CoStar of Bethesda. At least two completed buildings have no tenants. An additional 2.7 million square feet of office space are on their way, part of a wave of buildings financed during the boom, now being completed in the midst of an economic downturn.
Developers said interest in the area has picked up following the announcements by NPR and the Justice Department. But leasing has become increasingly difficult throughout the Washington area, and that could slow plans to use commercial real estate as a catalyst for transforming once-blighted neighborhoods such as NoMa, brokers said.
"People aren't showing up as quickly as people hoped," said David Lipson, executive vice president of the District office of Studley, the commercial real estate firm that brokered the NPR and Justice Department deals. "I think tenants are cautious just about the emerging markets in general."
NoMa has undergone numerous changes over the past decade, from possible cultural center in the late 1990s to potential technology hub before the bubble burst. None of that panned out, but a consensus among the District's development community emerged: This funky amalgamation of warehouses and run-down, empty lots north of the Capitol could serve as a natural extension of the downtown "box" that is now nearly built out. The area could also serve as a way of keeping companies in the District as they become priced out of downtown locations.
"There is a lack of space and those [downtown] sites are fabulously expensive," said Charles "Sandy" Wilkes, chairman of District-based Wilkes Co., one of the first developers to begin accumulating land in NoMa. "There was an inevitability that development would move toward NoMa."
As low interest rates earlier this decade made development deals easier to finance, commercial real estate took off throughout the Washington area. Big builders began looking at neighborhoods such as NoMa and along the Anacostia River, near the Nationals' new stadium, as opportunities.
The financing equation has changed since then. Debt has become increasingly difficult to come by since the credit crunch began last August. Job growth has slowed and, with it, leasing activity.
The average rent for a building downtown was $49.11 per square foot at the end of the second quarter, compared with about $45.21 in NoMa. That may not seem like much, but the majority of new space in areas such as NoMa and other emerging markets is "Class A" space, meaning it is made with highest-quality materials and extra flourishes. The price differential between Class A space in emerging neighborhoods and downtown can easily work out to about $15 a square foot, said Ernest Jarvis, managing director of the Washington area office of the commercial real estate firm C.B. Richard Ellis.