Skanska Development to build office building in downtown Washington
Monday, March 22, 2010
Not long ago, office buildings sprouted at a rapid pace in Washington's business districts. But then the bust came. Companies began slashing jobs, prompting them to shed space instead of spreading out. Vacancy rates soared. Newly completed office buildings sat empty.
Now office construction has nearly ground to a halt. Building on speculation -- before tenants are lined up -- has especially become taboo.
So, does a plan by a Swedish developer to break ground this spring on a 10-story, 165,000-square-foot Class A office building near Verizon Center -- which has no tenants pre-leased -- signal a return to the glory days?
Officials at Skanska USA Commercial Development say they recognize that demand is way down for office space and that credit is almost nonexistent for builders. But they say they're in a special situation: Skanska is financing and constructing the building itself. The company says it believes the project is in a can't-miss location: at 10th and G streets NW -- within blocks of two Metro stations, eight hotels and more than 40 restaurants.
Moreover, officials said, the project gives the company a chance to make inroads in this market.
"We're one of the largest developers based in Sweden, and we don't have a commercial real estate presence in the U.S.," said Robert Ward, executive vice president and regional manager at the company's office in Reston.
After studying 24 markets across the country, Ward said, the company settled on Washington, Boston and Houston. "Washington is rated very highly historically with . . . strong employment growth and rental rates and the quality of tenants here," he said. "We want to prepare ourselves to be a strong developer in the market in the next [up] cycle."
Some law firms, associations and Fortune 500 firms have expressed interest in the property, Ward said, but no leases have been signed.
The office market in the seven Washington business districts has slowed considerably during the recession.
The Skanska project is the first speculative new office constructed without a lead tenant since 2008, according to real estate firm Cushman and Wakefield. In 2007, at the peak of the market, there were 19 office buildings started with no lead tenants. Last year, there were zero.
Given how the office market has faltered, Sigrid G. Zialcita, managing director of Cushman and Wakefield, said she was surprised to learn about the Skanska project. "No one will ever build spec today," she said she had thought, with the "vacancy rate at a 12-year high."