By the end of the decade, office space rents in some of the nation's prime central business districts could catapult to as much as $100 a square foot, causing a dramatic realignment in the types of businesses willing to locate in these centers. In Washington, prime office space rents could more than double before 1990.
These conclusions are put forth in a study entitled "The Changing Office Leasing Picture," by Kenneth D. Laub, president of Kenneth D. Laub & Co. Inc., a New York real estate consulting and brokerage firm. Laub projects the future emergence of "a fully developed three-tiered market among corporate and institutional tenants."
The first tier, Laub says, would "primarily comprise financial institutions, service companies and executive headquarters of large corporations that would pay exorbitant rents for prime downtown office space." The compelling reason for such expenditures would be the need for "high visibility, prestige and convenience." Among the types of companies likely to remain in prime locations despite cost, according to Laub, are banking and financial institutions, advertising, public relations and other service companies, legal and accounting firms and "portions" of corporate operations, primarily those involved in finance, marketing and international trade.
Cost-conscious corporations less concerned with visibility would comprise the second tier in Laub's pyramid. "Those tenants will look to the suburbs and to the central business district of secondary cities for office space," Laub predicts. The introduction and refinement of high-speed data transmission and communications will make it increasingly "feasible to avoid high rents by locating back-office operations outside of prime downtown areas."
The third tier in the future office leasing market, Laub says, "will encompass firms and corporations that will seek a full or partial equity interest in their buildings to avoid or compensate for higher rents, or condominium ownership of their space."
Accelerating the trend toward Laub's three-tiered market of the future is the high desirability of prime real estate investments in institutional portfolios. "The demand today is for index-linked investments, which preserve their value by adjusting to future inflationary pressures," Laub writes. That demand helped make history of traditional fixed-rate leases and mortgages, and the same pressure will eventually result in "inflation-proof leases" allowing landlords to raise rents periodically, often in tandem with rises in the Consumer Price Index. These leases, reflecting an adjustment by owners and investors to a constantly changing economic climate, will force tenants to make their own adjustments "in the interest of financial survival," and will bring about the three-tiered market.
* Several major tenants have recently leased space in the Bedford Building, a new, $8-million, 129,000-square-foot commercial office building in Bethesda. Capital Homes Inc. will relocate its corporate headquarters from downtown Washington into 7,500 square feet there. Price, Waterhouse & Co., also moving some of its senior partners from a downtown building, will occupy 22,000 square feet. The General Accident Insurance Group will use 11,000 square feet, and New England Life will use 7,500 square feet. The building, constructed by the Donohue Cos., was designed by Washington architects Weihe, Black, Jefferies, Straussman & Dove.
* Margolius, Davis & Finkelstein, a local law firm, has purchased the 10,000-square-foot building at 1503 21st St. NW for more than $1.3 million. Gillian Keenan, a broker at Coldwell, Banker Commercial Real Estate Services, represented both the buyer and the seller, the Corcoran Gallery of Art.
* Two Chase Manhattan Bank subsidiaries, Interactive Data Corp. and Chase Econometrics, have signed a five-year, $1.85-million lease for 16,500 square feet at 1110 Vermont Ave. NW. The transaction was handled by Vernon Knarr of Coldwell, Banker Commercial Real Estate Services.
Leggat McCall & Werner Co. Inc. of Washington has concluded the following leasing agreements: a 10-year lease worth about $2 million to Union Carbide at 1100 15th St. NW., and Green Thumb Inc. has leased 15,365 square feet for 10 years at 1401 Wilson Blvd., Arlington, for more than $1 million.