An Oct. 18 Washington Business article incorrectly said that the Pottery Barn store in Georgetown is at Wisconsin Avenue and M Street NW. It is at 31st and M streets NW. (Published 10/19/04)

When an art supply store went bankrupt and closed its doors at 3019 M Street NW in Georgetown in midsummer, landlord Richard Levy expected the spot to sit empty for a while. But he leased the space in just two months to Paper Source, a fancy Chicago-based stationery store.

The deal illustrates how the area's mix of retail tenants is changing from mom-and-pop shops to a blend of well-known chains, high-end clothing boutiques and luxury kitchen and furniture shops, according to developers, real estate brokers and retailers.

"We're going through an evolution here," said Anthony M. Lanier, president of EastBanc Inc., a major developer of shops and condos in Georgetown.

Lanier is credited with sprucing up a strip along M Street, one of the neighborhood's two main streets, that was once a rundown collection of bars and stores and turning an abandoned parking lot into a high-end retail project called Cady's Alley.

"We're seeing the elimination of lower-priced bars. They're being converted to stores," Lanier said. "We're getting better tenants."

Those include stores such as Relish, a high-end clothier; Baker Furniture; and Bluemercury, a spa and cosmetics shop.

They come for several reasons. The area is one of Washington's most exclusive neighborhoods, full of 19th century houses worth millions of dollars. It has strong demographics plus several thousand college students within five miles. And it is a must-see for tourists, which generates lots of foot traffic, said Steven B. Greenberg, president of Greenberg Group, a Hewlett, N.Y., real estate adviser to retailers including appliance supplier Waterworks, shoemaker Puma,and clothiers French Connection and Levi Strauss & Co.

Marla Malcolm Beck, chief executive and founder of Washington-based Bluemercury Inc., with stores in Philadelphia and Princeton, N.J., opened her shop on Georgetown's M Street in 1994. After 1999, she said, four other cosmetic stores opened within the same block.

"Now when people think of beauty retail they come here as a destination and jump from shop to shop," Beck said. "It's the concept of a shopping mall, but it's open. You can shop, grab lunch, go to the movies. It's a destination for a day trip; it's not just shopping."

Nancy Pearlstein, the owner of Relish,a high-fashion designer clothing store in Chevy Chase, said she opened her second store at Lanier's Cady's Alley because he is careful about getting a mix of tenants that complement each other.

"In Chevy Chase, if there's a vacancy, they have to fill it right away," Pearlstein said. "They want to fill it with someone who can pay the rent. The fact that there are empty places [in Lanier's retail space] shows there is some semblance of thought of who's going to come in here."

Pearlstein said Lanier understands having a mix of retailers. "People won't come if they have just Banana Republic and Gap," she said.

The demand from tenants is pushing asking rents for space to unprecedented levels. A square foot averages $60 to $100 -- almost twice as much, brokers said, as the rates at the new Gallery Place complex on 7th Street NW.

"There's a new wave of tenants," said William G. Miller, director of retail leasing at Transwestern Commercial Services. "We've seen a constant churn of space, where when one leaves there's more activity [of tenants looking to fill that space] than there is space."

He and other developers point to such stores as Pottery Barn at the corner of M Street and Wisconsin Avenue NW, the neighborhood's other main street, which was once a small, grocery store; and such stores as Polo, Anthropologie and Lacoste as typical of the new tenants.

"This is not Rodeo Drive," Levy said. "This is not Madison Avenue. Georgetown is more like an amalgam between Soho and Greenwich Village."

There are 250,000 square feet of retail space to be leased or being built in Georgetown, Lanier said. The area runs from the Four Seasons hotel at M Street and Pennsylvania Avenue down to the Key Bridge; north to R Street and south to the Potomac River. Of that space, about 70,000 square feet belongs to Lanier's East Banc.

Probably the next part of Georgetown due for a shake-up as property values rise, developers said, is around Wisconsin Avenue and P Street, just up from busy M Street. The area is now dominated by family-owned shoe and tailored-suit stores.

Even with the increased interest from retailers, there is caution because of the impending empty space under construction and vacant, and worries about the economy.

"I've been prognosticating a downturn since before 9/11," Miller said. "I'm surprised at how resilient it's been."

Dana Hedgpeth writes about commercial real estate and economic development. Her e-mail address is hedgpethd@washpost.com.

This luxury furniture store Baker in Cady's Alley exemplifies the type of stores that are interested in Georgetown.The Paper Source, a Chicago-based stationery store, is to soon occupy the space vacated by the Art Store on M Street NW.