Washington's prime downtown office space, regarded as one of the healthiest aspects of the area economy with an occupancy rate of 99 per cent, is also highly unusual when compared to other major cities, according to a recent analysis of downtown space by the Coldwell Banker real estate brokerage corporation.
The area the firm studied extends west from 14th Street and Pennsylvania Avenue to Wisconsia. Avenue in Georgetown and north from Constitution Avenue in the Foggy Bottom area to the vicinity of Dunpont Circle. The majority of the city's office space is located in the of the study, which left out the blocks, east of the White House traditionally known as the downtown of the city.
Among the report's findings:
The vacancy rate is lower than 1 per cent in competitive, first-class private buildings here, as compared to 4 per cent in Chicago, 4.1 per cent in San Francisco, 9.5 per cent in Dallas, 5.5 per cent in Los Angeles and 15 per cent in Atlanta.
The combined requirements of government and private industry have resulted in a doubling of the annual demand for private office space here since 1970.
The annual average of 1.9 million square feet of space leased in downtown Washington exceeds the 1.3 million square feet leased in San Francisco, 1.2 million square feet in fast-growing Houston and 880,000 square feet in Los Angeles, but less than the 2.2 million feet leased annually in Chicago, New York City was not covered in the survey.
In Washington, the percentage of office space leased annually in relation to the total stock of private downtown space is 7.8 per cent - matched by the Houston market but higher than the 6.1 per cent rate in Los Angeles, 6.8 per cent in Chicago and 4.6 per cent rate in Dallas.
Associations, attorneys and accounting firms occupy 40 per cent of the private office space in Washington's downtown - a whopping 9.7 million square feet. This compares with 6.2 million square feet in Chicago, 5.9 million feet in San Francisco and only 3.2 million in Los Angeles.
Tenant occupied space here accounts for 80 per cent of the private market, compared with 63 per cent in Chicago and Denver, 59 per cent in San Francisco and 47 per cent in Los Angeles. The Coldwell Banker report also noted that this city's new office space is generally the product of private developers. There is little activity on the part of banks, big industrial firms and conglomerates, which tend to build and occupy and lease space to tenants in other big cities.
Not surprisingly, Washington leads other cities in the percentage of space leased to government agencies - now about 23.1 per cent. In addition, the nation's capital has more leases due to expire between now and 1980 than do other cities.
Coldwell Banker vice president James B. O'Brien commented that the use of office space by the private market is growing at a faster pace than is federal leasing.
"But the reluctance of the U.S. to build new buildings indicates it may soon be facing some higher leasing price levels than hitherto experienced in this area," he said.
The report shows that the the average rate paid for new office space in downtown is now $12 per square foot per year. The rate is expected to rise to $13.50 per square foot or more by 1979.
Coldwell Banker noted that new office building construction is picking up once again in response to the unusually strong market demand in the last two years.
"The market should able to absorb new office space almost as fast as it is constructed and, by 1979, the vacancy rate should still be less than 2 per cent in downtown Washington," it added.
In discussing reasons why the pace of private office leasing has been so strong here this year, O'Brien maintains that nearly all trade associations want to be here and points out that law office growth is substantial.
"Our own firm, which has been mainly active on the West Coast, now is moving eastward and we regard Washington as a prime market," he added.
Another important factor in the office building market, according to O'Brien and three of his leasing specialists - Hal Bowles, George Vooris and Theodore Pugh - involves the retail space created in new buildings. They agreed that the leasing of the retail space, at rates varying from $20 to $40 a square foot per yera in well-located new structures, is a key to the profitability of any given building. And retail space leasing tends to lag behind the pace of office space leasing in any new building.
The Connecticut Avenue corridor between K and M Streets NW is widely regarded as the heart of the downtown office and new commercial markets. But leasing professionals also recognize that new construction in the next few year is likely to be strong in areas east of 15th Street because of lower land prices and the likelihood of some height incentives.
For instance, Quardrangle Development Co. already has plans for a large 12-story building at 1301 Pennsylavania Ave. NW. And other developers have been acquring other sites in areas east of 15th Street and north of "the Avenue" in anticipation of starting new office buildings.
This activity constitutes softness in the office leasing market by 1980, one reason why some persons foresee the possibility of some softness in the office leasing market by 1980.