Diamonds are forever, but office buildings are not. Since 2009, more than 3 million square feet of mostly older and empty office space in the Washington area has been demolished. The removal of these buildings has pushed citywide occupancy rates up 0.6 percent compared to what it would have been in a world with no demolitions.
This phenomenon is not exclusive to Washington. Nationwide, demolitions have caused office occupancy rates to rise a full percentage point during the same period. Still, as the Washington area deals with elevated office vacancy rates, competition for tenants will continue to be fierce.
For the most part, these demolitions are being driven by the out-with-the-old, in-with-the-new demands of the market. Office tenants and apartment renters want 21st century amenities, as well as locations in prime areas that are often near public transit. With few available up-to-date assets located in such prime areas, developers are demolishing the older stock to make way for shiny, new buildings that meet the need for well-designed modern space.
Supporting this view, the East End recently underwent a makeover, as the old NPR headquarters was demolished in April after the public broadcaster moved to a newer, larger space in the area known as NoMa, which itself sits on the site of another office demolition — this one from 2010.
Construction of the replacement 601 Massachusetts Ave. NW on NPR’s old headquarters site is set to begin in September, and the new building is to be anchored by law firm Arnold & Porter.
Office demolitions do not necessarily give rise to new office space, however. JLB Partners is in the process of acquiring the Garfield Building in Tysons Corner, and has plans to demolish the 58,000-square-foot office property. While this building is less than 35 years old, with many new office properties added more recently in the area, it has been at a competitive disadvantage.
Rather than build more office space, JLB plans to demolish the building and erect a 425-unit high-rise apartment complex. This will allow JLB to deliver a structure that is more than six times larger than the old office building.
Developers should continue to find creative ways to redevelop space. As long as demand continues to stay strong in the metropolitan area, construction cranes should continue to populate the skyline.
Walter Page is director of U.S. office research and Connor Bevans is a real estate analyst for CoStar Group.