The transformation of Washington’s East End has been in the making for the past 15 years, and its progress to date recalls an earlier time when the neighborhood was the hub of downtown and a thriving center of activity.
The Walter E. Washington Convention Center, north of Mount Vernon Square, serves as a major anchor to the northern edge of the neighborhood. The Verizon Center stands as another anchor, surrounded by restaurants, theaters and the high-end CityCenter development.
Today, the inventory of East End office space totals 44.8 million square feet, situated in an area bounded by Third Street NW to the east, 15th Street NW to the west, Constitution Avenue NW to the south and M Street NW to the north.
Landlords have been successful at luring law firms and other high-profile tenants away from the central business district to the East End in recent years. The direct vacancy rate stood at 8.1 percent in the second quarter and net absorption of office space (the change in leased space) registered 90,000 square feet.
The overall vacancy rate (which includes sublet space) declined slightly from 9.2 percent in the first quarter to 8.9 percent as of mid-year. Average asking office rents in the East End have been in the low $50-per-square-foot range for the past five years, with a peak of $53.20 in 2010. During the first half of 2013, the average asking rent decreased to $50.70, from $52.66 at year-end 2012. Five projects were under construction in the second quarter of 2013, totaling 1.1 million square feet of space coming on the market. Approximately 63 percent of that space is leased.
The East End is part of the larger central D.C. apartment submarket, which also includes neighborhoods such as the West End, Dupont Circle, Logan Circle, Mount Vernon Square and Mount Vernon Triangle. Rents in this part of the District are among the highest in the city and metropolitan area. As of mid-year 2013, Class A effective rents averaged $2,759 per unit, or $3.24 per square foot, which is about $200 higher per unit than the District average. Currently, concessions make up 2.3 percent of face rents, which is a lower percentage than other parts of the District. Stabilized vacancy (meaning vacancy for properties no longer in the initial lease-up phase) in the area was 3 percent at mid-year 2013, which is about the same as the District-wide average. Meanwhile, overall vacancy was 3.3 percent, much lower than the District average of 14.9 percent, because of the lack of new apartment projects in lease-up in central D.C. Only one project is currently under construction in the East End portion of central D.C., and it will begin leasing this fall. Currently, no other apartment projects are planned in the East End, but there are potential opportunities to convert or redevelop older commercial buildings to apartments.
Condominium activity in central D.C. has picked up recently, with new projects recently entering the market after years of limited supply. As of mid-year 2013, 142 new units are available in the East End with an additional 100 units in the planning stage that could either be developed as condos or apartments. Average sales prices can reach as high as $800 per square foot.
Overall, the East End market has performed fairly well, though sequestration may hinder the office market’s performance in the near term.
William Rich is a senior vice president at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.