Development Spreads
To Outlying City Districts

Washington, D.C., employers traditionally look for addresses as close as possible to the city's center of influence: Capitol Hill. Now, with developable land in the city's core becoming scarce, office developments are being launched in areas of the city that aren't usually frequented by political power brokers.

The development of urban submarkets comes as the region's strong economy has driven a slew of office development throughout the city and its Virginia and Maryland suburbs. Last year the Washington metropolitan area, home to about 5.3 million people, added about 10 million square feet of office space, the highest volume of the 54 major markets surveyed by Property & Portfolio Research Inc., a Boston real-estate research firm.

Though the pace of absorption is expected to slow, for now the Washington region's office market remains largely robust thanks to a net demand for office space that was the highest of the nation's major metropolitan areas at about 12 million square feet last year, according to PPR.

While nearly half of last year's construction was in the city, more speculative construction in the suburbs is going forward. Still, many developers are betting that certain tenants, such as law firms, can't or won't leave the city, home to about 581,530 people. Washington developer Akridge paid $10 million last year for 15 acres of air rights above the train tracks next to the city's Union Station. Akridge is planning to build a mixed-use project with three million square feet of space that would include office, residential and retail.

Joseph Svatos, senior vice president of Akridge, said strong the real-estate market has helped make the project, called Burnham Place at Union Station, feasible. It is expected to cost about $1 billion to develop space that will essentially be located on a platform above the trains. "Projects like this only come into focus when there's not much land left," said Mr. Svatos.

Other development has pushed outward into previously industrial or blighted neighborhoods. Spurred by the city's construction of the $611 million baseball park for the Washington Nationals about one mile south of the Capitol in the Southeast section of the city, a surge of development is under way or planned in the area.

Prospective tenants are considering the Southeast because the office rents are less expensive than the central business district, said Jeffrey Neal, principal of Monument Realty, which is developing a mixed-use project that includes speculative office space near the ballpark.

There are some signs the city's real estate could be headed for a slowdown. Though overall rents are still rising, new office supply has pushed up vacancies in some of the city's submarkets and a slowdown in the residential market is also forecasted to damp retail sales and send the region's store vacancies higher, according to PPR.

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