Industries Commercial Real Estate

Foreign investors like Washington, D.C., properties

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The commercial real estate leasing market in metro Washington was flat in the second quarter, but capital markets remained active with tremendous interest from foreign investors, according to second quarter market reports released Monday by Jones Lang LaSalle.

“The second quarter was statistically one of the flattest ever for the office leasing market, but it’s encouraging to see stability in the market given the ongoing challenges that remain within the federal government,” Scott Homa, vice president research, Jones Lang LaSalle, said in a statement. “Interest among foreign investors in the Washington market remains extremely strong, and core D.C. properties continue to attract significant leasing demand.”

To date, Jones Lang LaSalle said foreign investment in the District of Columbia has increased to $1.9 billion (including completed and pending sales). This marks a year-over-year increase of 83.3 percent.

By comparison, while foreign interest in Washington always has been strong, 30 percent of buildings were sold to foreign entities in 2012. Historically since 2000, 17 percent of buildings sold went to foreign entities or partnerships.

“Washington remains an extremely attractive investment environment from a global standpoint despite government spending cutbacks and overall budgetary uncertainty,” said Bill Prutting, managing director, Jones Lang LaSalle. “Foreign investors are expected to remain active in Washington and are likely to continue to pay top-dollar for stabilized, core assets.”

Jones Lang LaSalle expects leasing activity in downtown Washington to remain steady in the months ahead as tenant interest remains strong for core properties. Recent leases and tentative letters of intent for deals in Washington’s Central Business District and East End submarkets have commanded near-record high rents, the firm said. Flight-to-quality continues to drive leasing decisions as tenants look to upgrade to more efficient spaces.

“Although tenant demand across much of the region has slowed due to sequestration and rightsizing, core properties remain resilient,” Homa said. “An approaching surge in lease expirations and concurrent slowdown in speculative construction will ensure balanced market conditions in 2014, and market fundamentals are expected to tighten in the years ahead as supply constraints create limited large-block space options for tenants.”

Greater Washington key market indicators:

• Supply: 327.8 million square feet

• Vacancy: 15.7%

• Leasing activity percent change over 12 months: -27.5%

• Year-to-date net absorption: 76,734 square feet

• Class A overall asking rent: $39.01 per square foot.

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