Washington DC March 2023 Key Take Aways
FOOD AND RETAIL:
Walmart on 8th street, 300 apartments over that location, is closing and looking at other leasing options. They have made no decision. They were overstaffed and didn’t want their reputation to slide with congress members. Other locations in the city are doing well. A new council member in ward 3 is interested in real estate. They are looking at doing apartments and residents to support retail.
DESIRABLE OFFICE DEALS:
Office deals are 10,000 sq ft and down averaging around 3,000 – 7,000 sq ft.
Costs have gone up 40% for internal construction from $275-$300 to mid $400s. Therefore, the 3,000-7,000 avg is due to speculative suites. With a drive to amenities, even team members are on tours to be sold the space. As immediate move-in is desired, 9-month lead times on new construction are making spec spaces desirable.
HOTELS:
In 2022 15-16 hotels were vulnerable to special servicing. Since then, the debt has been renegotiated or modified. There are only 2 hotels now on the watchlist. Lenders are more flexible to allow the modifications and extensions of debt as they accept the DC market is on a slow but certain recovery. Recovery is being projected through convention bookings, the return of Chinese business travel, and 2024-25 election cycle traffic in the city.
Hotel Rates are ahead of 2019 but occupancy is behind.
NATIONAL TRENDS:
Bank collapses may ripple into the underwriting criteria.
Industrial continues to be strong.
With the reshoring of industry from China to Mexico, El Paso rent and price increases of 80-100% have been readily accepted. Cold storage, robotics, data, and warehousing are all happening at the same time. Amazon’s material and real estate holdings are so distributed they likely won’t have a significant impact on a single market. Interest rates are impacting the value of land. 15 FAR a year and a half ago is now 20-25 FAR.
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