Finally someone in the DC/Metro Market has come to accept reality

Implications: The important aspect of this article is the mere fact that a major Washington DC Developer has admitted what so many have been denying for months and that is the DC/Metro market is in a slump. This writer will say “I told you so”, just go back almost a year to the article titled “Why the smart money shouldn’t invest in the DC/Metro Market”     The key implication of the source article and the two others that were just published today in the Washington Business Journal and from the Washington Post titled respectively... “Is gloom & doom on Northern VA Horizon?...and  “Regional market for Office Space Slumps in 2007” is the fact the market’s prognosticators have been saying the market fundamentals in this particular region are good and should remain this way going forward. This is complete nonsense and they know it. So what the so called experts had been saying has been nothing short of being a commercial for the Greater DC Area.

Analysis:  The articles both say in the DC proper market alone there will be approximately 16 million square feet of brand new office space constructed with only 18% of the space pre-leased. You will read that the Federal Government has cut back spending (which I further mentioned many months ago) along with most of the major law firms having completed their deals. So what is left to fill these new buildings? One of the articles mentions that Northern VA will have over 3.5 million square of newly built office space.


The article sites one deal in particular for a 107,000 sq. ft tenant going into one of the new buildings as getting 6 MONTHS FREE RENT and a work letter worth about $70 psf. This type of deal structure hasn’t been seen since the last recession in 1999-2000.   This market, as well as most of the markets around the Country will become if not already, a tenant/buyers market. When a major a landlord in the second best market in the United States says the market is in retreat that speaks volumes.  


The silver lining that everyone has been talking about is the abundance of foreign investors. That enthusiasm has to be tempered. The reason being the foreign investors see what is happening and are not adapt to overpay even with a favorable currency exchange rate. In addition, foreign investment can not possibly make up for the difference in overall investment sales between the last two years and what has been happening currently.  


Cash is king and as Mr. Akridge suggests being patient is the way to go. For those investors looking to finally take advantage just wait another 6 months to a year and there will be bargains to be had.