The office market in the Washington, D.C., area’s Maryland suburbs turned negative in 2011, as federal leasing failed to offset weak private tenant demand, according to year-end data from Jones Lang LaSalle.
For the year, net office space absorption turned negative 392,422 square feet, after finishing at positive 770,490 square feet in 2010. Total vacancies ticked slightly higher to 17 percent, making the combined rate for Montgomery, Prince George’s and Frederick counties far above the 14.2 percent level for the Washington metropolitan region.
The average asking price for rents fell to $26.47 per square foot, down from $26.75 at the end of 2010.
The year started off on a promising note, when the overall vacancy rate fell to 9.2 percent in the first quarter, reaching the lowest level since the first quarter of 2009. But a wave of large new federal leases that lifted the market in 2010 subsided in 2011 at the same time that the private market contracted.
In contrast, federal tenants buoyed the Baltimore regional market, which showed a positive absorption rate of 1.06 million square feet, according to Transwestern. The demand for office space was driven by expansion of Fort Meade in Anne Arundel County and Aberdeen Proving Ground in Harford County.
But the federal General Services Administration proved to be an unreliable tenant as well in Harford County, where vacancies spiked to 37 percent, Transwestern reported. That’s due to the lag in leases signed as a result of the ongoing budget gridlock in Congress, which has delayed many private contractors that plan to take up space in and around Aberdeen.
Harford had 547,654 square feet of space immediately available for rent as the year ended. There was even more empty space in Baltimore’s central business district, where 1.2 million square feet was available, due to private tenant consolidation and the migration of several major employers to new space in the Inner Harbor East area.
At the same time, the GSA dashed hopes for many Beltway developers last year when it canceled a solicitation for bids to build more than 1 million square feet of office space for the Department of Homeland Security. Under pressure from Congress to maximize savings, the GSA has been looking for ways to better utilize space it already controls either in leased or government-owned buildings.
But the year ended on an optimistic note, as Sen. Benjamin L. Cardin (D) of Pikesville added a provision to a bill approved by the Environment and Public Works Committee that will move the FBI closer to consolidating more than 20 offices in the Washington region to one location. The measure would direct the GSA to find a new FBI headquarters, replacing the aging J. Edgar Hoover Building in Washington. The language would steer the FBI to the suburbs at a site within two miles of a Metrorail station and within 2.5 miles of the Beltway.
“The Greater Washington Area has many viable options that will meet the specific requirements needed to restore efficiency and security to our nation’s premier law-enforcement agency while saving taxpayer resources,” Cardin said in a statement last month. “Such a move will be advantageous to the agency as a whole, as well as each of the 17,300 employees of the FBI headquarters, approximately 40 percent of whom currently reside in Maryland.”
The bill directs the GSA to enter into a private-sector deal for a 2.1 million-square-foot building on federally owned land that would be leased to the FBI. At the end of the lease term, the ownership of the building would be turned over to the federal government at no additional cost. The FBI headquarters provision needs approval by the House Transportation and Infrastructure Committee.
Bloomingdale’s, Macy’s closings slated in White Flint, Laurel
Despite strong store sales nationwide last year, Macy’s Inc. of Cincinnati announced Tuesday that it plans to close several underperforming stores, including a Bloomingdale’s at White Flint Mall in North Bethesda and a Macy’s at the Laurel Mall.
Closing the five Macy’s and four Bloomingdale’s stores is part of the company’s “normal-course process to selectively prune underperforming locations,” Chairman Terry J. Lundgren said in a statement Wednesday. The company also said it plans to open five new Macy’s and five Bloomingdale’s stores, though none in Maryland.
Both the Maryland stores are in malls that announced redevelopment plans in 2010.
Lerner Enterprises of Rockville, which owns the 800,000-plus-square-foot White Flint Mall, plans to redevelop the property into a 5.1 million-square-foot collection of apartments, office buildings and retail stores.
Macy’s spokesman Jim Sluzewski said his company owns the Macy’s store in Laurel, but plans to return the 123,000-square-foot space back to developer Greenberg Gibbons, which is expected to begin demolishing the entire Laurel Mall this year. Plans to redevelop the mall into a mixed-use shopping center were announced in 2007.
The White Flint Bloomingdale’s, which opened in 1977, employs 158, according to Macy’s. The Laurel Macy’s, opened in 1981, employs 76.
Including its home stores, there are 23 Macy’s stores in Maryland, according to the company’s website, with two Bloomingdale’s: at White Flint and in Chevy Chase.
The company reported sales last year were up 5.8 percent from a year earlier, totaling $25.07 billion in the first 48 weeks of 2010.
Irene apartments in Chevy Chase sold for $215M
Equity Residential Properties of Chicago announced a deal to buy the Irene apartment house in Chevy Chase for $215 million.
Sale of the 500-unit building, constructed by late developer Abe Pollin in honor of his wife, Irene, would set a recent per-unit record of $430,000 for apartment sales in Maryland. Last year through November, the top per-unit price for a mid- or high-rise building was $319,395 in the Maryland suburbs of Washington, according to Delta Associates, Transwestern’s research unit in Alexandria, Va.
The 1966 property is one of a handful of high-rise luxury apartment and condominium buildings clustered near the Friendship Heights Metrorail station. The area is one of the tightest rental markets in Montgomery County.
Bethesda’s Grosvenor Tower apartments for sale
Greystar of McLean, Va., has listed the Grosvenor Tower apartment building in Rockville for sale with broker Jones Lang LaSalle.
Greystar bought the 237-unit luxury property in 2008 for $87 million, and has invested $4.2 million in renovations, according to Jones Lang LaSalle marketing brochure. The building, at 10301 Grosvenor Place, is near the convergence of Rockville Pike, Interstate 270 and the Beltway and is within walking distance of the Grosvenor Metrorail station.
The 21-story building was completed in 1987, and has benefited from North Bethesda’s tight market. Effective rents in the submarket grew 5.7 percent to $2,149 per unit over the 12 months ending in September, while year-to-date concessions fell 420 basis points to 5.2 percent of face rents, according to Jones Lang LaSalle.
Home Properties breaks ground on Silver Spring apartments
Home Properties of Vienna, Va., announced it has started construction on Eleven55 Ripley, a 379-unit apartment complex in downtown Silver Spring.
Construction of the property’s two buildings, featuring upscale apartments, rowhouses and lofts, is expected to be completed in the third quarter of 2013.
Designed by Washington, D.C., architect Shalom Baranes Associates, the property will feature a 21-story apartment tower, the tallest in Silver Spring. Eleven55 Ripley will sit 800 feet from the Silver Spring Transit Center, a transportation hub under construction that will house the Silver Spring Metrorail station, MARC station and Metrobus platforms.
Developers are lining up to build apartments in Silver Spring, with about 1,000 units under construction at the end of 2011, according to Delta Associates. But demand remains very strong, with the area showing a vacancy rate of less than 4 percent.
JBG sells One Bethesda Center for $90.3 million
The JBG Cos. of Chevy Chase sold the One Bethesda Center building to Spitzer Enterprises of New York, according to Eastdil Secured, which represented the seller.
The 172,000-square-foot, class A office building traded for $90.3 million, according to CoStar, the Washington, D.C., real estate information service. JBG had acquired the 12-story office building and a two-story office and retail space for $71 million in 2009.
The complex is at 4800 Hampden Lane within walking distance of the Bethesda Metrorail station.
Columbia office building sells for $65 million
Wells Core Office Income Real Estate Investment Trust announced that it bought the Franklin Center Building in Columbia for about $65 million.
The deal was funded with proceeds from a $300 million secured revolving credit facility and proceeds raised from the Norcross, Ga., company’s ongoing public offering. The Franklin Center was acquired from Principal Enhanced Property Fund, a Delaware limited partnership.
The 200,600-square-foot property, which was built in 2008, is on about 15 acres at 6821 Benjamin Franklin Drive, west of Interstate 95 and Md. 175. The property is fully leased with 99 percent of the building occupied by Science Applications International Corp.’s Cyber Innovations Center.
The current annual base rent is about $5.6 million.
Staff Writer Alex Ruoff contributed to this report.
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