Commercial Real Estate: Federal leasing squeezes Montgomery office space
Chevy Chase-to-Rockville corridor has only 2 large-scale vacancies, report says
It's no secret federal leasing demands propped up the Washington, D.C., area's commercial office market during the Great Recession, but a new report underscores that the continuing dearth of new construction has tightened options for big tenants seeking space in Montgomery County.
A Jones Lang LaSalle report points to leases signed in the last year by the Department of Health and Human Services that have absorbed much of the vacant big-block space in the Chevy Chase-to-Rockville corridor.
"The tightening conditions in Bethesda, Chevy Chase, and Rockville Pike did begin to effect conditions along the I-270 Corridor and spaces began to vanish, like the 83,737 square feet taken down by GXS, Inc. at 9711 Washingtonian Boulevard," the report states.
"Ultimately, large space options in close-in, metro-accessible submarkets such Bethesda, Chevy Chase, and Rockville Pike, are extremely limited largely due to federal government expansion and renewal activity."
The report concludes "this trend should soon extend to the dynamic I-270 corridor as well. A lack of speculative new construction coupled with the disappearance of large blocks should lead to tightened market conditions in the future."
Starting in June, HHS began to lease large blocks of space in the Bethesda central business district, which had been rocked by two years' worth of private tenant consolidations and downsizing. But HHS has taken 70,500 square feet at 7501 Wisconsin Ave. and about 70,000 square feet at 7700 Wisconsin Ave.
The agency also is in the market for an additional 70,000 square feet in the Bethesda market, which the report said likely will "remove the remaining space at 7700 Wisconsin Avenue and help eliminate the last remaining large contiguous block in downtown Bethesda."
HHS will continue to seek more space as it ramps up its regulatory role under the Obama administration's new health care and insurance reform program, which should drive leasing activity farther north. Because of leases signed by HHS and the Food and Drug Administration at other buildings, Jones Lang LaSalle said, the addition of 192,224 square feet at 12501 Ardennes Ave. is the only major block of space available in Rockville.
"This building has been the subject of government interest, which, if executed, would make Bethesda, Chevy Chase, and Rockville Pike devoid of any large space options," the report said.
The only remaining Montgomery County large-scale vacancies in the Chevy Chase-Rockville corridor were in Rock Spring Park, where "persistent large block vacancies at the Piedmont Buildings (6720 Rockledge Drive) as well as the new large-block vacancies at 6560 Rock Spring and 6710 Rockledge Drive helped to keep overall big block availability elevated," the report said.
Azalea Woods apartments
sell for $9.5M in Oxon Hill
Dragone Realty Investments of Laurel bought Azalea Woods, a 305-unit apartment complex in Oxon Hill, for $9.5 million, according to CB Richard Ellis' Multi-Housing Investment group, which arranged the sale.
The circa 1963 property, at 1101 Kennebec St., was sold by LNR Partners of Miami Beach, Fla.
"This transaction is a clear indication that there is strong demand for quality, affordable housing in our area," said Mike Muldowney, executive vice president of CBRE's multifamily housing team in Washington. "The buyer has a well-conceived plan to reposition these rental apartments to a level of comfort, cleanliness and efficiency that will appeal to sophisticated working-class renters who desire a convenient location in greater Washington."
The complex consists of three-story, garden-style buildings with 215 units and a five-story midrise building with 90 units. During the past few months, property management forced vacancy of the midrise so the buyer could begin renovations immediately upon closing.
ING Clarion Partners buys
business center for $12.3M
ING Clarion Partners acquired the Cabot Business Center in Hanover from Cabot Properties of Boston for $12.3 million, according to CB Richard Ellis, which brokered the deal for the seller.
The two-building Class A industrial-flex complex spans a combined 98,855 square feet at 7449 and 7455 Race Road.
"The investment market has come to life," said CBRE senior vice president Bo Cashman in a statement. "Investor appetite for high quality industrial assets in the Mid-Atlantic is very strong."
The center, built in 2008, is 78 percent leased to three tenants. The property also includes a 10,000-square-foot construction site.
Pair of Walgreens
sells for $15.6 million
Six Walgreens drugstores have sold in the Washington, D.C., area since May, including locations in Columbia and Severna Park, which traded for a combined $15.6 million, according to Marcus & Millichap Real Estate Investment Services, which brokered the deals.
Dean Zang and Mark Taylor, vice presidents in the firm's Philadelphia office, have arranged the sales for different local and national development companies.
In Columbia, the14,820-square-foot Walgreens at 5585 Twin Knolls Road sold for $6.07 million, or $410 per square foot. The 14,784-square-foot Severna Park location at 498 Ritchie Highway sold for $9.5 million, or $645 per square foot.
"Washington, D.C.'s healthy employment market helps make it one of the top-performing retail property markets in the nation," Zang said in a statement.
"Investors are especially focused on the single-tenant net-leased segment. In fact, single-tenant net-leased properties with national-credit retailers are the most sought-after deals as high-net worth individuals and well-funded [real estate investment trusts] compete for acquisitions."
Marcus & Millichap has two more Walgreens drugstores under contract in the Washington area.
Commercial real estate news items may be mailed to: Steve Monroe, The Business Gazette, 9030 Comprint Court, Gaithersburg, MD 20877; e-mailed to email@example.com; or faxed to 301-670-7183.