DC Office Investment Picked Up Steam in 2024

Washington, D.C.’s office sector ended last year with mixed fundamentals, according to the latest CommercialEdge data. The investment sector saw heightened activity compared to 2023, as the capital recorded a 19.8 percent year-over-year increase in transaction volume.

As vacancy rates climbed, loan delinquencies rose, and property values dropped through the year, landlords have increasingly been disposing of their underperforming office assets. Other alternative solutions, such as repositioning or converting, continue to remain popular choices.

Slow construction activity

As of December, D.C.’s office pipeline comprised 1.1 million square feet of space across seven properties, representing 0.3 percent of existing stock—below the national average of 0.8 percent. Among gateway markets, Boston led with 3.4 percent, followed by San Francisco’s 2.3 percent. When adding projects in the planning stages, the figure reached 3.1 percent—exceeding the national average of 2.9 percent and outperforming Chicago’s 2 percent, as well as Manhattan’s and Los Angeles’ 3 percent.

By comparison, at the end of 2023, a total of 3.5 million square feet of office space was under construction in D.C. In December 2024, Boston was the gateway city with the largest under-construction stock (8.7 million square feet), followed by San Francisco (3.8 million square feet). Only Chicago’s pipeline was smaller than the U.S. capital’s, with only 870,344 square feet underway.

The largest office project currently underway remains the 420,000-square-foot 600 Fifth St. Developed by Rockefeller Group and Stonebridge, The $375 million development topped out in May, with completion expected by 2026.

Construction starts included 964,674 square feet across three properties, accounting for 0.2 percent of existing stock, while developers completed 2.4 million square feet across 11 properties, representing 0.6 percent of total stock. Among significant completions in D.C. is Dulles Discovery 5, a 514,000-square-foot office building completed in early 2024 in Herndon, Va. Developed by Peterson Cos., the property is within the company’s Dulles Discovery, a 2.4 million-square-foot mission-critical development.

D.C.’s sales volume second in the nation

At the end of 2024, the metro’s office transactions totaled $2.6 billion, with 104 properties comprising 12.3 million square feet changing hands. Last year’s investment volume rose 19.8 percent year-over-year, propelling the metro to second place among gateway markets, behind Manhattan’s $3.9 billion.

The first quarter of last year was the busiest in terms of deals, ending with $947.4 million trading, point after which the sales volume decreased until December. Despite this downward trend, Washington, D.C.’s investment activity in 2024 picked up, compared to 2023, when 9.9 million square feet traded for $1.9 billion.

Significant transactions include CoStar Group’s $373 million acquisition of CEB Tower at Central place, a 560,000-square-foot office building in Arlington, Va. A joint venture between PGIM Real Estate and JBG Smith sold the Class A+ property at 1201 Wilson Blvd. in February.

Another notable deal was MRP Realty’s $225.7 million purchase of Gallery Place at 616 H. St. NW, a 297,002-square-foot property in D.C.’s Seventh Street Corridor submarket. In joint venture with Global Fund Investments, MRP bought the asset after its previous owner defaulted on a $179 million loan backed by the mid-rise building.

Office properties traded at an average sale price of $211 per square foot—above the national figure of $175 per square foot. Across similar markets, Miami emerged as the priciest metro, with $400 per square foot, while the lowest sale prices were recorded in Chicago ($85 per square foot).

Vacancy rate continued to climb

Washington, D.C.’s office vacancy rate clocked in at 18.5 percent as of December—slightly below the national figure of 19.8 percent and marking a 60-basis-point increase year-over-year. The metro’s rate was higher than in Miami (15 percent), Manhattan (16.6 percent) and Boston (17 percent). The highest vacancy rate was recorded in San Francisco, at 28.8 percent.

Significant leases in 2024 include Washington Post’s 300,000-square-foot extension at One Franklin Square. The property totals 612,189 square feet and is owned by Hines and General Motors Pension Fund.

Additionally, Fannie Mae signed a long-term commitment of 340,000 square feet at Midtown Center in downtown D.C. Carr Properties and IGIS Asset Management are the owners of the 867,000-square-foot building.

High potential for office-to-residential makeovers

As vacancies increased in most markets, office-to-residential conversions remained an attractive option for property owners. CommercialEdge launched the Conversion Feasibility Index, a new tool that highlights markets with strong office-to-residential repositioning potential, using a set of property-level scores. Powered by Yardi, the CFI score has three tiers, with Tier I assets being the most suitable candidates.

Washington, D.C. has 72 properties totaling 6.4 million square feet in the Tier I category. Additionally, there are 421 office buildings in the Tier II category, totaling approximately 53.8 million square feet.

Developer Penzance has filed plans for an office-to-residential conversion that includes two buildings in Arlington, Va., within the Rosslyn submarket. The pair of properties are at 1901 N. Fort Myer Drive and at 1911 N. Fort Myer Drive and total 249,684 square feet. The proposed project is set to include two residential towers with 862 apartment units and a condominium tower with 82 units. The 1960s buildings hold CFI scores of 95 and 91 points, respectively.

Coworking gains ground at affordable rates

Washington, D.C.’s coworking sector comprised 6.4 million square feet across 277 locations as of December. Manhattan was the gateway market with the largest flex office footprint (11.3 million square feet), while D.C. outperformed Boston’s 4.9 million square feet. The metro continued to emerge as a hotspot for virtual office providers due to its affordable rates, which last year dropped as low as $80 per month, according to CoworkingCafe.

The metro’s share of flex space as percentage of total leasable office space reached 1.6 percent—lower than the national average of 1.9 percent and than its peer markets. Miami led the ranking with a 3.8 percent figure.

WeWork was the flex office provider with the largest footprint in D.C., with locations totaling 566,182 square feet. The company was followed by Regus (528,779 square feet), Industrious (508,332 square feet, Spaces (453,864 square feet) and Local Works (400,997 square feet).