DC's rental market not keeping pace with robust sales market
April 29, 2011

Is 2011 the new 2007? From the record-setting prices per square foot paid for prime D.C. properties, it sure feels that way for some.

The World Bank's $900 per-square-foot acquisition of 1225 Connecticut Ave. NW set a record in December, only to be topped early this year by Wells Real Estate Investment Trust II Inc.'s $904 per-square-foot acquisition of Market Square. On new development deals, developers have seen fierce competition and rising prices. But owners need rents that justify those high prices, and experts say it could be a while before such rents are achievable.

"It’s a question of lower returns on their money," said Tom Fulcher, managing director of commercial real estate company Studley Inc. "I think people look at Washington and say it's better to have a lower return in Washington than to take a risk in other places. Washington prices have been pushed up beyond what rents justify because of the stability of the market."

Rents in D.C. saw slight growth in the first quarter but are expected to remain virtually flat for much of 2011, experts say. Average Class A rents ended the first quarter at about $40 per square foot, according to Jones Lang LaSalle's first-quarter report.

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