& Forecast 66th
The major markets in the Northeast and Mid-Atlantic showed slow, steady growth in 2011, but the dual impacts of the
upcoming election and uncertainty on Wall Street remain
unknown, despite improving labor market fundamentals. Although
the unemployment rate remained unchanged at 8.3%, the economy added 227,000 positions to US payrolls in February, making it
the third consecutive month in which more than 200,000 jobs have
been added—a sign of growing health for the economy.
“There’s an underlying strength here,” says Kenneth McCarthy,
senior economist and senior managing director of research at
Cushman & Wakefield. “Even as we were getting all this negative
news last year, layoffs started to decline. Employment growth actually
started to pick up a little bit after September. Corporate profits are
still very healthy, so businesses have a lot of cash. They have the ability
DC area closed more than $7.4 billion worth of office investment
sales transactions in 2011, according to CBRE.
“That’s a 60% increase over 2010 sales,” says CBRE EVP Bill Kaye.
He notes that the final total includes some very large transactions,
including Monday Properties’ portfolio recapitalization by Goldman
Sachs for $1.2 billion and the $615-million Market Square transaction, a 679,710-square-foot complex at 701 and 801 Pennsylvania
Ave. that traded for $904 per square foot in March 2011.
Kaye says 2012 will remain a strong sales year, although clearly at
the start of the year it’s impossible to predict what the total will be by
December. However, he expects that “core assets will continue to
perform well,” thanks to continued low interest rates fueling aggressive pricing. CBRE says it doesn’t expect to see much of a change in
pricing over 2011 levels for core plus opportunities, though it predicts that price per square foot against replacement cost will become
a significant factor in the valuation of suburban office assets.
Farther north, the City of Brotherly Love is also experiencing
positive growth. According to the Central Philadelphia Development
of October, hotel occupancy in the CBD was 80.1%, a 4.4% increase
from September, and a 75-basis-point rise over October 2010.
Downtown RevPAR, at $137.63, was $50 higher than in the broader
region. At year’s end, Center City experienced an 11.4% increase
in RevPAR, more than any of its peer regions in Boston, Baltimore,
New York City and Washington, DC, according to the CPDC.
Even farther north, the Greater Boston office market experienced a strong final quarter of 2011 and Richards Barry Joyce &
Partners’ vice president of research, Brendan Carroll, is optimistic
that 2012 will see similar gains. In Q4, company analysts found that
absorption in the sector reached 861,000 square feet, making it the
highest quarterly take-up since the third quarter of 2007.
Additionally, Q4 vacancy dropped 0.4% to 15.4%.
“Both Google and Microsoft are committed to expanding their
Cambridge presence in a major way over the next couple of years,”
Carroll says. “We also know that in Cambridge itself, Biogen Idec is
going to move to a 495,000-square-foot headquarters. These demand-drivers for the most part are going to affect the urban core and
Boston and Cambridge occupancy over the next couple of years.”
Private-sector job growth keeps Washington, DC
afloat as government shrinks. Philadelphia’s hotels
outperform regional counterparts. Boston sees
resurgence in new office development to meet demand.
to hire, and it looks like there’s enough demand growth in their busi-
nesses. That’s a very positive sign in an uncertain environment.”
In the nation’s capital, regional employment grew by 17,900
positions last year, which is trending in the right direction based on
the 10,900 jobs added in 2010, according to Jeffrey Kottmeier,
director of research at Cassidy Turley. Metro DC unemployment
was 5.5%, the lowest in the nation for any major metropolitan area.
In addition, Moody’s Analytics forecasts the Washington, DC metro
to be the seventh-highest generator of jobs in the next five years.
In 2012, the private sector will be driving the majority of that job
growth, with gains predicted in professional and business services,
as well as healthcare and education. Kottmeier notes that the financial services sector will also see increased hiring activity, but the
federal government workforce will shrink mostly through attrition
On the office front, Cassidy Turley says Metro DC’s supply pipeline of new buildings will continue to “remain thin” compared to
the historical 20-year average of 7. 3 million square feet. In turn,
office sales have seen a flurry of activity. By year-end, the Washington,
62 REAL ESTATE FORUM FEBRUARY/MARCH 2012