By most standards, the office market in Washington has lagged behind when compared with those in other major cities. Federal-government budget cuts and corporate contractions have meant rising office vacancies and stalling rents, for instance.
But those factors haven’t kept the prices paid for office buildings from climbing.
Last week’s deal involving PNC Place, a 12-story office building, is a case in point.
The property sold for $392 million, or $1,075 a square foot. That was the highest price ever paid, on a square-foot basis, for an office building in Washington, according to commercial-real-estate brokers.
Prices throughout the region have been rising fast. In the first half of this year, buyers of office buildings paid an average of $367.91 a square foot, up 29% over the same period last year, according to real-estate data firm CoStar Group.
The buyers of PNC Place, giant retirement-plan provider TIAA-CREF and Norges Bank Investment Management, the world’s largest sovereign-wealth fund, declined requests for an interview to discuss the transaction.
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Ben Thypin, director of market analysis at real-estate data firm Real Capital Analytics, says foreign buyers have been especially aggressive. In the first three quarters of this year, foreigners have invested $10.63 billion in office buildings in central business districts in U.S. cities—a 69% increase over the same time last year, according to Real Capital Analytics. “If you’re a large fund, you can’t make small deals,” said Mr. Thypin. “You need to place a lot of capital in big chunks. These Class A office buildings are large....They’re perceived as good stores of value. You’re not going to make home-run returns on these, but you’re not going to be losing money, either.”
Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.