Pipeline Tops 10 Million Square Feet, Though Corporate Headquarters and Build-to-Suits Limit Construction Pressure

Current developments include a pair of buildings at the Wharf on Southwest D.C.'s waterfront to be anchored by law firm Williams & Connolly. (Madison Marquette)

Office developers broke ground on more than 3 million square feet last year in the Washington, D.C., market, a sign that the coronavirus pandemic did little to halt construction plans.

The current construction pipeline totals approximately 11 million square feet. That marks the fifth year in a row that Washington's office market had more than 10 million square feet under construction.

Over the past three years, about 13 million square feet opened, an inventory increase of just 1.4%. That pales in comparison to high-growth markets in the Sun Belt and the West.

When looking at Washington's construction pipeline, corporate headquarters and build-to-suit projects limit the impact on availabilities. But the geographical boundaries provide stark differences in the performance of office leasing.

Northern Virginia leads the region in most square footage underway, at about 50% of Washington's total count. Amazon is responsible for a sizable portion, contributing 2 million square feet to the pipeline for its second headquarters in Arlington. But it is also the activity in Reston, where projects are underway for such companies as Fannie Mae and Volkswagen, that demonstrates the strength of the Northern Virginia area. Of the 5.5 million square feet underway in Northern Virginia, only 7.5% is available.

Maryland and the District of Columbia represent the other half of the inventory underway, both with a quarter of the share. Bethesda's 1.5 million square feet underway is the most construction activity in decades. Aside from Marriott's new headquarters, office towers are being built speculatively. Chris LeBarton, CoStar’s managing analyst for Washington, said that filling the hundreds of thousands of square feet in Bethesda's evolving office market has become the most pressing need, especially with tenants re-evaluating future space needs.

Speculative development spills across the District line as well. There's about 2.6 million square feet of office space underway in the District. Almost half of that space is still available for lease. Entire buildings, such as the Signal House in NoMa, are in danger of opening completely empty.

Washington has one of the most robust and diverse office markets in the country. There's been a flight to quality for office tenants for years, and developers have been helping to fill that need. The competition for talent in Washington is aggressive, and one way to win is with top-quality office space. Combine those factors with the proximity to the country lawmakers and high achievable rents, and it helps support all this construction.

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