The Cityscape Report

Trophy Market Analysis | Fall 2016

DEFINING TROPHY:
Cushman & Wakefields Trophy inventory is comprised of iconic existing Class A buildings that consistently
achieve top-of-market rents, and combines a premier location, top-tier amenities, notable design, and
ownerships investment, particularly in the form of building upgrades when necessary, and overall, are seen
as iconic buildings within the local market. It is important to note that not all new construction counts as
Trophy, however, given that many recent deliveries meet the criteria of premier location, amenities, design,
and tenant mix, many new buildings are included in the Trophy inventory. No signal criteria defines a Trophy
building, rather the combination of these factors. Overall, classification is based on both an objective (ie.
asking rents, location, age), and subjective factors (ie. perceived prestige of location, amenities, building
upgrades). Each building has been thoroughly reviewed by a committee of market experts before inclusion
into the Trophy inventory.
Copyright 2016 Cushman & Wakefield. All rights reserved. The information contained within this report is
gathered from multiple sources considered to be reliable. The information may contain errors or omissions
and is presented without any warranty or representations as to its accuracy.

TROPHY MARKET ANALYSIS

NEW CONSTRUCTION INCREASES COMPETITION
Given the scarcity of large block options for those seeking 100,000 SF or more,
many tenants continue to seek out new development. The combination of modern
efficiencies and systems, best-in-class amenities, and an accompanying herd mentality
has continued to drive tenants flight-to-quality, particularly when current concession
packages average approximately $100.00 per square foot (PSF) and 12 months in
rental abatement on new, long-term leases, which often result in a zero-cost move
for tenants. The most recent example has been the law firm Cleary, Gottlieb, Steen &
Hamilton, which signed an 114,597-SF prelease at Skanskas 2112 Pennsylvania Avenue,
NW. Several other deals that have been in the market, including Paul Hastings and
Akin Gump, are rumored to be close to lease execution for new construction in the
CBD. Additionally, Miller & Chevalier took occupancy of its approximately 84,000-SF
prelease at 900 16th Street, NW, which delivered during the first quarter of 2016.

he Washington, D.C. Trophy market faced headwinds during the first half of 2016
on the heels of Arnold & Porters relocation to 601 Massachusetts Avenue, NW.
The law firms move in the fourth quarter of 2015 from 555 12th Street, NW has
left nearly 600,000 square feet (SF) of the approximately 850,000-SF building vacant.
As a result, overall vacancy rates in the trophy market have remained elevated. The
second quarter 2016 vacancy rate closed at 13.3%, an increase of 450 basis points (BP)
year over year. More recently, however, overall vacancy declined by 80 BP from the first
quarter of 2016 as activity appears to be increasing and tenants have chipped away
at several large blocks of availability. One final large move out is on the horizon; given
law firm Venables pending relocation to the soon-to-be delivered 600 Massachusetts
Avenue, NW, nearly 300,000SF of vacancy is expected to return to the Trophy market
in spring 2017. Despite increasing vacancy year over year, Trophy asking rents have
held steady, with direct asking rents closing the second quarter of 2016 at $75.18 per
square foot (PSF). Peak concession levels and the continued flight of tenants to toptier product has allowed landlords to maintain high face rates while continuing to
compete with new construction opportunities that offer tenants first generation space.

Trophy asking rents have held steady, with

direct asking rents closing the second quarter
of 2016 at $75.18 per square foot.
With the limited number of large, near-term law firm requirements, coupled with the
general trend of proposed projects being selected over second-generation space, new
leasing activity declined by 42.8% year over year for existing Trophy product, closing
the second quarter 2016 with 109,611 SF of new leases signed in the first two quarters.
The bulk of new leasing activity for the first half of 2016 was comprised of small and
mid-sized tenants, a trend that is likely to continue for the next six to 12 months. The
largest lease signed in the first half of 2016 was Clark Hills 38,884-SF sublease at 1001
Pennsylvania Avenue, NW.
One of the largest drivers for reduced leasing by tenants greater than 100,000 SF has
been in large part due to the shortage of available product. As of August 2016, there
were only two contiguous blocks of vacancy greater than 100,000 SF, though with the
anticipated relocation of Venable from 575 7th Street, NW, there will soon be a third
block in the first half of 2017. The second largest driver of torpid Trophy leasing has
been the lack of large, near-term lease expirations. With tenant favorable concession
packages still at their peak, many firms have exercised early preleases, blend-andextends, and relocations ahead of their existing expirations.

Trophy sales have continued to garner

attention from foreign investors particularly
high-net worth individual, families, and
private funds.
With several landlords turning their attention to the redevelopment of existing product
in the CBD, there will be a plethora of new options once they begin to deliver in 2018.
As a result of the increased competition, many Trophy landlords have looked to refresh
and revive their building amenities. MetLife is currently underway on renovations that
will include a refreshed lobby and lounge area, and rooftop terrace upgrades that
will introduce new furniture, a bocce court, along with maintaining monument views.
The building has already signed American Insurance Association, which took 16,302
SF in the second quarter of 2016. With two additional leases in excess of 100,000 SF
expected to sign by year-end, vacancy at 555 12th Street, NW will further reduce large
block availabilities.
INVESTMENT SALES
Following the fourth quarter of 2014 when the sale of 801 17th Street, NW set a
new record-high per square foot sale price, Trophy sales have continued to garner
attention from foreign investors particularly high-net worth individuals, families, and
private funds who are looking for a secure, yet prominent market in which to invest.
The stability of the Washington, D.C. office market particularly when compared to
other major metropolitan cities and the prestige of Trophy properties allows these
investors to meet both of their goals. Since these foreign stakeholders are also seeking
long-term acquisition opportunities, the number of available Trophy assets available
for sale continues to diminish, as once they are purchased, they are held for a number
of years rather than return to the market as other properties do that are held by a fund.
Despite limited sales volume, investor confidence remained high for Trophy product
throughout the first half of 2016. A joint venture between Investcorp Group,
ScanlanKemperBard, and Carbyne Property Group scooped up the only Trophy sale
year to date purchasing 733 10th Street, NW from Jamestown for $1,065 PSF. While
the sale of 733 10th Street, NW did not beat the most recent high watermark of $1,083
PSF that was set by Jamestowns purchase of 300 New Jersey Avenue, NW in the first
quarter of 2015, it did come close signaling that investors are still willing to pay for
well-tenanted, core-located, top-tier assets.

TROPHY SKYLINE
VI

SP
EW A

VI

BUILDING OFFERS ICONIC VIEWS

SP
EW A

VI

SP
EW A

VI

RETAIL VACANCY

(NOT COUNTEDTOWARD
VACANT SPACE)

VI

CE

VI

CE

SP
EW A

SP
EW A

CE

SP
EW A

VI

VI

VI

FUTURE SPACE

CE

SUBLEASE SPACE

CE

CE

SP
EW A

VACANT SPACE

CE

SP
EW A

SP
EW A

CE

15
14
13
12
11
10
9
8
7
6
5
4
3
2
1

COMMITTED BUT
NOT OCCUPIED

CE

OCCUPIED SPACE

Availability Data as of: 08/10/16

WEST TO EAST
2200
Pennsylvania
Avenue, NW

2099
Pennsylvania
Avenue, NW

1999 K
Street, NW

1900 K
Street, NW

1700
New York
Avenue, NW

800 17th
Street, NW

1700 K
Street, NW

1717 K
Street, NW

1200 17th
Street, NW

900 16th
Street, NW

600 13th
Street, NW

601 13th
Street, NW

555 12th
Street, NW

1101
New York
Avenue, NW

1099
New York
Avenue, NW

800 10th
Street, NW

850 10th
Street, NW

733 10th
Street, NW

900 G
Street, NW

505 9th
Street, NW

1001
Pennsylvania
Avenue, NW

801
Pennsylvania
Avenue, NW

701
Pennsylvania
Avenue, NW

325 7th
Street, NW

525 7th
Street, NW

601
Massachusetts
Avenue, NW

101 Constitution
Avenue, NW

300 New Jersey

Avenue, NW

Square 54

2099
Pennsylvania
Avenue

1999
K Street

1900
K Street

1700
New York
Avenue

PNC Place

1700
K Street

1000
Connecticut
Avenue

1200 17th
Street

900 16th
Street

600 13th
Street

Homer
Building

District
Center

1101
New York
Avenue

1099
New York
Avenue

Two
CityCenterDC

One
CityCenterDC

10th & G

900 G
Street

500 8th
Street

1001
Pennsylvania
Avenue

Market Square
West

Market Square
East

Liberty Place

Terrell Place

601
Massachusetts
Avenue

101 Constitution
Avenue

300 New Jersey

Avenue

432,900

208,636

250,345

339,060

124,226

364,502

390,000

385,791

169,467

127,825

256,702

438,474

857,324

393,568

390,000

293,010

282,931

170,813

113,218

325,361

861,209

343,855

344,142

174,201

424,000

478,882

511,338

255,300

Building Name
Rentable SF
Number of Floors

10

12

12

13

12

12

12

11

12

12

12

12

11

11

11

10

10

14

13

13

12

11

11

10

10

50,300

17,214

21,467

26,452

15,528

30,502

34,200

33,083

16,700

14,203

22,200

34,968

62,475

31,115

17,000

24,744

24,800

21,869

9,875

32,266

66,000

25,950

39,000

14,128

47,000

43,534

52,670

26,300

2011

2000

2009

1996

2013

2010

2005

2012

2014

2016

1997/2014

1913/1990

1995

2006

2008

2014

2014

2011

2015

2007

1987

1990/1996

1990/1996

1991/1993

2003

2015

2002

2009

Pelli Clarke Pelli

Architects

Pei, Cobb, Freed

& Partners

Murphy/Jahn &
Krommenhoak/
McKeown

Pelli Clarke Pelli

Architects

SmithGroup

Gensler

Pei, Cobb, Freed

& Partners

Pei, Cobb, Freed

& Partners

Zimmer, Gunsul,
Frasca

Robert A.M.
Stern Architects

Robert A.M.
Stern Architects

Shalom Baranes
Associates

SmithGroup

Kevin Roche,
John Dinkeloo
& Associates

Thomas Phifer
& Partners

Cunningham &
Quill Architects

Gensler

Hartman-Cox
Architects

Hartman-Cox
Architects

Hartman-Cox
Architects

Hartman-Cox
Architects

SmithGroup

SmithGroup

Duda/Paine
Architects

Shalom Baranes
Associates

Richard Rogers
Partnership

1.00/1,000

0.83/1,000

0.11/1,000

0.59/1,000

0.67/1,000

0.54/1,000

0.67/1,000

0.71/1,000

1.19/1,000

0.75/1,000

0.65/1,000

0.71/1,000

0.66/1,000

0.67/1,000

0.91/1,000

0.67/1,000

0.67/1,000

0.78/1,000

0.55/1,000

0.87/1,000

0.67/1,000

0.66/1,000

1.00/1,000

0.90/1,000

0.82/1,000

0.80/1,000

1.00/1,000

1.00/1,000

Direct Vacant SF

77,662

4,081

54,038

2,746

20,948

28,380

19,326

57,101

561,492

32,886

3,259

10,136

30,786

138,000

153,293

19,359

19,253

18,902

47,147

Sublet Vacant SF

9,928

19,824

5,000

4,310

11,592

3,667

2,956

5,926

Largest
Contiguous Block
Vacancy SF

9,928

17,848

4,081

45,514

14,824

2,746

11,910

28,380

9,278

11,964

363,348

32,886

3,259

5,745

25,108

138,000

86,531

10,514

12,483

18,902

30,949

2,342

Total Vacant

9,928

77,662

4,081

54,038

19,824

2,746

20,948

28,380

19,326

62,101

565,802

32,886

3,259

10,136

42,378

141,667

156,249

19,359

19,253

18,902

47,147

5,926

% Vacant

2.3%

37.2%

0.0%

1.2%

0.0%

14.8%

5.1%

0.7%

12.4%

22.2%

7.5%

14.2%

66.0%

8.4%

0.8%

0.0%

0.0%

0.0%

9.0%

13.0%

16.4%

45.4%

5.6%

11.1%

4.5%

9.8%

1.2%

0.0%

Average Direct
Asking Rent PSF

N/A

$58.00 NNN

N/A

$48.00 NNN

N/A

N/A

N/A

$56.00 FS

N/A

$57.00 NNN

$48.00 NNN

$44.00 NNN

$50.00 NNN

$52.00 NNN

$39.75 NNN

N/A

N/A

N/A

$53.00 NNN

$53.00 NNN

$42.00 NNN

$58.25 NNN

$57.00 NNN

N/A

N/A

$50.75 NNN

N/A

N/A

Major Tenant(s)

Hunton
& Williams |
Vinson & Elkins

Ropes & Gray |

Sheppard Mullin

Mayer Brown

McKenna Long
& Aldridge |
Dentons

Sullivan
& Comwell |
SmithGroup

Holland & Knight

Winston
& Strawn

Arent Fox

Pillsbury
Winthrop Shaw
Pittman

PWC

Albright
Stonebridge
Group

American
Insurance
Association

EY | National
Retail Federation

Jenner & Bock |

CCTV America

Covtington &
Burling | American Hospital
Association

Covinton
& Burling

National
Association of
Manufacturers

Simpson Thacter
& Bartlett |
Truth Initiative

DLA Piper |
Duane Morris

The Carlyle
Group | Crowell
& Moring

Debevoise
& Plimpton

Edison Electric |
Mintz Levin

Toyota Motor
North America

Venable
(Vacating)

Arnold & Porter

WGL Holdings
| American
Council of Life
Insurers

Jones Day

Average flr size

Year Built/Reno'd
Architect
Parking Ratio

Contiguous Blocks Of Availability By Size

CONTIGUOUS BLOCKS OF AVAILABILITY BY SIZE

20
15

Miller Chevalier

Foster & Partners Foster & Partners

TOP LEASES YTD 2016

Contiguous Blocks Of Availability By Size

TOP LEASES YTD 2016

BUILDING SALE STATISTICS

20
15

10 10
5
0

5
0

2011

2011

2012

2012

10,000 to 19,999 SF

2013

2013

2014

2014

20,000 to 49,999 SF

10,000 to 19,999 SF

20,000 to 49,999 SF

100,000 to 199,999 SF

200,000 + SF

100,000 to 199,999 SF

200,000 + SF

2015

2015

Q2 2016

Q2 2016

50,000 to 99,999 SF

50,000 to 99,999 SF

Source: Cushman & Wakefield

1001 Pennsylvania Avenue, NW

555 12th Street, NW

300 New Jersey Avenue, NW

1200 17th Street, NW

Clark Hill

American Insurance Association

Caron Broadcasting

Democracy Fund

38,884 SF

16,302 SF

15,103 SF

10,087 SF

Sublease

Relocation

Sublease

Relocation

733 10TH STREET, NW

Submarket:

East End

Total Building
Area:

169,038 SF

Sale Price:

$180,000,000

Price PSF:

$1,065

Cap Rate:

4.60%

Buyer:

Investcorp Group
JV ScanlanKemperBard JV Carbyne Group

Seller:

Jamestown