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The Downtown DC office market is pretty weak right now. Govt and contractors are cutting back, lawyers and trade associations are looking to downsize on space,etc. Yet DC still has a number of office tear downs/expansions, and much of the last available DT land near Mt. Vernon Square and the 395 tunnel is being built out as office.
With more office buildings coming online and demand weak, seems DC might start to see some older office buildings converted to residential. IMO, this would be great. Downtown DC is still very 9-5ish and isn't the dynamic mixed-use city center it could be.
Yet, despite the fundamentals pointing to residential conversions. I'm not aware of a single active project. Think it is just a matter of time, or will owners hold out betting on an eventual rebound in CBD office demand in a height constrained city?
This is a great topic for discussion. People have been talking about converting some older Class B office buildings downtown to residential for years now, but there's been no major action towards that goal thus far.
But the DC and Downtown DC office markets have been a very interesting story so far this year.
In a Q2 2014 Cassidy & Turley report I read, the overall DC office market had a negative net absorption in Q2 of more than 300,000 square feet, but the Central Business District and East End, the core office submarkets within DC, performed relatively well - registering a positive net absorption of 400,000 square feet of office space in Q2 2014. This is quite a divergence between the core markets and the overall DC market. The office markets that are doing bad in DC are Southwest, Uptown, and West End.
Uptown has had the largest negative net absorption of all DC office submarkets so far this year. Downtown DC has had the highest positive net absorption in DC so far this year.
Since it appears that the downtown office market is doing ok (certainly not negatively but not robustly either), it seems logical not to expect to see much movement towards office to residential conversions downtown at this time. The downtown office market would have to get significantly worse for Class A office developers to be swayed to residential. And many of the major research shops indicate a stable vacancy rate in the DC office market for the rest of the year.
Looking at another Q2 2014 DC office market research report from Newmark, Grubb, Knight, and Frank, their information also shows that the Central Business District and East End submarkets have had positive net absorption so far this year.
Note: The reports are not going to be exactly the same because different research groups draw the submarket boundaries differently between DC's office submarkets.
Last edited by revitalizer; 08-13-2014 at 06:08 PM..
Interesting, just out of curiosity what is "uptown"?
Yeah, the West End seems like it would be a prime place for residential conversions. Right now it has a somewhat of a residential base to build on, but it still feels a little institutional, not quite a true residential neighborhood. It's prime real estate right between Georgetown and Dupont and has a Whole Foods and a Trader Joes. Plus, what residential space there now is pretty high end, so there is a proven market for the high rents needed to justify these conversions.
A few conversions around Conn Ave area south of Dupont would also help balance that area out and make it feel a little less 9-5ish. A few years ago the city rolled out an initiative to make Conn Ave into a mini-Mich Ave in Chicago, but there has been no real traction. Of course, adding 1,000 new apartments in the area isn't going to support Mag Mile retail, but it would help.
Also, the city has plans (or at least aspires to) to turn Franklin Square into something like Union Square in NYC. I think converting a couple off the surrounding office buildings into housing would create unique park views that don't exist in DC and provide some weekend foot traffic to help the park transition into a more urban park. I believe this area is pretty high demand office space, so I don't know how realistic this is. But, hopefully at least a building or two.
I think Southwest (assuming it is the part near L'enfant Plaza) would be a less attractive as a residential zone right now. But, maybe once the SW waterfront development opens residential development will spill over.
For most real estate research groups, Uptown is the DC side of Friendship Heights, Chevy Chase, Tenleytown, Van Ness, Cleveland Park, Woodley Park, and a lot more. All those areas are clumped into the "Uptown" office submarket.
The Uptown office market represents about 7 million square feet of office space of DC's total commercial office inventory.
As for housing downtown, it would be nice and smart growth to have more dense, multifamily housing there, but the economic forces point toward Class A office space absent the presence of an intervening force.
Provided the CBD and East End stay the most desirable office markets in DC, the city would have to get involved to entice developers to convert some of the older Class B office to residential. This means subsidies, tax breaks, etc.
And, DC has not shown movement or interest in supporting this as office space is very lucrative for the city (i.e. taxes). If we are to ever have a chance of converting an appreciable amount of Class B office and increase residential density downtown, we (as a city) had better start doing it now because every Class B office building that gets converted to Class A office downtown now gets taken off the list of potential properties that could have been converted. And, a lot of the Class B properties are getting upgraded to Class A.
An influential group would need to persuade the city that this is a stupendously fabulous idea (better have some fabulous and stupendous numbers to back it up too). Progress on this would need to be made like last year or we slowly close the door on the opportunity over the next decade or two.
If you've noticed, most of the mega big residential product that was built downtown over the last 20 years or so had the DC government or federal government's hand in the mix.
These include:
+ CityCenter DC
+ Gallery Place
+ Mather Studios
+ Lansburgh Apartments
+ Clara Barton Condos
+ Newseum Residences
+ and many more
Some folks here may be interested in reading about the federally-chartered Pennsylvania Avenue Redevelopment Corporation. A tremendous amount of hard work was involved. In fact, it was too hard a task - it should have been easier and have taken less time than it did. Now, Penn Quarter is a real neighborhood with decent residential density and national acclaim.
A good next opportunity for downtown will be the FBI building. Before it gets redeveloped, as many people as possible should be knocking on the federal government's doors, the DC Council's doors, and the mayor's office in support of at least some residential. I'd definitely like to see at least some residential on the site.
Last edited by revitalizer; 08-13-2014 at 10:45 PM..
Interesting, just out of curiosity what is "uptown"?
Yeah, the West End seems like it would be a prime place for residential conversions. Right now it has a somewhat of a residential base to build on, but it still feels a little institutional, not quite a true residential neighborhood. It's prime real estate right between Georgetown and Dupont and has a Whole Foods and a Trader Joes. Plus, what residential space there now is pretty high end, so there is a proven market for the high rents needed to justify these conversions.
A few conversions around Conn Ave area south of Dupont would also help balance that area out and make it feel a little less 9-5ish. A few years ago the city rolled out an initiative to make Conn Ave into a mini-Mich Ave in Chicago, but there has been no real traction. Of course, adding 1,000 new apartments in the area isn't going to support Mag Mile retail, but it would help.
Also, the city has plans (or at least aspires to) to turn Franklin Square into something like Union Square in NYC. I think converting a couple off the surrounding office buildings into housing would create unique park views that don't exist in DC and provide some weekend foot traffic to help the park transition into a more urban park. I believe this area is pretty high demand office space, so I don't know how realistic this is. But, hopefully at least a building or two.
I think Southwest (assuming it is the part near L'enfant Plaza) would be a less attractive as a residential zone right now. But, maybe once the SW waterfront development opens residential development will spill over.
Uptown DC is primarily Adams Morgan, Columbia Heights, Mount Pleasant, Lanier Heights, the Upper Northwest neighborhoods (Woodley Park, Cleveland Park, Forest Hills, Friendship Heights, Tenleytown, etc.), and the Georgia Ave neighborhoods (Pleasant Plains, Park View, Petworth, Takoma, Sheperd Park, 16th Street Heights, etc.).
Cross-Town/Midtown DC is mainly DuPont Circle, Logan Circle/Greater 14th Street, Shaw, Cardozo aka the U Street Corridor/Little Ethiopia, Bloomingdale/LeDroit Park, and Truxton Circle.
I'm curious if DC can do anything under the height limit to allow some slightly taller buildings in the broader downtown (West End, Golden Triangle, East End, Mt. Vernon, etc). Perhaps allow up to 160 ft if it is residential vs. 130 for office space. Perhaps created a trade able air rights credit, if you wish to go 160 ft for office space, you need to create the offsetting residential space elsewhere in the downtown.
I'm also curious how DC's inclusionary zoning rules impact office to residential conversions. If you build office space you get 100% market rate, no affordable office set asides, but it you build residential you need to set aside some much of the development for non market rate housing. In theory, this would seem to be a law of unintended consequences thing that may discourage housing creation. But, perhaps downtown is effectively exempt from IZ (since I think the IZ rules are usually in exchange for bonus density, which conceivable may not exist due to the zoning height limit already being maxed out?). Perhaps there are other office building fees that don't apply to residential buildings that may offset any IZ costs?
I don't know if I would support subsidies for downtown office conversions, but perhaps if the DC government looked at all its development rules to make sure they are not unintentionally discouraging office to res conversions?
Yet, despite the fundamentals pointing to residential conversions. I'm not aware of a single active project. Think it is just a matter of time, or will owners hold out betting on an eventual rebound in CBD office demand in a height constrained city?
There's been one such conversion in Crystal City, with more on the way. The Sky House apartments in Southwest were converted from EPA offices, although interestingly those buildings were built as apartments in the first place.
As for Uptown, I was curious to see whether Akridge thought the Reeves Center could be converted, but no, they'd prefer to tear it down.
Right now, the economics aren't really there for residential conversion downtown: office rents per foot are still substantially higher, and conversion would be costly. The buildings that office users are vacating have relatively deep floorplates with lots of "dark space" in the middle, which aren't desirable for residential. Office-to-residential (or hotel) conversions in other cities have been most popular for 1920s-era towers; those had shallow floors, since they didn't have fluorescent light bulbs back then. Some postwar towers have been converted, but many of those (like with Sky House) have been unusually shallow buildings.
As for bonuses, the West End area does have a residential bonus in place, which is the only reason why it even has any residential at all. (DC also has quite a convoluted tradable development rights scheme, which has done a lot to spread development to the edges of downtown.) The 130' height limit is encoded in Federal law and can't be altered without Congressional action. What the District could do is lift the 90' heights applied by zoning to large parts of "downtown" (especially east of 7th, or south of the Mall) to 130', though.
IZ isn't that huge of a cost, really, and conversions in other cities readily pay the IZ "tax." The bonus density also gives more/smaller units in addition to more FAR, so that's where a conversion can still count a bonus.
Interesting, sounds like the District already has a program like what I'm talking about. Raise the limit from 90 to 130 in those zones and combine it with the West End housing incentives. I'm curious if there is the market for anything like that? Most of the stuff in those areas seems pretty institutional/govt/hotels. I wonder if there would be enough of an incentive to actually go through all the hassle of redevelopment?
Ideally, (and I know this will never happen) it would be nice to see the height limit relaxed a bit. Raise it to say 180 ft, with buffers around the MALL and White House, and put the housing bonus program downtown wide. IMO, that would keep the low rise nature of the city and create a more mixed-use downtown. Obviously this is just fantasy land stuff, the Height Limit isn't going anywhere in my lifetime.
Realistically, I guess the best areas for "big city core"mixed-use growth will be Mt Vernon Triangle. It will have stuff in theimmediate area and the 20 min walk will also be good (Penn Quarter, CityCenter, 7th and 9th if they ever actually take off).
Maybe eventually SW, Navy Yard, and NoMa. But I wonder if
1) Will they ever be sufficiently dense to feel like vibrant urbanneighborhoods - will they sort of plateau at the Crystal City/West Endlevel, where they have some housing, but not really enough density/attractionsto create a real active urban streetlife scene. Ideally, SW and Navy Yard willbe regional destinations that pull other people in. But, will they just pullbusiness from the existing core areas?
2) Are they integrated enough into the broader urban core- they willhave stuff in the immediate vicinity, but you will get bored with the samelittle area over and over. Ideally, you would have the situation like someoneliving at 17th and Q. You have 17th in your immediate vicinity, but you alsohave Dupont, Logan, U Street, Adams-Morgan within a 20 min walk. Unlike say,Eastern Market which is vibrant, but kind of off by itself. H St is a long,sparse walk and Navy Yard is improving, but still has probably less than 10food choices. You don't really get the center of the "big city" urbanliving feel.
I just can't picture K street lined with a bunch of condo buildings
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