The District’s downtown core is bouncing back after the recession, but officials say they’re concerned that its higher office rents will drive businesses to the suburbs. In its annual report released Thursday, the Downtown Business Improvement District said downtown’s rent of $60 per square foot for top-rate office space is second only to New York City’s Midtown district.
In terms of value, however, D.C. is tops. According to the report, which uses data from real estate firm Cushman and Wakefield, office sales in all of D.C. last year averaged $496 per square foot — $9 more than New York’s Midtown. But with D.C. now averaging nearly twice the cost of suburban office space, officials say there’s a downside.
| Downtown’s competitive disadvantage | |||||
| High cost of office space could keep businesses out Prime (Class A) office space per square foot: | |||||
| Downtown | Alexandria | Rosslyn | Bethesda | Silver Spring | |
| Value | $650 | $400 | $450 | $400 | $275 |
| Tax rate | 1.843% | 0.903% | 1.080% | 1.067% | 1.067% |
| Taxes per square foot | $11.98 | $3.61 | $4.86 | $4.27 | $2.93 |
| Source: Downtown DC BID State of Downtown 2010 | |||||
“We’re competing with the suburbs, which are improving their amenities,” said BID Executive Director Richard Bradley. Meanwhile, he added, friendlier suburban property and commercial tax rates puts D.C.’s downtown at a “competitive disadvantage,” he said.
Downtown’s property tax rate of nearly 1.9 percent is nearly double the rate in most suburban office hubs like Alexandria, Rosslyn or Bethesda. Coupled with the higher property values in D.C., businesses can pay up to $9 more per square foot for prime office space, according to the report.
Upcoming threats to downtown office real estate include the redevelopment of Rockville Pike and Tysons Corner into mixed-use, urban areas; the large office vacancies expected in Crystal City when the Department of Defense relocates to more secure Northern Virginia locations; and the new Intercounty Connector’s ability to attract businesses to suburban Maryland.
And while losing some office tenants is “inevitable,” the report said, the cost to the District over the next decade is estimated to be between $27 million and $33 million in lost tax revenue.
Bradley said if D.C. doesn’t continue to maintain its market share of roughly one-quarter of the region’s jobs, a ratio it has kept over the last decade, the suburban competition could stall growth and tax revenue for the city.
The report also notes that downtown D.C. is nearly entirely built out and future growth must come from places such as the St. Elizabeths Hospital or Walter Reed redevelopments.
In downtown, just 18 undeveloped sites remain from the 108 identified for redevelopment more than a decade ago. Several of those 18 — like the massive City Center project — are under construction.
