Two District developers are converting their condo projects into office buildings as the region’s commercial real estate market continues to outpace the faltering residential sector. The move echoes the conversion of thousands of condo units into rentals.
PN Hoffman, which had planned to build 140 luxury condos at 10th and G streets Northwest, recently announced they will build a 140,000-square-foot office building instead.
Ellis Development Group, one of the developers for a planned 38-unit luxury condo project at 14th and T streets Northwest, also decided to switch its building to office space.
“The high-end market for condos just kind of went soft,” said Ellis Development partner Chip Ellis. “We thought that there was a better market for office and retail.”
Meridian Group’s planned Four Bethesda Metro condo project and Lake Development’s planned Eisenhower Gateway condo project in Alexandria also converted to office projects within the last year, according to real estate research firm Delta Associates.
While the region’s housing market has stalled, steady job growth has fueled consistent demand for commercial real estate. Office vacancy rates continue to hover around a healthy 10 percent in the metro area and a very low 7 percent in the District — numbers that could rise with 7 million square feet of new office planned by 2009, according to the George Mason Center for Regional Analysis.
Zoning restrictions and construction obstacles can make it difficult for developers to change course from condos to offices, but slowing sales have propelled many to convert condos to apartment rental units or to cancel projects altogether.
Between January and September of this year, area developers canceled 2,900 condo units and converted an additional 8,400 condos to rental units, Delta Associates Vice President William Rich said.
“About a year ago, there were about 25,000 condos being marketed,” Rich said. Now it’s 19,000 and going down. But what we’re noticing now is more of the projects that are switching to rental are in the District, as opposed to the suburbs.”
D.C.’s tenant-rights laws make it difficult for developers to switch back to condos once they have converted to rentals, Rich said.
It seems as though the District developers were trying to hold the trigger as long as they could before switching to rental,” he said.
