Market Conditions are Challenging Office Assets but are Providing Opportunities to Creative Investors Willing to Consider Conversion
Key Market Trends
- Office leasing demand has been slowing in the Washington metro area for several years, led by real estate consolidations in the federal government and legal industry. Office demand has been further suppressed by the COVID-19 pandemic, adding to the region’s oversupply of office space.
- Softened office conditions have encouraged some owners to maximize the utility of their assets by repositioning their use. Office-to-residential conversions have gained popularity due to strong housing demand and regional undersupply.
- Office repositioning activity has been strong both in the urban core of the District of Columbia and in suburban markets, particularly in Northern Virginia. Suburban sprawl and increased densification in the region’s outlying counties have awarded some owners the opportunity to maximize property values due to development potential.
- The importance of repurposing structurally challenged office assets has caught the attention of some in public service. The District of Columbia’s FY2023 approved budget includes a new 20-year property tax abatement program aimed at incentivizing office-to-housing conversion projects.
