K Street vs. Crystal City: Will Amazon affect the price of creative workspaces in DC?

There’s no secret that Washington, D.C.’s pool of coworking spaces continues to expand, but at what cost will people be paying to rent a creative space with big moves in the real estate industry next year?

JLL, an investment management company specializing in real estate, collected data that shows a total average office on D.C’s K Street, where many coworking spaces are housed, cost $60.75 per square foot, compared to Northern Virginia at $34.15 per square foot. These 2018 prices are about a dollar more expensive compared to last year’s.

The Commonwealth of Virginia has already committed to investing $195 million in neighborhood infrastructure improvements and Amazon will pay about $35 per square foot in rent for its initial lease, which is about $2 below the average asking rent in the Arlington County submarket, JBG Smith Properties said in a disclosure first reported by the Washington Business Journal. JLL reported that Crystal City office spaces cost $37.02 per square foot on average, so why is Amazon getting a discount?

JBG Smith Properties declined an interview with Technical.ly on this. An SEC filing states that the company’s leases in the last five quarters in the National Landing area averaged $34.20 per square foot. Further, the WBJ article states JBG Smith plans to invest about $15 million to prep space for Amazon’s headquarters, while Amazon is investing $294 million to purchase JBG Smith’s PenPlace and parts of Metropolitan Park development sites.

In the SEC filing from JBG Smith, the company summarizes how Amazon will impact the area with its second headquarters. National Landing has approximately 50,000 office workers to date. Amazon’s addition of office space to accommodate at least 25,000-37,850 jobs is expected to drive substantial increases in future demand for commercial and residential space, according to the filing. National Landing is where Amazon is set to plot its second HQ, which is the interconnected and walkable neighborhood in Northern Virginia that encompasses Crystal City, the eastern portion of Pentagon City and the northern portion of Potomac Yard.

“We believe the real estate fundamentals in National Landing will surpass other close-in Northern Virginia submarkets and approach convergence with Washington, D.C.,” the real estate company said in the filing.

JBG Smith owns approximately 6.2 million square feet of operating office, 2,850 multifamily units and controls approximately 7.4 million square feet of development density in the area. The company plans to invest in more properties in the National Landing in the future, bringing more opportunities immediately proximate to Amazon’s second HQ, the filing states.

With the ecommerce giant’s moves, will the price of a creative office space change in the District because of the proximity to Amazon’s second headquarters next year? Tom Fuge, Regional senior VP at Truss has spent 10 years in commercial real estate and says it likely won’t.

“It’ll be a long time until National Landing, or also known as Crystal City, would be impacted by that absorption.  A deal of this size will take a couple years to implement – it isn’t overnight,” Fuge told Technical.ly.

Truss is a marketplace for commercial real estate that helps small to medium–sized businesses find, tour and lease space. Its platform has more than 300 million square feet of available office, coworking, retail and industrial space Fuge says. Through the platform, customers can take virtual 3D tours of the spaces right from their own mobile device or computer, allowing them to find the right space easily and cost effectively. Fuge recently helped Goodworld relocate to WeWork on K Street since the company was previously housed in 1776 DC, which is closing on Dec. 31.

Truss gathers its data directly from the brokers and the landlords for the respective spaces it works with for the most accurate information. Fuge said that the downtown submarket near K Street cost $55 per square foot for office space, which is still more expensive than Crystal City. Fuge said Amazon could be getting a discount on its office space because of the incentive to house one of its second headquarters sites in Virginia. He also said there’s already been changes in Arlington’s real estate market since Amazon made its big announcement.

“With Amazon announcing their HQ decisions, we’ve seen an increase in cost per square foot, and the amount of available spaces has gone down by close to 25 percent,” he said. “Following Amazon’s announcement, the average cost per square foot went from $34.52 to $35.50.”

Regardless, Fuge said with the demand for more coworking and creative office spaces in the District, that influx alone could affect rental prices more than Amazon’s move to Northern Virginia.

“The market is still tenant driven – and they’re demanding flexibility in their real estate. Landlords know that and they are responding. Coworking isn’t just a trend anymore – it’s here to stay and a big component of commercial real estate for years to come,” Fuge said.