One of the nation's largest office landlords is preparing to kick off another ground-up development, with an anchor tenant in tow, as part of its widening bet on the national market's strengthening recovery.
Boston-based BXP is set to demolish the building at 2100 M St. NW in Washington, D.C., and replace it with a luxury office project that has a big prelease agreement in place. BXP said Monday that global law firm Sidley Austin signed a deal for about 240,000 square feet in "the future trophy property," a commitment set to span seven floors as well as a rooftop penthouse in the planned 320,000-square-foot complex.
"It's really time for us to have a brand new state-of-the-art, premier building in a new vibrant neighborhood, which is exactly what this is," Kristin Graham Koehler, a Sidley partner and the firm's managing director for the D.C. office, said in a statement. The new BXP project will provide space for the firm to start its "next overall chapter as we continue to grow in D.C. and around the globe."
The development marks BXP's second ground-up endeavor in the nation's capital and adds to a growing pipeline of projects it has launched in recent months, despite a majority of other firms remaining hesitant about investing in new construction.
The landlord expects to start construction on the 2100 M St. project sometime in 2028 and complete it by 2031, people with knowledge of the timeline confirmed with CoStar News.
Anomaly of an investment
The Sidley prelease not only marks one of the largest private-sector office deals in the D.C. area so far this year, but also lands at a point when few other ground-up projects are moving through the national development pipeline.
Increased financing costs and residual uncertainty looming over the national office market have meant that few developers are willing to build ground-up projects. New construction levels have fallen to their lowest point in 15 years, according to CoStar data. About 57 million square feet is currently under construction, the smallest amount since 2011 and far from the 160 million-square-foot peak reported in late 2019.
Yet a rebound in leasing, rising rents and increasing spatial requirements among tenants have bolstered optimism among some developers, prompting them to pull the trigger on new projects to capitalize on the momentum. BXP has been a standout since the start of the year, however, first breaking ground on a new development in Washington, D.C., and then with the start of its long-anticipated plans in New York City.
That demand has been particularly strong among law firms looking to upgrade their office spaces.
McDermott Will & Emery, now McDermott Will & Schulte, signed a 15-year agreement late last year to take about 150,000 square feet at BXP's other ground-up D.C. development at 725 12th St. NW. That deal helped cement the developer's timeline to break ground on the project, which is scheduled to take about a year to complete. A few months later, fellow law firm Cooley signed a lease to occupy more than 125,000 square feet in the future 12-story building.
And in New York, BXP landed a deal with insurance giant C.V. Starr to fill about 300,000 square feet at 343 Madison Ave., the Midtown site slated to house a 46-story luxury office high-rise. The deal provided a significant boost for the 930,000-square-foot project that broke ground in July on a speculative basis, without a single tenant in hand, and underscores companies' deepening commitment to investing in top-tier space.
DC's new era
To be clear, BXP has approached the nation's rebounding office market with selective optimism, and its new development activity is far more limited compared to the years leading up to 2020.
The developer recently sold off a Silicon Valley site it had originally planned to transform into a 700,000-square-foot office development. BXP closed the $90 million disposition in Santa Clara, California, earlier this month, underscoring the hesitancy it and other landlords face in determining whether ground-up projects will be economically feasible.
Many of those challenges have been particularly acute in the Washington area, which has faced an uphill battle in regaining some of its pre-pandemic momentum.
The area office market has a vacancy rate of 17.3%, according to CoStar data, a record-high figure that has climbed in recent years as a result of ongoing occupancy losses and the residual impacts of the pandemic.
Yet there have been some small bursts of investments that show companies and office stakeholders are willing to play the long game.
Swedish developer Skanska has secured multiple leases at a new downtown D.C. trophy building, CoStar News reported earlier this month. And earlier this fall, Taicoon Property Partners snagged a property in the city's East End it plans to renovate to attract tenants.
Other office projects under construction in Washington include 600 Fifth St. NW, a roughly 400,000-square-foot development set for completion next year.
Nashville, Tennessee-based AllianceBernstein purchased the existing roughly 300,000-square-foot 2100 M St. building from Philadelphia-based Post Brothers in a foreclosure auction during the summer for $20.1 million, CoStar data shows. The 1960s-era property had been considered at one time for a residential conversion. BXP confirmed Monday it acquired the existing property for a gross purchase price of $55 million.
Alliance did not immediately respond to a CoStar News email request for comment. Sidley's current office is at 1501 K St. NW.
For the record
Lou Christopher and Jordan Brainard of CBRE represented Sidley in this transaction. Eastdil Secured represented the seller.