INDUSTRIAL LAND IN A POST-INDUSTRIAL CITY District of ...

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District of Columbia Industrial Areas Study DC Office of Planning Prepared by Phillips Preiss Shapiro Associates, Inc. At $12.31 per square foot, the Warehouse rental rates are a more accurate reflection of market activity in the industrial sector. This average rate is 50 percent higher than the regional average of $8.08 per square foot, but it is somewhat lower than the average for Fairfax County, which commands the highest warehouse rents in the region. 23 Recent Absorption Trends During the past five years, vacancy rates for each category of industrial space have gradually decreased after the region’s Flex vacancy peaked in 2003 at 16.8 percent and the Warehouse market highest rate of 8.0 percent in 2003. The District’s industrial absorption rates have been more tenuous. Although positive absorption rates have been recorded for the first three quarters of 2005, this uptrend follows a year of four consecutive quarters of negative absorption. In the third quarter of 2005, net absorption of industrial space (Flex and Warehouse space inclusive) totaled 123,190 square feet. New Construction Since the beginning of 2002, only 25,000 square feet of new industrial space has been constructed in the District of Columbia. 3.2.3 FACTORS IMPACTING THE DISTRICT OF COLUMBIA’S CURRENT INDUSTRIAL MARKET In November 2005, six active industrial real estate brokers were interviewed regarding conditions in the District of Columbia’s industrial market. Based on their input and independent research, the following five issues were identified as critical to the future strength of the District’s position in the region’s competitive industrial landscape. Location and Accessibility Proximity to railroads and major roadways has guided industrial real estate value for over 100 years. Based on these criteria, the low vacancy rates and high appeal of the V Street Industrial Corridor is unsurprising. However, despite its location between freight lines and Routes 50 and Alternate 1, asking rents along V Street range between $5.00 and $7.00 per square foot, which 23 Ibid. - 69 -
District of Columbia Industrial Areas Study DC Office of Planning Prepared by Phillips Preiss Shapiro Associates, Inc. is a low rate for the DC market, and lower than the regional average. 24 These low rates help explain the low vacancy rate in this area, and may be due to the presence of long term leases which delay response to a rising market. The combination of modest rents and low vacancy may also stem from another issue: spaces along the V Street corridor are constrained from significant expansion/reconfiguration, so any tenant must be satisfied with the space size and configuration, number of loading bays, etc. One of the issues with industrial space in the District is the relative inaccessibility of the region’s airports, namely Dulles and Baltimore-Washington International Airports. For this reason, industries located in the District are more likely to have locally or regionally-focused businesses. The rental rates for available space near the District’s border with Takoma Park, Maryland typically range between $7.00 and $9.00 per square foot (this would include the Chillum Place area). A partial explanation for this increase is related to the area’s relative accessibility to I-295 and I-95, as well as BWI Airport. 25 Size and Expansion Capabilities Demand for industrial space is highest for space ranging between 10,000 and 20,000 square feet in size. Space under 10,000 square feet is almost equally sought. Two brokers stated that the time on market for space in these ranges is short and rarely requires advertising. 26 Unlike the suburban markets, where industrial space of this small size generally remains after the larger leases are signed, small space leases are a premium in the District. This condition creates difficulties when industries in the District seek expansion opportunities. Especially in the Warehouse category, as businesses grow, they are forced to relocate to the suburbs where a wider variety of spaces provide a greater number of options. Strategies aimed at easing expansion within the District’s industrial zones could play an important part in efforts to retain successful PDR uses in the District. Geography of the District The basic geography of the District of Columbia, paired with the city’s historic industrial trends, creates difficulty for its Flex and Warehouse markets. As previously discussed, roadway and airport accessibility can be critical for industrial businesses. Proximity to population density and a diverse workforce can also be factors in location decision-making. 24 Retail Compass interviews with two brokerage representatives for V Street Industrial Park, November 2005. 25 Retail Compass interviews with two brokerage representatives for industrial parcels at Blair Road and Rittenhouse Street and Kansas Avenue and Chillum Place, November 2005. 26 Retail Compass interviews with five brokerage representatives, November 2005. - 70 -
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