D.C. Metro Area Owners Must Compete Fiercely For New Tenants

Despite its environmentally friendly amenities and sweeping views of city attractions, property managers for Constitution Center in Southwest Washington, a 1.4 million-square-foot building scheduled to be completed in November, have yet to land any tenants.

Constitution Center is just one of several dozen existing, newly constructed, or soon-to-be-completed office buildings in the Washington region that had vacancy rates in the 80 to 100 percent range as of midyear.

A lack of tenants in the late stages of a project--a rarity before the commercial real estate crisis-- is more typical now, commercial real estate experts say, as businesses go through layoffs or downsize, reducing their need for additional office space. In June, the amount of vacant space in the region soared nearly 24 percent, to 47 million square feet from 38 million during the same month a year earlier.

The problem started after Sept. 11, 2001, when commercial real estate collapsed in New York. Investors spent on commercial real estate in the Washington area, where the economy was growing as the government ramped up for the Iraq War. But many buildings that were financed through the subsequent boom are entering the market now, during a recession.

“The ramp up in supply delivered in 2007, 2008, and 2009 happened when there was a downturn in demand. The combination of the two created the problem,” said Gregory H. Leisch, chief executive of Delta Associates, an Alexandria, Va.-based real estate research firm. “It's going to get worse before it gets better.”