Bethesda’s Imminent Office Construction Boom
Construction in the Capitol Riverfront BID
Image credit: Edward Johnson via Flickr
The Bethesda/Chevy Chase office market is considered by the CRE community to be the premier submarket among those in Maryland’s Washington suburbs, and is home to most of the substate’s largest private firms. The downtown Bethesda district in particular, is viewed as the “cream of the crop” in the DC ‘burbs, securing the region’s highest rents on average outside of the District. Yet despite its high stature, Bethesda has seen very little office construction activity over the past decade.
There has been just a single office building—4500 East West Hwy.—constructed in downtown Bethesda within the past 15 years, adding 223,000 SF to the market. That building, developed by Carr Properties, is now fully occupied, anchored by the American Society of Health-Systems Pharmacists (ASHP), RapidAdvance, Fidelis Cybersecurity, and Serendipity Labs.
The lack of office construction activity isn’t specific to the Bethesda submarket, as the entire Washington region’s office market entered a period of stagnation initiated by the Great Recession in 2008. Even as the office market has begun its slow recovery, there has been very little office construction activity in any suburban submarket in the metro area, with Tysons being the sole exception.
With the paucity of new, ground-up construction, Class B/C owners have seized the opportunity to upgrade their space at several locations including: 7550 Wisconsin Ave., 7101 Wisconsin Ave., and the Bethesda Crossing complex at 7315 Wisconsin Ave./4550 Montgomery Ave. The renovations have proven to be cost-effective, helping property owners sign a number of signature tenants including SunEdison, The Donohoe Cos., and Miller & Long.
It’s worth noting that the lull in groundbreakings has been nearly unique to the office sector, as Bethesda has still been bustling with residential construction activity. Over the last 15 years, there has been a deluge of multifamily construction—primarily apartments, but condos as well—bringing nearly 4,000 market-rate units to market across 25 projects.
Despite the challenging Washington suburban office market environment, Bethesda is now on the verge of a new wave of construction. Compared to its suburban peers, downtown Bethesda is experiencing relatively tight market conditions, especially for Class A space. As of the second quarter of 2017, the direct vacancy rate for all classes of multi-tenant space stood at 12.2%, while direct Class A vacancy stood at just 7.2%, which is the lowest of any metro area submarket expect the District’s CBD. Large blocks of Class A space (20,000 SF+) in particular in downtown Bethesda are virtually non-existent.
Developers are now lining up to pull the trigger on a number of office projects. Many were holding out for the adoption of the new Bethesda Downtown sector plan, which dramatically increases the height limits in much of the Bethesda CBD and allows developers to build beyond their mapped parcel density by making impact payments to a density pool. The following is a look at the new office projects coming to the submarket:
1. 7750 Wisconsin Ave./Marriott Headquarters
The largest and most prominent office project coming to Bethesda will be occupied by a sole tenant—Marriott International. The hotel giant recently signed a lease for a new headquarters on a Wisconsin Ave. site currently owned by the Bernstein Cos. The parcel is currently occupied by the Bethesda Court Hotel and a recently cleared vacant lot. The project will be developed by a joint venture of Bernstein and Boston Properties which will own and lease the 22-story, 700,000 SF office building to Marriott. A 13-story, 230-room flagship Marriott hotel will also be constructed as part of the project and will be owned by Bernstein and operated by Marriott. Pending Planning Board site plan approval, ground-breaking is scheduled for July 2018 with delivery in Q2 2021.
2. 7272 Wisconsin Ave./Apex Building
This project originally came about due to the necessity of razing the existing 123,000 SF building to make room for an underground Purple Line light rail station and adjacent Georgetown Branch Trail. Carr Properties purchased the building from the primary tenant, ASHP (which then moved to Carr’s new building at 4500 East West Hwy.) and secured approval for a nearly 1 million SF mixed-use development on the site earlier this year. The office component will be a 23-story, 358,000 SF office tower fronting Wisconsin Ave.
3. 4747 Bethesda Ave.
The first on this list to break ground is JBG Smith’s trophy office building across from Bethesda Row. Demolition of the existing 8-story office building on the site finished this summer, and ground-breaking of the new 14-story building was announced soon after. JBG Smith—which recently formed through a merger of the JBG Cos. and the Washington area assets of Vornado/Charles E. Smith—will anchor the 280,000 SF building itself, moving up Wisconsin Ave. from their current headquarters in Friendship Heights. The building is expected to deliver in Q3 2019.
4. 7359 Wisconsin Ave.
StonebridgeCarras recently submitted concept plans for a mixed-use hotel and office building at the southeast corner of Wisconsin and Montgomery avenues. The site is currently home to a police station, carpet store, and 36,000 SF office building. In exchange for the police station parcel, the developer is constructing a new station elsewhere in downtown Bethesda with completion expected this fall. The plans for the site include 390,000 SF of Class A office space and 220 hotel rooms in a 22/23-story building. The developer plans to break ground by the end of 2019.
5. Other Rumored/Proposed Projects
In addition to the aforementioned office projects, there are a few other less concrete possibilities for new office space in downtown Bethesda. This includes a “mega” mixed-use development along Wisconsin Ave. composed of an assemblage of land owned by The Bainbridge Cos., Washington Property Company, The Chevy Chase Land Co., Douglas Development, and the American Occupational Therapy Association. In addition, Bainbridge has also floated the idea of building an office tower at Bethesda Metro Center up to 290’ tall on land it leases from WMATA.