A New Office Submarket Is Beginning To Take Shape In Northeast D.C.

The booming section of Northeast D.C. from Union Market to H Street has seen a surge of new retail and multifamily development, but so far, new office development has been sparse. That is about to change. 

Carr Properties plans to break ground in Q4 on a 225K SF office building at 350 Morse St. NE, part of the 1.25M SF Market Terminal development Kettler has planned two blocks west of Union Market. It is likely to begin construction on a speculative basis, CEO Oliver Carr said.

The developer retained Avison Young to lease the project, which represents the first ground-up office development in the growing Union Market area. The neighborhood anchored by Edens' popular food hall has blossomed in recent years, with acclaimed restaurants, like the Michelin-starred Masseria, and a new grocery store in Trader Joe's. The area's first multifamily project delivered last year and several more are on the way. 

Avison Young principal Jonathan Wellborn, who is leasing the building along with Eli Barnes, Will Stern and Greg Tomasso, said the expanding retail offerings and industrial character of the neighborhood should attract office tenants. 

"The modern-day worker operates differently than they did 10 to 15 years ago; they put a greater emphasis on unique and exciting retail within their area," Wellborn said. "And the industrial, former wholesale building stock of that neighborhood is something you really don't have in Washington like you do in other major metropolitan cities. Union Market is our Meatpacking District." 

Edens, the lead developer behind Union Market's surging retail scene, recently decided to move to the neighborhood itself. The company moved May 1 into its new 12K SF headquarters at 1270 Fourth St. NE. The office, on the second floor of a former warehouse, shares the building with The Village Cafe and bookstore Politics & Prose, which is expected to open in the next two months. 

"We're just a couple weeks in, but it has done everything we hoped," Edens CEO Jodie McLean said. "It has inspired good creativity. The energy in the office is fantastic." 

Creating an office market has been part of the vision for the area since the creation of the small-area plan in 2007, McLean said. Edens eventually plans to build seven stories with roughly 214K SF of office space atop the Union Market food hall. 

"We continue to see demand for office, particularly from really innovative companies whose workforce is demanding office space that is probably less traditional in the D.C. sense," McLean said. "I think we will be able to continue to work to meet the demand of the office here."

Edens has already drawn office tenants to the neighborhood with its conversion of the former Maurice Electric Supply building at 530 Penn St. NE, one block north of Union Market, into office space. The two-story building in 2016 landed marketing and design firm Huge for a roughly 12K SF office. Advertising agency Sensis and nonprofit Emerson Collective also occupy space in the building. 

Tenant brokers see pent-up demand for office space around Union Market and expect the area to merge with the fast-developing H Street to the south and the connecting Third Street corridor, anchored by Uline Arena.

H Street has also seen relatively little office development compared to its multifamily and retail supply, but it does have some space available. Jair Lynch has an 88K SF newly renovated office building next to the Anthology apartments it built, and the nearby 501 H St. NE mixed-use project included one 9,500 SF floor of office space. Additionally, WeWork last year opened a 32K SF coworking space next to The Apollo apartment building. 

This part of Northeast D.C. sitting to the east of the train tracks is distinct from neighboring NoMa in building scale and character, and in the type of office tenants it tends to attract. NoMa has landed large government agencies like the Department of Justice and 100K SF-plus private sector tenants like Mathematica, but brokers don't see those types looking on the other side of the tracks. 

"For your average company whose executives live in Maryland, Virginia or parts of Northwest, they would never consider that part of town, in my opinion," Savills Studley Corporate Managing Director Jon Glass said. "But there are a lot of emerging media and tech-related companies who have a young staff that live in Washington that are increasingly looking at options around the H Street corridor."

JLL Senior Vice President Andy O'Brien compared the Union Market area to D.C.'s fast-developing waterfront submarket sparked by megaprojects The Yards and The Wharf. He said the neighborhood is nearing the stage in its development when larger office tenants will begin to seriously consider it, and thinks Carr's project will be successful in capturing that demand. 

"It's looked at really as a destination," O'Brien said of Union Market. "I think if they build the right product there it would definitely be successful. If you're building a typical corporate office building it might take a while. The demand is definitely from creative-type users." 

O'Brien said he has had several tenants look at Uline Arena, the historic building Douglas repurposed into retail and office. The building, which sits east of the train tracks about five blocks south of Union Market, has landed several retailers, including an REI flagship, La Colombe Coffee, Red Bear Brewing and CycleBar. The only office tenant Douglas has announced is the 44K SF Spaces coworking space in January 2016, and the landlord's latest marketing materials say over 110K SF is still available. 

The building competed for the new Yelp office, Glass said, but came in second to Terrell Place, where the company signed on for 53K SF last year. Glass said he is working with two tenants looking for roughly 5K SF that have specifically said they want to move their offices to Northeast D.C. He said he sees enough demand in the market to fill office developments like Carr's that cater to smaller creative companies. 

"I think naturally, the hipness is there in Northeast, the residency is there, and it's only a matter of time before office comes," Glass said.