Posted Friday, Dec. 14, 2012, at 10:54 AM
How expensive is office space in the Washington, DC central business district? So expensive that the newly renovated Constitution SqCenteruare building near L'Enfant Plaza just sold for a record $734 million, or $524 dollars per square foot.
The L'Enfant Plaza area, if you're not familiar with it, is a bit of a mixed bag. It's one of the more accessible parts of the city, right by a freeway and with a major Metro station that's also served by VRE commuter rail. On the other hand, it's one of the city's least-loved neighborhoods—generally bland and depressing with no street life and noplace to go for lunch, cut off from the main portion of the city by museums, the National Mall, and grade crossings. So all things considered it's a fine location but hardly the filet of the CBD.
And because this is DC, it also looks to be only about ten stories tall even though there's clearly market demand for office space at that particular location. Some of that extra unmet demand will merely spill over into other less convenient locations. Perhaps elsewhere in the District, perhaps out into Virgina. But some of it will just vanish into the ether as "deadweight loss." And even in the spillover scenario you lose the benefits of agglomeration, both as a productivity-enhancement for the white collar office workers and also as a fertile ecology for the creation of a vibrant local retail market.