Most American downtowns are surrounded by “parking craters,” or big spaces with swaths of parking lots and no buildings. But they have virtually disappeared from DC (all the parking for Congress being a key exception, of course) because downtown office space is in high demand and because each building can only be so tall.
Downtown DC’s last privately-controlled parking crater, left over from when the Convention Center was demolished. Photo by the author.
Most surface parking lots are built as what zoning calls “an accessory use,” which means they’re an “accessory” to something else on the same lot. The parking lot at Sam’s Park & Shop in Cleveland Park, or the Capitol’s parking lots, are “accessory” parking lots.
Parking craters, on the other hand, are usually not accessory parking directly tied to another land use; they’re paid parking lots whose owners are holding onto land that they speculate could be a future development opportunity.
A parking lot requires minimal maintenance, but pays out some income in the interim. Most importantly, a parking lot is “shovel ready” — unlike a building with tenants in place, whose leases might or might not expire at the same time, a parking lot can be emptied and demolished on short notice when opportunities arise.
Here’s a map of all of DC’s parking craters in 2011, before NoMa saw a huge influx of residents and City Center was built.
High rents and short buildings make parking craters impractical
The opportunity that many “parking crater” developers are waiting for is the chance to build a big office tower. Offices pay higher rents to landlords than apartments (although in the best locations, retail or hotels can be even more valuable).
However, the banks who make construction loans to developers rarely allow new office buildings to be built before a large, well-established company has signed a long-term “anchor tenant” lease for much of the new building’s space. If the building isn’t pre-leased, the result can be a bank’s worst nightmare: a “see-through tower” that cost millions of dollars to build, but which isn’t paying any rent.
Within downtown DC, robust demand and high rents mean that landowners face a very high opportunity cost if they leave downtown land or buildings empty for a long time. Instead of demolishing buildings years before construction starts, developers can make room for new buildings by carefully lining up departing and arriving tenants, as Carr Properties did when swapping out Fannie Mae for the Washington Post.
Less often, a developer will build new offices “on spec,” or without lease commitments in place. A spec developer usually bets on smaller companies signing leases once they see the building under construction. Downtown DC has a constant churn of smaller tenants (particularly law firms and associations) that collectively fill a lot of offices, but few are individually big enough to count as anchor tenants.
Because office buildings in DC are so short, they’re relatively small, and therefore the risk of not renting out the office space is not that high. In other words, it’s easier to build in downtown DC.
In a city like Chicago, by contrast, few developers would bother building a 250,000 square foot, 12-story office building to rent out to smaller tenants. Instead, they could wait a few more years and build a 36-story building, lease 500,000 square feet to a large corporation, and still have 250,000 square feet of offices for smaller tenants.
This customer is always right
There is one big anchor tenant in DC’s office market: the federal government. The government has some peculiar parameters around its office locations, which also help to explain where DC does have parking craters.
Private companies often don’t mind paying more rent for offices closer to the center of downtown, which puts them closer to clients, vendors, and amenities like restaurants, shops, or particular transit hubs. The government, on the other hand, has different priorities: it would rather save money on rent than be close-in. The General Services Administration, which handles the government’s office space, defines a “Central Employment Area” for each city, and considers every location within the CEA to be equal when it’s leasing offices. It also usually stipulates that it wants offices near Metro, but never specifies a particular line or station.
As rents in prime parts of downtown rose, the government began shifting leased offices from the most expensive parts of downtown to then-emerging areas. Large federal offices filled new office buildings in the “East End,” helping to rejuvenate the area around Gallery Place and eliminate many parking craters.