Stimulus to Bring New Government Jobs, Office Space Demand to D.C.

Before the real estate market took a plunge, Washington, D.C., consistently ranked among the top tightest office markets in the country. In the last 18 months, vacancy rates have headed south, but with the District of Columbia being home to a plethora of government agencies that will get a boost from the government’s stimulus package, the area is due to sprout a bevy of new jobs over the next decade. And as noted in a recent report by real estate services firm Cassidy & Pinkard Colliers, with those new jobs will come new employees, who will need new places to work. Approximately 64,000 new jobs are expected to be created in the District as a direct and indirect result of the stimulus package. Taking into consideration historic occupancy numbers for the public and private sectors, Cassidy & Pinkard anticipates that by 2019, the office needs of that increased working population will reach 14 million square feet, with 10 million square feet being required by the close of 2011. The timing is almost perfect as 10 million square feet of office space is scheduled to deliver in 2010. Because of its relatively small geographical footprint, Washington, D.C., ran short on developable space during the building boom at the height of the good times not so long ago. In addition to taking to the neighboring suburbs of Northern Virginia and Maryland, developers began to mine underutilized areas just outside of downtown like the Southwest, Southeast and Capitol Hill/NoMa areas, for new projects, a move that will almost seamlessly dovetail with the impending onslaught of new federal employees. “The majority of the growth will be in the District’s non-core submarkets because that’s primarily where agencies receiving the funding are located, like the Department of Transportation, which is in Southeast,” Kevin Thorpe (pictured), vice president and director of research with Cassidy & Pinkard, told CPN. While the location of government agencies in the District’s non-core markets will help the city absorb office space that is scheduled to deliver within the next two years, there is no guarantee that programs created through the stimulus package will have staying power. No one wants a glut in the office market. “Some of the programs won’t be sustainable,” Thorpe noted. “But there’s a long history of spending in D.C., and it’s been increasing since 1983 so once we get through the economic downturn, many programs will continue to exist and grow. We could even go back to the Great Depression and the New Deal. Many of the programs created then, like the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Federal Communications Commission, are still around today.” There is another factor, however, that may bolster office occupancy levels once certain programs vanish. “Following right behind the stimulus package is President Obama’s budget proposal and that is likely to result in federal organic growth that is likely sustainable,” said Thorpe. “So there are two forces of government growth.” Even with the recession having finally hit the District, the outlook for the office market is still bright. “For the long-term it’s never looked better for D.C.,” he said. “It traces back. We’re not rooting for this, but historically, when the U.S. goes into recession, it typically means the government grows and we see population surges in D.C., so it means higher level of federal spending and that means, for the D.C. region, an upward shift in economic activity. It all translates into increased demand for office space.”