The Washington, D.C., metro area has emerged from the country’s latest recession relatively unscathed. More important, it has established patterns of development that will help the region achieve further success in the next decade, providing a model for other growth areas around the country.
Clearly, the past few years have been good—if not outstanding—for the Washington region.
This is how Urban Land described Washington, D.C., in 1999, the last time the ULI Fall Meeting was held in the nation’s capital. The Fall Meeting and Urban Land Expo returns to Washington this year, and a similar statement could be made a little over a decade later: the years have been good—and even outstanding.
The Washington region, which includes the District of Columbia as well as large portions of Maryland and Virginia, has added jobs, embarked on ambitious infrastructure projects, constructed millions of square feet of building space in all product types, and completed some of the largest development projects in the country—and more projects are on the drawing boards. While the Washington region, and particularly the outer suburbs, suffered the effects of the recession, the shock was mild compared with what other metropolitan areas experienced. In no sense have the gains of the past decade in Washington been wiped out in the last few years.
Economic and Demographics Trends
In 2009, the Washington region lost 53,000 jobs. While this clearly indicated that the national recession was having an impact on the area economy, the real news was how uncommon and light the job losses were. It was the first annual decline in employment the region had experienced in 17 years. Even in this downturn, the region’s foundation of the federal payroll and other spending enabled it to far outperform the nation: the 53,000 drop was the smallest number among any of the largest 15 metropolitan areas, and D.C. was the first major metro area to begin gaining jobs, during this past April. Overall, since 2000 the region has had more job growth than any metro area other than Houston.
Although the federal government is the foundation of the area’s economy, it accounts for only 12.2 percent of employment. Federal contracting and a highly educated workforce have led to private sector strengths in defense, aerospace, and security; biotech and life sciences; information and communications; legal services; hospitality; and—in response to the Wall Street crisis—financial services.
The Washington-Arlington-Alexandria metropolitan statistical area is the eighth largest in the country, with a population of 5.5 million in 2009—a 14.4 percent increase over 2000. The combined statistical area, which includes the Baltimore region, is the fourth largest in the nation. The District of Columbia itself in this decade gained population for the first time since the 1940s and is very close to 600,000 residents—up from 572,000 in 2000.
Dramatic changes have occurred in many Washington neighborhoods in the past decade, particularly in the Seventh Street corridor near the Verizon Center, the NoMa (North of Massachusetts Avenue) area north of Union Station, the Logan Circle area around 14th and P streets, and the U Street corridor. Also, the Nationals Park baseball stadium opened on the Anacostia River south of the Capitol in 2008.
Washington continues to be popular with global real estate investors. The Association of Foreign Investors in Real Estate ranked Washington, D.C., the number-one U.S. city and the number-two city in the world (after Shanghai) for real estate investment in 2009, and Washington consistently tops the list of markets to watch for all product
types in the annual ULI/PriceWaterhouse Coopers Emerging Trends in Real Estate report.
Transportation
Much money has been spent upgrading the area’s highway capacity, including the construction of a new Wilson Bridge over the Potomac ($2.5 billion) and the rebuilding of the Springfield, Virginia, interchange where interstates 95, 395, and 495 come together ($676 million). Extending from the Springfield interchange along the Capital Beltway to the Dulles Toll Road in Tysons Corner, Virginia, will be a new set of high-occupancy toll lanes, expected to open in 2013.
In suburban Maryland, the major road project of the past decade has been the 18.8-mile (30.3-km) Intercounty Connector (ICC) that will connect Interstate 270 in Montgomery County to Interstate 95 in Prince George’s County. The road, a major segment of the never-completed Outer Beltway, will charge tolls and should be completed by 2012. The terminus of the ICC in Prince George’s County is planned for a 500-acre (200-ha) new town called Konterra.
In addition, Metrorail has entered a new period of expansion. The most ambitious project is the Silver Line from Falls Church, Virginia, through the edge city of Tysons Corner and the planned community of Reston, and eventually to Dulles International Airport and the suburbs of Loudoun County. The first phase, now under construction, will terminate at Wiehle Avenue in Reston after the addition of four stations in Tysons Corner. The project has inspired local leaders to rethink land use along the Silver Line’s entire route, and Fairfax County is just completing a major rewrite of its Comprehensive Plan to allow high-density, mixed-use development near the future stations.
Serious planning for several light-rail projects has also begun. Arlington County, Virginia, has proposed a trolley line along Columbia Pike to help development in that corridor mirror the success of the Rosslyn-Ballston corridor served by Metrorail. In Maryland, a Purple Line trolley service is being designed to link Bethesda to Silver Spring, and to the University of Maryland and other locations in Prince George’s County. D.C. itself also wants to bring trolleys back, and has installed tracks on H Street, N.E., and purchased several streetcars.
Residential
Since ULI last met in Washington in 1999, home prices have increased by 84 percent—a greater rise than recorded in any other area included in the Case-Shiller Index. This advance was recorded despite a drop of 33 percent from March 2006 to April 2009, which was far outweighed by the 156 percent increase leading up to the peak. The for-sale housing market has begun to show some modest signs of revival from the downturn. Months of supply on the resale market returned to a fairly healthy six months this past April; this indicator had dropped to two months in 2004 to 2005 and reached 11 months in 2008. New construction is returning more slowly, with building permits—expected to be about 12,000 this year—still only at one-third the level seen in 2000; new home sales are less than half their 1999 level, with only intermittent signs of increase so far. Builders are getting ready for anticipated economic recovery and stronger sales in 2011 and 2012 by purchasing land in desirable locations.
The condominium pipeline has slowed dramatically, but prices are constrained by recently completed units purchased from the original developer that are coming back on the resale market. The rental apartment absorption rate is healthy, and vacancy rates are declining. There may even be a shortage of multifamily units in a couple of years because of limited numbers of new projects in the pipeline.
Although most new housing development continues to be in the suburbs, the District of Columbia has staged a notable revival. The District accounted for only 1.9 percent of regional permits from 1998 to 2001, but 7.5 percent from 2005 to 2009; housing markets in the District and close-in areas such as Arlington and Alexandria have held up best in the downturn.
Retail
Washington-area retailers and retail developers have suffered from the recession along with the rest of the country, but the region has the lowest shopping center vacancy rate of all major U.S. cities and the value decline has been less pronounced than elsewhere.
The past decade has seen many changes in the retail environment. In the District, DC USA, a multistory power center anchored by a Target store, opened in the Columbia Heights neighborhood and has been performing well. A number of new supermarkets have opened, and new restaurants and clubs have been flocking to previously pioneering locations such as U Street, H Street N.E., and Eighth Street S.E., and to the Seventh Street corridor between Pennsylvania Avenue and the new Walter E. Washington Convention Center.
In the suburbs, the supermarket industry has seen the opening of numerous Harris Teeter, Whole Foods, Wegmans, and Costco stores. Well-located lifestyle centers such as Downtown Silver Spring have been performing well, though some centers in outlying areas that had counted on continuing rapid housing development are facing more challenges.
Office
The office market looks much different than it did when ULI last met in Washington. Vacancy rates for the entire metro area, which were 8 percent in 1999, are now 13 percent. Net absorption slowed to 600,000 square feet (56,000 sq m) in 2009—outperforming negative absorption in most metro areas, but a small fraction of the 11 million square feet (1 million sq m) absorbed in 1999 and the 15 million square feet (1.4 million sq m) absorbed in 2000 in the midst of the tech boom.
Office vacancy rates are highest in Maryland and lowest in the District; they are expected to continue to increase in D.C. while decreasing somewhat in Virginia over the next two years.
The federal government has always played a major role in the region’s office market, and this is especially true with the slowdown in the private sector. The General Services Administration (GSA) manages about 100 million square feet (9.3 million sq m) of space, of which 55 million (5.1 million sq m) is leased. Over half the space it manages is in the District.
Hospitality and the Arts
The Washington area continues to be one of the ten most visited in the country, with over 16 million annual visitors. The most dramatic changes since the 1999 ULI meeting have been the opening of a 2,000-room Gaylord convention hotel at the Peterson Companies’ multiuse National Harbor development in Prince George’s County and the 2003 opening of the new convention center, where the 2010 ULI Fall Meeting and Urban Land Expo is being held.
But the proposed dramatic Frank Gehry–designed addition to the Corcoran Museum of Arts, a photo of which was on the cover of the 1999 Fall Meeting issue of Urban Land, lost its potential donors to the tech bubble and was canceled in 2005. The city is also still waiting for a headquarters convention hotel to complement the new convention center. After numerous delays, that project is finally underway.
Here to Stay
The biggest difference between the Washington of 1999 and the Washington of 2010 is that it is now clear that some hoped-for changes are out of the incubation stage and have proved their staying power. Residential development will work downtown and D.C. can support lively 24/7 areas outside of Georgetown. The federal government will always be a major force in terms of employing Washingtonians and building megaprojects, but there are plenty of private sector industries, from technology to hospitality, that will choose to locate in the region. Divided as it is between two states and the federal district, Greater Washington can still plan for needed transportation improvements, including a new Wilson Bridge and Metrorail to Tysons Corner and Dulles Airport.
In sum, things are indeed looking good in Washington. It has emerged from the country’s latest recession relatively unscathed. More important, Washington has established patterns of development that will help the region achieve further success in the next decade.
