5/11/21 Washington, DC Mastermind Meeting

Washington DC May 2021 Key Take Aways

• There is a lot of activity in Northeast DC, which is mostly commercial and some multi-family / mixed use. (Drew Cooper – Van Ness Feldman)
• Supply shortages have led to delays and higher prices, particularly for steel and lumber. This is also resulting in quotes lasting only a few days instead of a few months.  It is unlikely there will be a quick turnaround to these issues. (Andy Bauer – Federal Reserve Bank of Richmond)
• Despite rising costs in some supply markets, consumer prices in many sectors remain steady due to price transparency.  Inflation forecast for this year is around 2.4%.  Much of spending is on services rather than goods, and service inflation has been on the weaker side.  Uncertain how it will all play out. (Andy Bauer – Federal Reserve Bank of Richmond)
• The office market in DC is at around 20% and needs to be in single digits to be considered stable.  There is a lot of recasting of leases and downsizing.  Expectations are it won’t stabilize until approximately 2023. (Brian Ball – NAI KLNB, Nicholas Mills – CoStar Group, Sam Sherwood – Nemark)
• Industrial market remains hot with inventory extremely low.  Data centers are taking up much of the available space.  Amazon just bought two vacant office buildings, probably to demo and build their own centers. (Marc Tasker – NAI KLNB)
• There is some activity in the office market very recently, with people beginning to look at space. (Brian Ball – NAI KLNB)
• Retail in the DC market may be turning a corner.  Tenants are still cautious and asking for protections against shutdowns and some landlords are willing to make those concessions in leases.  Second generation restaurant leasing has seen a lot of activity recently. (Craig Cheney – NAI KLNB)
• Larger national retail restaurants have not been as active.  Some have been coming back a bit recently.  Drive-thrus are more active, including Starbucks, Dunkin Donuts, etc.  Chipotle is working on a drive-thru concept. (Craig Cheney – NAI KLNB)
• Self-storage and car washes have remained active and looking for sites.  Day cares had totally disappeared for a while but have started to come back in the past few months.  Focused on build-to-suits from landlords to minimize capital. (Craig Cheney – NAI KLNB)
• In the suburbs, there are decent tenant improvement dollars. Closer to the city, the tenant improvements are going up and rents are going down.  Landlords are not having to come down as much as they thought they would have to.  (Craig Cheney – NAI KLNB)
• Tenant deals are difficult in the industrial market. They are having trouble because the rates are so high in industrial compared to flex, but there’s nothing available to buy. Some companies may start pushing west and south where there is more available space. (Keenan Woofter – NAI KLNB)
• Fredericksburg appears to be an expansion point with development sites like Cowan Crossing.  There is also lots of focus on North Bethesda / Rockville for spec office, multi-family and flex with a lot of biotech companies there. (Chris LeBarton – CoStar Group)
• The Mayor of DC announced that everything will open up on May 21st, with the exception of bars, nightclubs and large venues, which will be at 50%.  Further openings in June. (Derek Ford – Washington DC Economic Partnership)
• The city is looking to come back and the Mayor focused on getting people back to work downtown. (Derek Ford – Washington DC Economic Partnership)
• Howard University is looking for 80K sq ft for their communications department and a radio station and have an RFP out. (Derek Ford – Washington DC Economic Partnership)
• The labor shortage is a problem for many DC restaurants.  Many service workers left during the pandemic because they couldn’t afford to keep a place in the city. (Derek Ford – Washington DC Economic Partnership)
•  Insurance premiums are on the rise.  Carriers are asking more questions and applications are more time consuming. (Mike Moore – London & Norfolk)
• The data is showing that there aren’t a lot of new sublets coming onto the market.  It’s lower now than when it topped out in 2009.  Expecting to see a lot pull back. (Sam Sherwood – Newmark)
• There is interest in repurposing of lower quality assets, but there is confidence there will be demand for good quality class A office space.  (Sam Sherwood – Newmark)
• Expecting a large number of tax appeals in the near future. (Sam Sherwood – Newmark)