6.17.26 Washington DC Chapter Meeting

Washington DC Chapter June Meeting!

Economic & Demographic Outlook

1. Washington, DC faces significant economic headwinds

• The region is experiencing one of the most challenging employment environments in the country.
• The DC region lost approximately 52,900 federal jobs and more than 103,900 total jobs over the past year.
• CoStar and Oxford Economics are forecasting negative job growth in 2025 and 2026, making DC an outlier compared to most major U.S. metros.

2. Policy uncertainty remains a major concern

Key risks impacting decision-making include:

• Federal workforce reductions
• Agency relocations
• Immigration policy changes
• Trade policy and tariffs
• Inflationary pressures
• Geopolitical uncertainty

3. Growth will shift toward outer suburban markets

Despite broader regional weakness:

• Loudoun County is projected to lead the region with approximately 12,000 new jobs between 2026-2030.
• Prince William County follows with approximately 9,000 new jobs.
• These areas continue benefiting from data centers, technology investment, and population migration trends.

4. Population growth remains a bright spot

• While employment growth is slowing, population growth is still expected to outpace the national average.
• This provides an important long-term support mechanism for housing and retail demand.

Multifamily Market

5. Multifamily fundamentals are softening but remain relatively stable

• Apartment demand has normalized following exceptionally strong post-pandemic years.
• Absorption declined in 2025 and is expected to weaken further in 2026.

6. Construction pipeline is shrinking rapidly

• Multifamily units under construction have fallen significantly below historic averages.
• New starts have slowed considerably due to:
  • Higher interest rates
  • Construction costs
  • Financing challenges
• This reduction in future supply could eventually support stronger fundamentals.

7. Vacancy trends are improving

One of the more positive findings:

• Vacancy rates have begun declining slightly.
• CoStar forecasts vacancy rates will continue improving through 2027-2028 as new deliveries slow.

8. Rent growth is under pressure

• Multifamily rents are currently experiencing flat to negative growth.
• Early 2026 annual rent growth was approximately -1%.
• Monthly rent growth has been weaker than historic seasonal patterns.

9. Federal workforce reductions create additional apartment risk

Unlike most U.S. markets:

• Washington’s apartment sector is directly tied to federal employment.
• Government layoffs and contractor reductions could further impact renter demand.

Office Market

10. The office market has not yet found its bottom

Key themes highlighted:

• Demand remains weak.
• Return-to-office mandates have helped somewhat, but not enough to materially improve fundamentals.
• The market remains highly dependent on federal employment and contractor activity.

11. Little to no rent growth expected

• Office rents are expected to remain largely flat.
• Vacancy rates are expected to remain elevated, although new supply is declining.
• The lack of new construction may eventually help stabilize fundamentals.

12. Winners and losers are becoming more apparent

The office market continues to bifurcate:

• Trophy and highly amenitized assets are outperforming.
• Older commodity office properties continue to struggle.
• Demolitions and conversions are becoming more common nationally and are likely to increase in DC.

Industrial Market (Summary)

13. Industrial remains the strongest major property type

Although only summarized in the presentation:

• Industrial fundamentals remain healthy.
• Demand is moderating from record highs but remains positive.
• Data center development continues to be a major economic driver, particularly in Northern Virginia.

Retail Market (Summary)

14. Retail continues outperforming expectations

• Retail remains one of the healthiest CRE sectors nationally.
• Limited new supply continues supporting occupancy and rent growth.
• Population growth and suburban migration patterns are helping neighborhood retail perform well.

Overall CRE Outlook for Washington DC

Positive Signals

✔ Population growth remains above the national average
✔ Multifamily construction pipeline is shrinking, helping future fundamentals
✔ Vacancy in multifamily is beginning to improve
✔ Loudoun and Prince William Counties continue to generate jobs
✔ Industrial and retail sectors remain relatively healthy

Challenges

⚠ Federal employment losses are creating significant economic drag
⚠ Regional job growth is expected to trail the nation through 2026
⚠ Multifamily rents are flat to declining
⚠ Office demand remains weak and has not fully stabilized
⚠ Ongoing policy and government uncertainty is impacting investment decisions

Bottom Line

The Washington DC market is entering a period of adjustment driven largely by federal workforce reductions and slower economic growth. While the office sector continues to face significant challenges, multifamily fundamentals appear to be stabilizing due to a sharp decline in new construction, and long-term population growth remains a positive indicator. The strongest opportunities appear to be in growth corridors such as Loudoun and Prince William Counties, as well as sectors tied to data centers, industrial development, and necessity-based retail.