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November 3, 2008
WIN IN 2012

Big shout-out to great sponsor Orr Partners! They've now achieved 20 years of excellence in project management for commercial real estate in the DC metropolitan area. Congratulations!


We’ll go out on a limb here and say that whoever wins tomorrow will win again in four years. That’s what our go-to economic prognosticator Steve Fuller (director of George Mason’s Center for Regional Analysis) tells us. We’ll save the negative economic news for farther down, but start with the good stuff: Steve says the country is likely to come out of recession in Q2 ’09 and grow 1% in ‘09, 2% in ’10 as bank problems resolve, and 3% (considered the non-inflationary ideal) in ’11. That will be a major boost to an incumbent president.


More good news: Steve shows us data in his Fairfax office indicating there has not been a recession in overall Metro Washington (we’re not talking submarkets) and will not be one as far as he can see. 27,000 net jobs were added here in ’07; we’re on pace for at least 30,000 in ’08 (and September came in at a 40k clip); and he projects another 30,000 in ’09, 45,000 in ’10 and 50,000 in ’11 as bailout and traditional Democratic spending course through the system. The bulk of these jobs will require new office space, he says. Yes, construction has taken a hit of 5,000 jobs since this point last year, but increases in health, education, and professional services jobs have compensated. Even residential building permits are up in Fairfax County six of the last eight months. Steve is doing his part: He just closed on a condo near Rosslyn. You can tell he’s a real country first kind of guy because he admits it was a healthy sign for the economy that he had to pay full market value.

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Now the bad news. Metro Washington has 19.4M SF of office space set to deliver between July 1, 2008 and July 1, 2010, only 10M of which will be needed during that time. Half of this is in DC. Although submarkets like Herndon and Route 28 may see double-digit vacancies, overall suburban office vacancy will rise only from 11.7% to 12%. However, DC office vacancy will rise from 6.6% to 11.8%, though much of that will be in emerging areas. But the impact of that overhang will be to moderate lease rates elsewhere, even high-end space on K Street.


But if you can hold out until 2010 or 2011, Steve says that the lack of construction starts for the next couple years will mean empty space will be drawn down fairly quickly thereafter, especially in the suburbs for government contractors seeking proximity to work force and better taxes. In the city and closer in areas like Rosslyn, he sees new financial regulation machinery and more Democratic-oriented lobbyists producing new demands for space, but not as much as needed until 2012. As for the rest of the economy, Steve tells us the proper time to panic was 18 months ago, when growth first began to slow. By now, you’ve missed your chance. But you may start looking like a genius again in a couple years. Meanwhile, Steve’s in demand, here off to a date with the Washington Airports Authority, delivering an average of four speeches a week.


We went to Clyde’s in Tysons last week for an evening seminar on the health of the local market. Fraser Forbes CEO Rich Samit, Grubb & Ellis SVP Eric Berkman, Cassidy research head Kevin Thorpe, and CBRE EVP Bill Kent agreed it’ll be a long, cold winter. Rich says the election, no matter the outcome, will create “certainty,” which will lead to increased confidence. He says land transactions have been non-existent recently, but will start up again in ’09 as banks “release troubled product,” which presents buying opportunities, and the market will start to stabilize in 2010. Eric says office sales inside the Beltway are a “bright, shimmering hope,” adding that DC has the gift that keeps on giving: the federal government.  Kevin reminded us that DC has avoided three of the last four recessions and, so far, seems to be finding the middle ground between doom and boom. Bill says necessity-type retail, such as grocery-anchored centers, will lead growth, while discretionary-type retail will struggle.


Dickman & Associates’ John Dickman, CBRE’s Beth Thomas and Daniel Liebermann, Philip R. Lamb & Co’s David Lamb, Marnier Management & Marketing CEO Peter Houstle, and CBRE’s Jerry Harvey. Beth and Daniel are holding their newly minted MAI designations from the Appraisal Institute. Most agreed the market will rebound in the middle of 2009. David added that developers must batten down the hatches and “try to stay afloat.” Investors with cash reserves are in the catbird seat, because they’ll be able to acquire land, at good prices, that was “left behind” by builders who didn’t make it. To end the evening on a positive note, John said housing values will rise significantly once the bounce-back begins.


Congrats and thanks to Turner Construction, which did contracting services for the Capital Area Food Bank, with a new food distribution warehouse at 4900 Puerto Rico Avenue, N.E. to address increasing needs in the metro area. The food bank serves 383,000 people through its 700 nonprofit partner agencies, yet the need in the region is about 633,000 residents and rising. The new 125k SF structure will increase capacity to about 40 million pounds of food per year and will include an expanded refrigerator and freezer space. Green features are in the plans, including solar panels, and the center is scheduled to open in fall ‘09. Above, Eugene Hamilton of DC Superior Court, Marriott CEO Bill Marriott, DC Housing director Leila Edmonds, and Ward 5 Councilman Tommy Thomas.


The Marymount community—faculty, students, administrators, alumni, parents, trustees, and friends and neighbors—gathered the other day to break ground for the University's 26th Street project, including construction of a 48k SF academic building, 77k SF residence hall, parking, and an outdoor space named the Malek Family Plaza in honor of Marymount alumna and trustee Marlene McArthur Malek and her husband, Fred Malek. Project architect is Davis Carter Scott, with Davis Construction doing pre-construction services. Congrats and thanks to all above.

CORRECTION:  We’re glad to see so many of you reading our captions, because our friend Barbara Schaefer McDuffie was misidentified by us Friday as to her affiliation, and was flooded with emails and calls. For the record, nope, she hasn’t gone anywhere; we just spaced out: She’s at Beers + Cutler.

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