Why the Biggest Names in DC Real Estate Are Feeling So Bullish
All signs are pointing upward for the DC commercial real estate market, and the titans of industry in the Federal City could hardly contain their excitement at yesterday's Bisnow Washington State of the Market event.
We've already covered some of the big takeaways from the event, which almost 1,000 people attended, packing the downstairs ballroom at the Marriott Marquis. And no one commanded the room like DTZ chief economist Kevin Thorpe, who said while office rents are still flat, high-quality retail had double-digit rent growth this year, which could be a harbinger of even brighter days ahead. With the region adding 63,900 new jobs over the past 12 months, it's hard to disagree. Many of the factors that have some in the industry skittish—the Greek and Puerto Rican economic collapses and impending Federal Reserve rate hikes—"don't necessarily mean anything," Kevin says. Throw in his belief that "we're in the single-greatest apartment sector boom in the history of the United States," and Kevin made everyone's day before 9am.
One of the biggest names on the marquee was Chip Akridge, who said despite flat rent growth, we should start to see some rent appreciation for Class-A office near Metros. The region's vacancy rate still sits at an uncomfortably high 13%, but as job growth continues—and everyone expects it to—we should see it start to improve.
What will help drive those vacancy rates down? Vornado president Mitchell Schear believes the technology sector is about to spur some serious growth, particularly in Crystal City, where he counts WeWork, 1776, TechShop and Eastern Foundry as his tenants. "We're seeing VCs take root in this area, and I think we're going to see a boomlet in the next five years of tech people wanting to come here," he says.
Mitchell was interviewed by Gilbane Building Co VP Drew Mucci, who asked Crystal City's dominant property owner why he's so confident that tech's coming to DC. The first two waves of technology growth were out west and in New York City, Boston and Chicago. But as everything in our lives becomes more connected, "everything points to innovators being close to the federal government," Mitchell says. "The third wave belongs to our region."
As we know, Millennials are at the heart of both the tech sector and the insatiable apartment demand both locally and nationally. While many developers are happy to cater their buildings to young professionals but might be sour about having to hire them, Rand Construction CEO Linda Rabbitt says her peers should be listening. "They have solid ideas," she says. The younger people in her company helped turn it around quickly post-recession. "Millennials saw the marketplace in a different way." How do you cater to them and hire the best ones? They want plenty of feedback and information as fast as humanly possible.
Co-founder of BET, CEO of Salamander Resorts and vice chair of Monumental Sports, the company that owns the Wizards, Capitals and Mystics, Sheila Johnson led off the event discussing affordable housing and what has led to her success in all areas of business. She told CohnReznick national director of commercial real estate David Kessler and the crowd that the hotel business and sports business have plenty of parallels. "It's all about entertainment," Sheila says. "It's about keeping the fans happy and keeping the clients happy." As a board member of the USGA, she's also passionate about growing golf for the future. That means more diversity, both in color and in gender.
Other luminaries that graced the stage included Arent Fox chairman Mark Katz, who interviewed JBG managing director Michael Glosserman. The discussion highlighted the pros and cons of the federal government's huge presence in the DC commercial real estate market. Michael says that he expects the Feds' share of office space, now sitting around 35%, to continue to drop and settle around 30%.
Stewart Title VP Gary Cortellessa and Federal Realty Investment Trust CEO Don Wood had one of the morning's most engaging conversations. Don dismissed the notion that the Internet is killing off brick-and-mortar retailers, instead stressing that efficiency trumps everything. To prove his point, he asked Siri on stage "Did the Yankees win last night?" Siri responded immediately—they did, but they didn't face the Nationals, so who cares?—but his point was made: no one has patience for anything anymore. "Everyone's game needs to be stepped up."
Johnny Moseley of Moseley Construction Co had the honor of interviewing Tom Bozzuto and did everyone in the audience a favor by asking one of the region's most successful developers his secret sauce. "You need to wake up every morning asking what you do better and differently than everyone else," Tom says.