Investors Were Hot For D.C.-Area Apartments. Then Trump Came Back To Town

At the beginning of the year, Tysons-based development firm Middleburg Communities had been targeting a variety of D.C.-area suburbs in Maryland and Virginia for ground-up multifamily investment. 

The company was even conducting due diligence and entitlements on a site in Greenbelt, the Maryland suburb that was selected in late 2023 for the FBI headquarters. 

But President Donald Trump's election threw those FBI plans into question, leading the developer to scrap that project, Middleburg Chief Economist Brad Case told Bisnow.

And now, the president's drastic cuts to the federal workforce are causing economic uncertainty for the larger region, making it “reasonably unlikely” that the company will approve any new investments in the D.C. area, Case said. 

“We have so many of those opportunities, and it's a matter of which ones we're going to push most aggressively. And the D.C. area certainly pulled back from that list,” Case said. He added in a statement after publication that while their outlook for the market has changed, Middleburg continues to seek out opportunities in the D.C. area.

The D.C. area is losing tens of thousands of jobs due to the escalating cuts to the federal workforce from President Donald Trump and Elon Musk's Department of Government Efficiency. While it is too early to see a concrete shift in renter and homeowner behavior resulting from these job losses, it is raising concern among multifamily investors and developers, with some taking a step back from the D.C. region.

Investors’ perception of the D.C.-area multifamily market, which had been one of the most attractive in the country, has been bruised over the last month as the federal cuts ramped up, according to several investors and market experts.

“All this activity is creating hesitancy in the capital markets today,” Carr Properties CEO Oliver Carr said on a panel at Bisnow’s Office Repositioning event last week, adding that he does see some long-term benefits to reducing government spending. 

“But near term while we go through this process, that's causing some investors to kind of stay on the sidelines so they have a better view of, ‘Okay, what's the real impact of the potential of fewer government employees?’ and just kind of waiting and watching to see how this all plays out,” he said. 

One-quarter of the jobs in D.C. proper are federal government jobs, according to a new local revenue outlook from D.C.’s Chief Financial Officer Friday. It said about 190,000 federal employees work in the District and 72,000 live there. Across the greater D.C. metro area, federal workers make up 8.4% of the workforce. 

In addition to the thousands of workers who have been fired across agencies nationally, 75,000 took the administration’s deferred resignation offer last month. 

The D.C. CFO predicted Friday that the District would lose 40,000 federal employees by 2029 — a 21% reduction in the city's federal workforce.

Also being affected are employees who work for private federal contractors, with the administration moving to cancel many contracts. Last week, the General Services Administration told agencies to identify contracts they can cancel from the top 10 government contractors and provide a rationale for those they want to keep.

Last week, unemployment claims in the District jumped by 25%. 

“It has to have some chilling effect on demand,” Integra Realty Resources CEO Anthony Graziano said.

“It's going to be a percentage of people that maybe would have invested in D.C. that say, ‘You know what? There's unknown risks here that I can't see, I can't measure how quickly this is going to affect me,’ and they're going to start repricing their bids, and that repricing is then going to play into the market,” he added.

The rapid changes come against the backdrop of a region that has had a reputation as one of the most stable investment markets in the country, and its multifamily sector has benefited from strong fundamentals over the last few years.

Mulfamily volume totaled $7.2B for the year compared to $4B the year prior, according to Newmark’s year-end report. The D.C. metro led the country in rent growth between September 2023 and September 2024, Redfin found, with rents rising 12% year-over-year. 

Even in January, D.C. was the most sought-after city for renters based on RentCafe’s analysis of properties viewed and favorited on its platform. 

“Everybody looked at it as a very solid market,” Graziano said. “I think there's a lot of concern right now in terms of what's going to happen with the federal workforce, and how many job losses that will create, and what that'll do to the historic occupancies in the region.”

It is still too early to measure the full effect of the cuts that have already been announced, or to predict how deep future cuts will penetrate.

The administration has given no indication as to when it will stop cutting federal jobs or how many workers will ultimately be impacted. Many of the moves are also being challenged in court, so it is unclear how many of the announced cuts will actually go through. 

There is also the counteracting force of the administration’s requirement that all federal workers come to the office five days a week. The uncertainty that emanates from all of these moving parts is raising a red flag in the capital markets.

“As uncertain as our business is, people like certainty, and right now, we're back into an uncertain environment in terms of how is all this going to play out,” Stonebridge principal Doug Firstenberg said. “So I think people are going to be cautious for a while here, until we have a better sense.”

The administration is also chopping federal contracts, loans and grant programs, leaving thousands of private sector employees jobless. According to a report from Walker & Dunlop's Zelman & Associates, nearly 500,000 government contractor jobs are at risk. 

“You think of all the lawyers and engineers and people that are contractors to the federal government,” Graziano said. “And sorting those out is going to take some time, but what do those contracts mean in terms of local employment?”

Job growth is one of the top factors that investors look at for assessing a market, experts told Bisnow, alongside factors like population growth, employment rate and household formation. 

The federal workforce was brought up on multiple earnings calls over the past few weeks for REITs with significant D.C. multifamily exposure.

On its earnings call last month, Equity Residential Chief Operating Officer Michael Manelis said its D.C. portfolio is 97% occupied and was one of its top performers in 2024, and expectations remain high for 2025. But in the same breath, Manelis spoke to the elephant in the room.

“The wild card here is what impact the new administration and its focus on both cost cutting and a return to office policy for federal employees will have on the local job market,” he said.

JBG Smith CEO Matt Kelly referred to “moves by the new Administration to shrink the size of the federal workforce” as a “regional headwind” in his quarterly letter to shareholders last month.

John Kim, a REIT analyst for BMO Capital Markets told Bisnow that the multifamily REITs he covers, like Camden Property Trust, AvalonBay Communities and Equity Residential, already had plans to shift their investment focus away from D.C. because they had a high exposure to the market compared to other regions.

The federal government's uncertainty just bolsters that thesis.

“I don't think people are questioning the rationale of reducing exposure to D.C. now, and this just adds another reason to do it, maybe sooner rather than later,” Kim said.

The entire country has seen a multifamily development slowdown after too much pandemic-era supply caused rents to soften and vacancy to rise. In mid-2025, construction starts are expected to be 74% of their 2021 peak, according to CBRE.

But for the developers and investors that are looking to make moves, D.C. may not be their first choice to put their capital. 

“Now, when we look at D.C., we say, why would we want to play there, when we can go to Charlotte?,” Middleburg’s Case said. “Charlotte still has very strong demand growth and does not have the uncertainty that we now see in the D.C. area.”

The D.C.-area residential market was thrust into the social media spotlight last month when a series of viral posts showed maps of home listings in the area, claiming that they showed a surge in people selling, but reports later found that home listings were at a normal level.

Bright MLS was one of the organizations that refuted the trending posts, saying in a Feb. 17 blog post that it was “not seeing any evidence of a surge.” 

But its data from the week ending Feb. 23 shows the region recorded a 20% bump over the week prior. Last week, the region saw another 13.2% increase on top of the prior week's bump.

For both of those weeks, the D.C. area's listing increase was well above the same period last year, and it was higher than the average of the larger six-state region that Bright MLS covers. 

Bright MLS Chief Economist Lisa Sturtevant told Bisnow she expects the federal changes to impact the spring housing market.

“I think we are going to see more new listings coming onto the market as federal workers who have been laid off make decisions about where they're going to live, but I still don't have a great sense on how big this impact is going to be,” she said.

Though the workforce shifts may be a stumbling block, experts said it’ll be hard to shake the greater D.C. region from its place as one of the top investment markets in the country.

The region has one of the most educated and highest-paid populations in the country, it has been diversifying its economy more toward the private sector and its apartment market hasn’t seen the oversupply that has occurred in much of the Sun Belt and Mountain regions.

Mark Franceski, managing director of securities and research at Zelman & Associates — a Walker & Dunlop company — said that investors still believe in the strength of the D.C. market, but the federal cuts have dampened the enthusiasm for activity this year.

“We came into this year with everyone [saying], ‘D.C. is awesome. It leads in recoveries. This is going to be great, like, this is our moment. And then this happened, and everyone said, ‘What's going to happen now.’ And we just don't know.”

UPDATE, MARCH 5, 9:45 A.M. ET: This story has been updated after Middleburg provided Bisnow an additional statement on their strategy.