‘It’s Debilitating’: Slow Return To Office Hurting Downtown D.C. Businesses
Office buildings in Downtown D.C., like in many other major business districts, have remained mostly empty for the 18 months since the coronavirus pandemic began.
This continued lack of activity is having ripple effects far beyond the four walls of the office spaces, with downtown restaurants and retailers struggling to survive without the typical weekday traffic. Office landlords and business owners had hoped Labor Day would mark a turning point after which office workers would return and downtown restaurants would start to recover, but the delta variant has pushed that recovery back yet again.
Executives at Carr Properties, Akridge and Oxford Properties all said they have seen a slight uptick in building occupancy over the past two weeks, but the return to office has been slower than they had hoped for earlier in the summer. Downtown restaurant owners say they still aren't seeing the weekday lunch and after-work business that they received before the pandemic.
"It's slower than we expected it to be," Clyde's Restaurant Group Chief Financial Officer Jeff Owens said. "What's missing are those business lunches and the after-work happy hour cocktail business. We see those two segments are really down, and it's because of the vacancies in the offices around us."
Multiple data sources also show downtown activity had a minor increase after Labor Day but remains well below normal levels. The D.C. Metro area had 28.1% office occupancy the week of Sept. 8, according to Kastle Systems' Back to Work Barometer, up from 27.5% the prior week but below the national average of 30.9%.
Daily ridership on Metro trains after Labor Day increased from 175,000 on Tuesday, Sept. 7, to 183,000, 185,000 and 196,000 for the following three days, according to WMATA data. This was up from the final weeks of August, when ridership was in the 155,000-175,000 range, but it is still well below normal levels. During every year from 2010 to 2019, daily ridership in September averaged more than 600,000, according to WMATA.
Carr Properties, which owns seven D.C. office buildings including the massive Midtown Center complex, has seen a slight uptick in people returning to buildings this month, according to data shared with Bisnow. The average utilization rate, or the percentage of active access cards used daily to enter its buildings, was 19% for the first two weeks of September. That compares to 17% in August and 14% in July, though it matches the number that the firm saw in May and June.
In the pre-pandemic months of January and February 2020, Carr had over 50% utilization rates, meaning at least half of the people with access cards entered its building on an average day. The firm's D.C. utilization rate in September is well below the 34% rate for its overall portfolio including Maryland, Virginia, Boston and Austin.
"It's gotten marginally better but definitely not the overwhelming increase we had all expected pre-delta variant," Carr Properties CEO Oliver Carr said.
Carr said the revenue in his firm's office portfolio hasn't taken much of a hit, as it is collecting roughly 99% of office rents. He said the real victims of the slow return to work have been the small restaurant and retail businesses downtown that depend on daytime office traffic.
"What really makes me sad frankly is seeing how downtown is really suffering," Carr said. "You've got restaurants going out of business. You've got small retailers going out of business. All of these service businesses that take care of the downtown office workers are really struggling."
In May, New Orleans-style restaurant Dauphines opened at Midtown Center, and Carr said it has done well as positive reviews have led people to seek out the downtown location. Multiple other restaurants are planning to open at Midtown Center before the end of this year, including Japanese concepts Shōtō and Akēdo, Greek restaurant Philotimo from Nick Stefanelli and sandwich shop Grazie Grazie. Carr said he hopes downtown traffic will increase later this year to support those new restaurants.
"Right now the expectation is a lot more people are coming in Q4, but I think it'll be some combination of Q4 and Q1 of next year," Carr said. "It's wholly dependent on the virus, where things stand with delta, and the level of comfort companies have encouraging people to come back to the office."
"I don't think they think through the unintended consequences, like what does that mean for cities where the government has major offices when all the sudden they have people work remote?" Carr said. "It has a really negative impact on downtown office and related service businesses ... it's bad for the market."
D.C. Deputy Mayor for Planning and Economic Development John Falcicchio said Mayor Muriel Bowser's administration is calling on the federal government to bring back its workers to help revitalize the downtown economy.
"Our comeback is really dependent on the federal government coming back to the office," he said. "The federal government's impact in terms of downtown coming back is outsized given the proportion that the federal workforce makes up in our market."
Akridge Chairman Chip Akridge, whose firm also owns several Downtown D.C. office buildings, said he saw a minor increase in people coming into the office after Labor Day, with average occupancies rising from around 30% to 35%. But he said that level of daily traffic is still not nearly high enough to support the downtown economy.
"It's debilitating to these people that depend on walking traffic," Akridge said. "Some of the higher-end restaurants are doing all right, with people coming in for dinner, but not lunch. So it's hard for retailers. It's bad."
Restaurant and bar owner Geoff Dawson has two downtown businesses, Penn Social and Astro Beer Hall, and he said these have vastly underperformed his other venues in the more residential neighborhoods of U Street, Shaw and Georgetown. He said the downtown locations have recovered the slowest because of the lack of weekday office traffic.
"We're seeing very little traction right now," Dawson said. "As far as foot traffic of our typical happy hour after-work crowd, it's still crickets."
Dawson's two downtown businesses were open seven days a week before the pandemic, but he said the lack of weekday traffic has forced him to reduce the schedules for both locations to Thursday through Sunday.
"There's just no business on Monday, Tuesday and Wednesday," Dawson said. "There's no foot traffic. Once in a while, someone will tug on the door and look in, but it'd cost us money if we'd be open then."
Dawson said Penn Social received $2.8M in federal relief money, and he is now transforming the street-level portion of the two-story venue to have a daytime coffeehouse and patio, branded as Little Penn.
"That is absolutely a 100% lifeline for Penn Social," he said of the relief money. "That allows us to essentially reinvent what we're doing."
Dawson said his restaurants have also been able to stay open in part because its landlords have been flexible. The District government is now launching a new initiative to help restaurants reach agreements with their landlords.
Falcicchio said the budget that Bowser proposed and the D.C. Council passed last month includes a program through which D.C. will provide one-third of a restaurant's past-due rent, as long as the operators and landlords each put up one-third themselves.
"That's a way they can work out that looming rent and arrears," Falcicchio said. "For those businesses on the first floor of office buildings downtown, probably the best indicator of whether they're going to be able to survive is how well they work it out with their property owner."
The Old Ebbitt Grill, a longtime Downtown D.C. staple, has struggled to get back to its pre-pandemic levels of business, said Owens, whose group owns the restaurant. Sales in June were down 27% from pre-pandemic levels, he said, and then July was 23% down, August was 19% down and September thus far has been 16.5% down.
"It's really slow," Owens said. "I'm still making progress but it's really slowing down, and I think it's because of the delta situation."
Clyde's Restaurant Group also owns downtown restaurants Clyde's at Gallery Place and The Hamilton, and it has several suburban restaurants, including five Clyde's locations in Maryland and Virginia. He said the suburban restaurants have already matched or exceeded pre-pandemic levels, but downtown is still struggling because of the slow office return.
A survey conducted by the Downtown D.C. Business Improvement District shows a tale of two downtowns. The retailers and restaurants it considers "destinations" that draw people downtown have recovered at least half of their pre-pandemic sales and have been able to reopen much easier than those that mostly relied on foot traffic.
The destination restaurants and shopping retailers are now generating at least 60% of their pre-pandemic sales, according to the BID's data. Only four of the 127 destination restaurants remain temporarily closed, and zero destination retailers are still closed.
The quick-service restaurants that typically serve lunch to office workers, on the other hand, still have 21 locations that are temporarily closed. Nondestination shopping retailers still have 26 temporary closures.
"That's where you really see the impact of the office worker," Downtown D.C. BID Director of Economic Development Gerry Widdicombe said of the quick-service restaurant segment. "Some will probably permanently close."
Oxford Properties Group General Manager John Turnbull, who oversees property management of the firm's D.C. portfolio, said it has one downtown restaurant tenant that has been closed since the start of the pandemic.
The restaurant at 900 16th St. NW, which is rebranding from Mirabelle to Il Piatto, has pushed back its opening date multiple times, he said. It had previously planned to open this summer and then pushed that to after Labor Day, hoping to see a strong return to office, but it has now delayed its opening again.
"They're concerned with opening before people are down there and not having a good start, so the timing of them reopening has been pushed back as they've evaluated where we are," he said. "It was going to be right around now, and it's undetermined exactly when they're going to open but it's largely going to be driven by when the need returns downtown."
Turnbull said Oxford's D.C. office buildings — it owns 1101 New York Ave. NW, 900 16th St. NW and Gallery Place — have had occupancy around 20%. He said it increased in early summer after the initial reopening then dropped in August and has returned this month to where it was in June.
"Most of our other tenants are still virtual and everyone seems pretty up in the air on when they're actually returning," he said. "Clearly the delta variant played a big role in that, and unfortunately we're still pretty low. I'd like to say we're seeing something coming soon. I do believe it's going to return, but I don't know."
Golden Triangle Business Improvement District Executive Director Leona Agouridis said the district, which encompasses 44 square blocks on the western portion of the D.C.'s Central Business District, has 129 retail vacancies. She said this is at least double the number of vacancies it had before the pandemic.
"It is the impacts of Covid that we are looking at," she said. "Because we are a collection of office buildings, we are an office district, when all of the offices close down then nobody lives nearby to go pick up delivery for dinner or anything."
Agouridis said the office buildings in Golden Triangle are around 25% to 30% occupied, and there was a slight increase after Labor Day but not as much as she had expected earlier in the summer.
"A lot of people had very high expectations for the day after Labor Day, but I think as we all felt that the whole delta discussion kind of slowed things down, and right after Labor Day it wasn't quite as robust as some people had thought it might be," Agouridis said.
While office activity in the area is still relatively low, the Golden Triangle BID is launching a "Welcome Back" campaign to help make the return to office a positive experience for those that are coming back. She said the BID is wrapping its trash cans and trucks in signs that say "Welcome Back," and it is hosting a series of activities including outdoor exercise classes, outdoor shared office seating and public art displays.
"We want people to know we're focused on making it a wonderful experience for them when they do come back," Agouridis said. "This is the downtown. This is the excitement of the city; the ability to walk down the street and see somebody you know, go to a lunch spot or have a Washington experience. We can't forget that that exists and that one day more people are going to be back to it."