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How Bethesda's Office Boom Will Affect Its Retail, Restaurant Scene

Bethesda is undergoing its first major office boom in over a decade, with new trophy projects unleashing pent-up leasing demand that will bring thousands of new employees to the area, and developers expect this to have a significant impact on the strength of Bethesda's retail sector. 

Gensler's Francisco Gonzalez, Marriott International's Jim Young, Boston Properties' Pete Otteni and The Bernstein Cos.' Adam Bernstein

Downtown Bethesda's retail market has seen a large amount of turnover in recent years, with several restaurants and bookstores closing, and some developers are shying away from including retail in their projects. But the resurgence of the area's office market — four major projects will add nearly 2M SF of office space in the coming years — could inject new life into Bethesda's retail and restaurant scene. 

Marriott International will bring 4,500 new employees to the Woodmont Triangle section of Downtown Bethesda when its new corporate headquarters opens in mid-2022. Marriott Vice President of Corporate Facilities Jim Young said the area's existing retail offerings were a major factor during the company's decision-making process, and he believes that amenity base is only going to improve. 

"Four thousand people will be coming to Bethesda every day, and they'll all have a wallet on them," Young said Thursday at Bisnow's Future of Bethesda event, held at the Hyatt Regency Bethesda. "We're encouraged that we'll add some vitality to the retail market." 

Boston Properties Senior Vice President Pete Otteni, the partner on Marriott's headquarters with The Bernstein Cos., drew a parallel between Downtown Bethesda and the company's pioneering Reston Town Center development.

One of the first restaurants to open there, Morton's The Steakhouse, had initially only planned to open for dinner, but then realized it had vastly underestimated the lunchtime traffic the project's office tenants would drive. It is now one of Morton's best-performing locations, Otteni said, largely due to its lunchtime rush. He thinks the same thing could happen with Bethesda as new office tenants like Marriott enter the market. 

"Everybody knows retail is going through a tough time, but those bodies on the street, the increase in daytime population could be a great thing for Bethesda Row, for Woodmont Triangle and Bethesda in general," Otteni said. 

Linowes & Blocher's Heather Dlhopolsky, StonebridgeCarras' Doug Firstenberg, JBG Smith's Kristi Smith and Federal Realty's Chris Weilminster

JBG Smith is also moving its headquarters to Downtown Bethesda, where it will be joined in its 4747 Bethesda Ave. project by Booz Allen Hamilton, Host Hotels & Resorts and Orano. JBG Smith Executive Vice President Kristi Smith said companies are moving to more urban, amenity-rich environments to attract millennial employees, and those workers will spend money at nearby restaurants and bars after work.

Smith expects that trend to drive retail leasing, but said it has yet to materialize. JBG is looking for a replacement retail anchor for 4747 Bethesda after specialty grocer Dean & Deluca backed out of its lease. 

"We've seen in our leasing efforts that retailers haven't quite caught on to the fact that there's going to be a huge influx of new employers and net new demand for retail," Smith said. 

One of the largest beneficiaries of a strengthening retail sector in Bethesda would be Federal Realty, which owns Bethesda Row. The property has seen a number of closings this year, from Barnes & Noble shutting its doors in January to restaurants Redwood and Lebanese Taverna closing in recent months.

JBG Smith's Kristi Smith, Federal Realty's Chris Weilminster and StonebridgeCarras' Doug Firstenberg

But Federal Realty Executive Vice President Chris Weilminster said the landlord has seen strong activity in filling those spaces. It signed Anthropologie to fill the Barnes & Noble space with its large-format concept, which he calls the "department store of the future," and Amazon Books opened in a 6K SF storefront at Bethesda Row last month. These deals illustrate the transformation of Bethesda's retail market over the last two decades, Weilminster said. 

"What we've seen happen is going from a mom-and-pop base to becoming a strong retail market that supports soft-goods sales," Weilminster said. "We used to compete with Georgetown because retailers thought it was too close, but the markets have definitely proven themselves as both being sustainable." 

Weilminster said he expects to have exciting new restaurant tenants to announce at Bethesda Row soon. He also believes the growing office market will continue to drive new restaurants and retailers to Bethesda. 

"With 6M SF of office density, well on its way to 9M SF with all the new construction, the end worker tends to be white-collar with more money," Weilminster said. "What ends up happening with that captive audience Monday through Friday right next door, from a retail standpoint, it acts as a great anchor to driving business." 

StonebridgeCarras has two projects planned in Downtown Bethesda, a 390K SF trophy office building and a 175K SF lab building, but neither of them includes ground-floor retail. StonebridgeCarras Founding Principal Doug Firstenberg said the locations weren't ideal for retail, and he sees a lot of competition in the market that could make it difficult to lease the spaces. 

"We're looking to do less retail in some of our projects," Firstenberg said. "The only thing worse than no retail is empty retail ... forcing it is bad, especially when you're competing with Bethesda Row." 

Weilminster agreed that developers with less-than-ideal locations should not try to force retail to work, because it could backfire and negatively impact the office component. 

"There are many projects that get crammed down from municipalities to do retail on the base of their buildings, and the thing that happens is it's vacant and nobody wants to be upstairs. Who wants to be in a building that's vacant?" Weilminster said. "It's a recipe for disaster." 

Lerch, Early & Brewer's Patricia Harris, Carr Properties' Oliver Carr III, Transwestern's Phil McCarthy and United Bank's Jim Consagra

The office boom will likely help Bethesda's retail market, but it is unlikely to last forever. Carr Properties CEO Oliver Carr III, who built Bethesda's last new office building in 2014, said he expects to see a break in construction after the four upcoming projects, which include Carr's 360K SF The Wilson office tower on the Apex Building site. 

"My personal view is we're going to see this pop of construction, then the market will settle and absorb, and then we'll keep stair-stepping up," Carr said. "Bethesda is a fantastic market, but today it's only about 9M SF. I don't see it doubling in size."