Northeast D.C. Developers See Slow Retail Leasing, But View Apartments As Value Play
Northeast D.C. has grown rapidly over the last decade, with developments adding thousands of apartments and a host of new retail to neighborhoods including H Street, NoMa, Union Market, Ivy City and Brookland.
These neighborhoods experienced a major development boom during the nation's longest-ever economic expansion, and now as the economy experiences a slowdown caused by the coronavirus, new projects could deliver into a more difficult market than the one they broke ground in.
Developers with Northeast D.C. projects under construction expect the crisis will delay their retail leasing activity and create longer vacancies for their storefronts, but they think their apartments could benefit as renters look for relatively affordable options.
"You could probably count on one hand the number of restaurants in the D.C. region that are looking for expansion space right now," Foulger-Pratt CEO Cameron Pratt said. "It's certainly going to take longer to rent retail space than it did in the past. There are going to be fewer retailers looking to expand because they're all having challenges."
Foulger-Pratt has new retail space under construction at two Northeast D.C. developments, Press House at Union District and Eckington Park. The Press House project, at the corner of Third and N streets NE near Union Market, has 27K SF of retail space. The developer this week landed architecture firm Hickok Cole to lease the 25K SF of office space at the project, which also has 356 apartments.
Eckington Park, which sits along the Metropolitan Branch Trail at 1501 Harry Thomas Way NE, has 9,200 SF of retail. Pratt said the developer has had conversations with prospective retail tenants for both projects.
"The pace of negotiations has slowed in the last two months, but we do have interest in both of those locations because they're very unique and well-located and in vibrant, growing communities that will have lots of daytime and evening population," Pratt said.
The mix of daytime and evening traffic in NoMa has helped the neighborhood's retailers survive through the pandemic, as its apartment residents working from home have supplanted the typical lunchtime traffic from office workers, NoMa BID President Robin-Eve Jasper said.
"NoMa has some distinct advantages to other neighborhoods, especially when it comes to retail, food and beverage in the neighborhood," Jasper said. "The reason being is that we have that kind of Goldilocks just-right combination of a large resident population in the neighborhood and predominately local-serving retail."
Washington Gateway's 387-unit second phase does not have retail, as it fronts the bike trail and the New York Avenue overpass, but the first phase leased its retail to bar and restaurant The Eleanor and the third phase along Florida Avenue has retail planned. Bryant Street's first phase landed Alamo Drafthouse Cinema as the retail anchor, and it has about 35K SF of additional retail space.
The 487-unit Bryant Street project is slated to welcome its first residents by Q1, but MRP principal Matt Robinson said the movie theater building will deliver at least several months later. This timing will be beneficial, he said, as movie theaters are among the uses that remain closed in D.C. amid the pandemic. He said MRP is looking for food and beverage users for the additional retail space, but leasing activity will likely be slower because of the crisis.
"Right now, operators are obviously distracted, they've got existing offerings they need to take care of and stabilize," Robinson said. "We're trying to do everything we can for the new projects, but it might take a little longer. You've got to get back to normalcy before you see some growth in that area."
The final phase of Monroe Street Market in Brookland is slated to deliver this summer, but the developer — Pritzker Realty — has not announced any retail tenants for its 16K SF of retail space, where it has said it is looking to bring a small grocer. It has also not announced a tenant to fill the existing retail space that the Bike Rack and Fox Loves Taco vacated last year. Prizker declined to comment.
While Northeast D.C. developers expect slower retail leasing, they say their multifamily units could benefit from the crisis.
The focus on cleanliness brought by the pandemic could draw renters to new buildings, but because of the economic crisis, they may not want to pay top-of-market rents, Robinson said. He said D.C.'s apartment rents are the highest around 14th Street and Shaw, and then they gradually decrease as one moves east to NoMa, and then drop further as one continues northeast to the Rhode Island Avenue area.
"Maybe your commute's a little longer, but if you're taking the Metro, what's one stop to save $50/month? It's real money," Robinson said. "When unemployment starts going higher, everybody looks at their expenses a little differently, and that could play well for places as you look further into Northeast."
Acumen Cos. Chairman Abiud Zerubabel, who plans to break ground soon on a 32-unit condo project on Bladensburg Road NE and has another 150-plus-unit Northeast project in planning, also sees the area as a strong value play.
"Right now tenants and buyers are going to look for better deals," Zerubabel said. "I think neighborhoods like Northeast are going to be more attractive because you now are paying less rent, you might get slightly more space, and you're working from home, therefore the commute may not be as big of a deal. But you want to be in a city environment."
Pratt said he remains just as bullish on Northeast D.C.'s apartment demand as he was when Foulger-Pratt decided to make its investments in the area.
"People want to live there, people are excited about what's happening there," Pratt said. "It feels new and different and hip, and it's not only residential tenants that are going to want to live there, but there's activity from employers that want to be located in those neighborhoods."