Tech Companies Move Closer To The Federal Government, But Not Too Close
The government is in the midst of a technological renaissance.
Since the start of the tech boom in the mid-1990s, tech solutions have given consumers a platform to seamlessly purchase goods or book a vacation online, but until recently, there were few opportunities for citizens to use the technology at their fingertips to register to vote, sign up for healthcare or access population data. Now, the public sector is joining the ranks as an industry ripe for disruption.
The U.S. has seen a rise in civic tech, digital solutions that aim to better connect citizens to their government and communities. To get closer to government policymakers, these companies are moving to offices in or around the nation’s capital. Washington, D.C., consistently makes the list of top cities for tech, just below Silicon Valley and San Francisco. But what is often referred to as the “D.C. region” or “Greater Washington, D.C.” extends well beyond the city itself. Counties in Virginia and Maryland, including Arlington and Montgomery County, constitute the larger D.C. region.
As more civic tech companies migrate to the area, many are settling into office space in nearby markets outside D.C. city limits.
Complying With D.C.’s Height Regulations
D.C. has several restrictions when it comes to real estate. In addition to a tight city zoning code that regulates where developers can build commercial property, the federal government has long had strict building height restrictions in the capital. The Height of Buildings Act, passed by Congress in 1899, limits the height of D.C.’s buildings to under 110 feet in most areas.
The law was enacted to preserve D.C.’s historic skyline with landmarks like the Washington Monument and the U.S. Capitol building. This law, combined with a shortage of space in the district, has made it difficult for developers to build large-scale projects in D.C. The lack of availability has increased office rents throughout the city.
"These regulations, coupled with higher rents, has driven the value of existing properties even higher," EBI Consulting National Program Director for Equity and Special Services David Stewart said. "We’ve seen a noticeable uptick in transactions during the latter part of 2017, and we expect the area to continue to be an aggressive market for the foreseeable future.”
A Move To The Suburbs
Instead of paying more for less space, many civic tech companies have ventured out to Maryland and Virginia, where they can get more bang for their buck. Northern Virginia is showing increased office demand in Q1, with Crystal City and Reston showing signs of potential. As of Q4, D.C.’s Class-A asking rent averaged $54.70/SF, compared to $33.45/SF in Virginia and $27.76/SF in Maryland.
As demand for space increases, investment in these emerging markets has soared. Of the 34 purchases made by local companies last year, 24 were in Northern Virginia. Montgomery County, Maryland, is also seeing exponential growth when it comes to office space. Global consulting firm Booz Allen Hamilton recently signed on to lease 65K SF of office space at 4747 Bethesda Ave. in Bethesda, which is slated to complete in 2019.
Now, these areas are gaining momentum on a national scale. Montgomery County and Northern Virginia both joined the District on Amazon’s HQ2 shortlist. These suburbs offer Amazon access to D.C.’s strong workforce, while still providing enough space to support the daily operations and growth potential of a global company.
Embracing A Creative Office Solution
As more tech companies move to the suburbs, there has been a push to develop office and co-working spaces that reflect the preferences of tech tenants. These companies have expressed interest in properties that offer a mix of large-scale amenities, like lounges, and creative architectural building elements like high ceilings and open spaces, according to JLL research.
"Developers are looking at converting old warehouses and industrial properties into offices with a more ‘rugged look,’ and we are seeing these offices around D.C. and even as far north as Baltimore,” EBI Consulting Account Executive Gordy Chapline said. “Exposed wood and large steel doors can make offices appeal to a more millennial workforce by adding large open spaces for work and play."
Experimental office trends provide civic tech companies the opportunity to be close to the action in Washington while still having the office space and design to work effectively. As more companies move to the D.C. region, suburban office space will continue to innovate.
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