Top D.C. Developers On How The Region Can Attract More Large Corporate Headquarters
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Developers hope the D.C. region can attract large corporate relocations and tech companies, such as Amazon, Apple and others, to boost an office market where most major leases come from the reshuffling of government agencies and law firms, and where major new demand drivers can be hard to find.
D.C. has long been known as a government town, and while it has begun to diversify its economy, some developers say it needs to create a better reputation as a hub for technology companies.
"Long term, one of the biggest challenges for this region is we really are not an innovation economy today," Carr Properties CEO Oliver Carr III said at Bisnow's Greater Washington State of Office event Wednesday. "We have an enormous population of tech workers, but they're largely inside the government and contractors. We really need true technology companies here, we need real biotech growth to get this engine going."
Property Group Partners President Jeffrey Sussman said he thinks D.C. has the attributes to foster a large technology sector, such as a public transportation system, major universities and a vibrant city with a high quality of life. He is optimistic those qualities could help D.C. land Amazon, but he said the city has not yet developed a major technology industry as he believes it could.
"One tenant that's not here which is present in every other city where we are is tech," said Sussman, whose firm is developing Capitol Crossing in D.C. and has projects in New York, London and South Florida. "There is a smattering of tech, but there's not a real growth industry the way there is in other cities. I think it will come, but I don't know why it hasn't come yet."
Rockefeller Group, a prominent New York firm investing in its first D.C. area project in Tysons, is bullish on the region's future. Rockefeller Regional Development Officer Hilary Allard Goldfarb, a D.C. native who Rockefeller hired earlier this year from Bozzuto, said the company is aware of D.C.'s high vacancy rate and supply-heavy market, but it sees reasons to be optimistic.
"Our tenant base is more diverse than its ever been," Goldfarb said. "We still love law firms, lobbying and GSA tenants, but we have a depth of the tenant base that we’ve never seen before. That’s a bright spot in our future from a stability standpoint. It's one of the main reasons we’re expanding here is we do believe it's a healthy and strong market that will perform over the long term."
Office market and labor market conditions in the nation's primary technology hub, Silicon Valley, could push tech companies to new areas, developers say, presenting an opportunity for D.C. The D.C. region's office market has remained in tenants' favor with large vacancies creating stagnant rents and high concessions, but Cresa principal William Tidwell said the Silicon Valley market is the opposite.
"It's absolutely still a tenant's market [in D.C.]," Tidwell said. "I can tell you versus Silicon Valley, it's so tight there right now. As advisers, we're not leveraging space, we're begging for space. It's so hard to find anything in that market."
Inability to find office space could lead Silicon Valley tech companies to look in markets like D.C. with more availability and better deals, and a similar trend is happening in the labor market. The Howard Hughes Corp.'s Greg Fitchitt, who received a major promotion yesterday ahead of the event, said skilled technology employees are so highly sought after in Silicon Valley that wages have risen to a level that makes hiring difficult for a startup.
"Out in Silicon Valley, the startup culture is dying," Fitchitt said. "It's going to die because you can't afford to pay a brand-new coder $200K or $300K. That's not a startup culture. We have the opportunity here because we have those engineers here in Fort Meade and all around the region."
Foulger-Pratt CEO Cameron Pratt sees this major difference in the labor market in Silicon Valley and D.C. as one of the most compelling arguments for why Amazon could choose to put its second headquarters in the D.C. region.
"These tech companies are just dying to find talent, and out west they’re stealing each other's employees left and right and offering more and more compensation," Pratt said. "If you look at D.C., it has a huge base of tech workers, they all work for the government, and they’re all extremely underpaid compared to private sector tech workers.
"So the argument is that Amazon sees fertile ground to come here and essentially hire tech workers away from the government for pennies on the dollar compared to what it costs to hire tech workers in San Francisco or Seattle."
Large technology companies also want to establish a presence in the D.C. region because their industry is increasingly coming under scrutiny from the federal government. The first step, which many of them have already done, is to open a government affairs office, Brookfield Properties Executive Vice President Greg Meyer said, but some may want to create a larger impact on the region that the government can't ignore.
"You want to be visible not only in terms of making your case about why your business makes sense but you want congress people on the Hill to understand that you create a lot of jobs and for them to recognize that," Meyer said. "I feel that to me is probably the biggest reason I would bet that HQ2 ends up coming to this area."
Northern Virginia holds multiple advantages over D.C. when it comes to landing Amazon and other large corporations, MRP Realty Managing Principal Bob Murphy said. Virginia has full voting representation in Congress, unlike the District, and it has the resources of a large state to help create large incentive packages.
"If you're in an industry that's heavily regulated and you want to be close to Capitol Hill, you're not going to go to the District because you're going to want a voice that can vote; you're going to want two senators and congressmen," Murphy said. "If you're a company that's focused on the total dollar package, you're not going to go to the District because Virginia's budget is five times the size."
One of the potential Amazon HQ2 sites in Virginia that is closest to Capitol Hill is JBG Smith's Crystal City-Potomac Yard portfolio. JBG Smith Executive Vice President Britt Snider said the large concentration of properties it owns in the area allows it to create a neighborhood that is attractive to companies.
"Any place where you can get scale and really control the environment and the type of mixed uses, that's where you can start to have an impact on bringing tenants to those places, certainly that's the case with what we're doing in Crystal City," Snider said. "That's how we think we can get a competitive advantage."
While D.C. is trying to land large tech companies like Amazon, it can also grow its economy by fostering the success of more home-grown tech companies. American Real Estate Partners principal Paul Schulman said the strong universities in D.C., Maryland and Virginia produce talented entrepreneurs who start companies, but they often leave the region to grow.
"If you look at the educational systems in the area, there are tremendous entrepreneurship and innovation programs, and all the entrepreneurs are having to leave the area to find capital," Schulman said. "The first thing should be how do we retain the talent that's here so they don't move to New York or San Francisco to find capital."
In order to keep those startup companies and allow them to grow in D.C., Jamestown President Michael Phillips said the region needs to attract more venture capital investors, which have large presences in New York and Silicon Valley.
"It's about creating an environment for serial entrepreneurship to thrive, which means that VCs have to be based in the area," Phillips said. "I think seeing more of that happening in D.C. will incubate that community in a stronger way."