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While it is too fatalistic to say this is a make or break year for the District, it certainly entering 2024 with arguably the most negative outlook in at least 20 years. It faces a confluence of factors that are undermining the city's post COVID recovery.
1) The collapse of the downtown office market. It's become apparent Fed workers won't soon if ever be returning to the offices like pre-2019. Unlike private sector dominated office markets like NYC, a large segment of DCs office market is composed of fed/fed adjacent workers doing back office tasks that don't require interactions with clients/investors/founders. When combined with strong unions/civil service protections getting federal workers into the office for more than a couple days a pay period is unlikely. Also unlike other big urban cities, DC lacks much of startup culture to fill demand. But some measures DC now has the weakest major office market in the country. Even the beleaguered SF market is showing signs of life as AI startups lease space.
In theory, DC could convert some of the space to housing. But, that has been a painfully slow process. There are only like 3 or 4 actually U/C with less than 1,000 units. DC's landscrapers with their deep floorplans don't make for easy conversions. 2) Interest rates have killed off new market rate housing. Closely related to the conversion issue, high interest rates have basically killed multi-family housing for the time being. This makes it hard to finance downtown conversions and projects in the neighborhoods are basically on hold for the time being sapping the energy sense of progress that comes from new construction. A look a DC zoning commission actions recently is basically a series of developers seeking extensions on their approvals. The McDonalds bought back in location in NoMa that had been sold for high density housing, etc. 3) Crime (and fears of crime). Earlier in the pandemic it could be said, Downtown was suffering but the neighborhoods are doing ok. But, the rise in crime is driving business/residents away from areas like Shaw, U Street, H Street, Petworth. If muggings, carjackings, shootings, general COL stuff are brought under contract it is very possible will see middle class leaving/avoiding many areas of the city. More than likely rather an massive exodes, it will be a slow bleed as apartment dwellers avoid the District for Arlington, and young professionals that previously would have considered buying in the District, just look at the suburbs. 4) The uncertainty over the Capital One Arena. The move to NoVa isn't a done deal. It's very possible the teams stay in Cap One when all is said in done. But, in the short term that basically leaves a huge uncertainty hanging over Galley Place. Who is going to want to invest in a new restaurant/retail with so much uncertainty about what the area will look like in 5 years? 5) Metro/local government fiscal crunch. Metro is facing either massive service cuts or a massive increase in local government subsidy. When combined with the ending of COVID relief funds, declining office tax revenues and other demands for new spending on policing/social services that could create a challenging mix of tax increases or other cuts in governments services.
I have been more glass half empty person recently on DC's outlook. I would like to see some rebound is order after a horrible 2023. But, the factors outlined above do have me worried. For many years, DC benefits from a virtuous circle of growth as a rising population and falling crime attracted more residents/visitors to the District. It's possible we now enter a multi-year vicious cycle of suburban flight and urban decay. Or more probably a Baltimore style post-2015 style stagnation.
What do others think about DC's trajectory over the next year or so. Will it end 2024 in a stronger place than it is starting off at?
Much of it will hinge upon the 2024 election and what direction that heads. If Biden or another Democrat wins the election the odds of a rebound are strong given the historical commitment to insuring the health of the District's economy. If for some reason Trump or a GOP candidate wins it's going to further the decline given the hostility currently expressed toward DC operations and the propensity of that group to live in places like McLean or Bethesda.
I’m overly rosy for 2024. I felt 2023 would be the start of a big rebound (and I think it was). 2022 was the year I was hoping that we’d hit the floor of decline and I think it was. 2021 was… a bad year.
1.) Collapse of Downtown Office Market:
I think in the medium to long term, downtown DC will be better with more mixed-uses. The biggest issue will be decreases tax revenue for now but I think downtown will recover as a strong tax base. Relying on 8-5, M-F office workers left a lot to be desired and outside of work hours, I can’t remember the difference pre-Covid and post covid downtown. The FBI potentially moving out is a potential huge game changer.
If the Caps & Wizards move out, I also think that presents an opportunity also in the medium to long term. I think there would be a lot of interest for a boom in development in Chinatown if they ever tore down the stadium. Like downtown being office dominated, it provides good revenue and some businesses depend on the traffic, but the office workers and fans to the games seem like a bubble. The other good thing is it’s years away from happening if it does so that’ll give developers and lawmakers plenty of time for mitigations of a decline in the area.
2.) Interest Rates killing new housing.
I think DC will continue to boom in construction.it might be a slow down, but I don’t see it making the construction market here stagnant. Maybe slower boom. I think insurance is a bigger reason for extensions on MF developments - it’s been pretty wonky and Lender’s are adjusting their industry-wide cookie cutter policies. If there is a slow down, I imagine the next year would be larger than normal offsetting any slow down. A lot of these developers have as-of-right extensions built in in any event and Lenders want to keep up volume and it’s harder for everyone (construction lender, perm lender, housing authorities, Agency Lenders and equity lenders pulling the plug on these projects. And yes, usually that many lenders are involved per project.)
REIS has some worst case scenario market analytics and stuff I’ll look at but I think it’s safe to say DC will have a strong year even if there is a slow down. For a number of years it’s been a top multifamily marker, two zip codes are adding the most in the country and it’s up there with as a top marker for 2024 alongside Houston and edging out with nearly double the units other booming cities such as Nashville.
Also, DC is poised to get a chunk of the conversion money from the DOT. I think overall $40 Billion from the Federal Government is being dedicated to office to residential conversions adjacent to Mass Transit. I don’t think any of that has been awarded yet but it’s hard to think of areas better position than DC for that money.
3.) Crime
It’s an unacceptable issue. On the bright side in 2022, DC and Frederick I think were the only places to grow (and maybe some far flung exurbs, I forget.). 2023 DC was one of the fastest growing “states” (if it were one) and added a lot more than 2022.
It doesn’t seem like crime is preventing growth but still. It’s hard not to imagine it won’t without a change in the direction.
4.) CapOne:
If it leaves, I think it’ll provide a lot of opportunity for Chinatown to have a Union Market / NoMa / SW / Navy Yard / Buzzard Point level of development and interest. I know that’s rosy but.
That’s a very rosy picture but think or 2020, 2021, 2022, 2023. Union Station among other areas were tent cities. A lot of the pessimistic outlooks haven’t really materialized so it’s hard to imagine that drastically changes. Metrobus is even hitting some ridership records. Overall, the positive of the pandemic is it forced elected officials to try to diversify single-use areas and focus on livability.
Last edited by NorthAmerica_US; 01-06-2024 at 02:13 PM..
Location: That star on your map in the middle of the East Coast, DMV
8,128 posts, read 7,547,924 times
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Quote:
Originally Posted by jpdivola
What do others think about DC's trajectory over the next year or so. Will it end 2024 in a stronger place than it is starting off at?
Certainly not counting the nation's capital out, at any point. DC's trajectory has been upward the last 3 decades really, and I don't see that changing in 2024 because of one crime peak. Office markets take care of themselves. The FBI, and the Wiz/Caps are not going anywhere in 2024. DC is one of the most forward thinking cities on the continent, with probably top 3 transit infrastructure in the US. Pretty confident that Metro will be funded with Dems in power regionally. I'd definitely look for people start buying in now while they can. It's no doubt been turbulent times recently, but I'd never wager on an extended downward trajectory for the city.
Like mentioned the bigger question is politically, that will have the larger effect on business activity at least in the downtown core. Downtown still has to turn things around, but I'm confident it will, and not in only the long term.
I have a feeling most cities, including DC will starting climbing back up again. The pace won’t be anywhere near what it was, but positive nonetheless.
There are some cities that will ramp up quite nicely though, NY and Miami come to mind.
I wouldn't mind seeing Capital One Arena going bye bye. From people I know who work in the area, most of the spenders are people attending Caps games. The Wizards suck, and even when decent, the feedback I get is that the fans that attend the games don't spend a lot pre and post game at the local venues. I feel the space could be better utilized. I live in the neighborhood and feel Chinatown is an absolute joke when compared to other cities. Perhaps with the teams leaving, the area can be better utilized for other purposes. A Union Market type of setting would be great. Perhaps more residential housing to add more inventory in order to drive down prices a little bit? New restaurants/bars would have more year round traffic in the area with the locals without having to rely on sports and concert venues so much.
While it is too fatalistic to say this is a make or break year for the District, it certainly entering 2024 with arguably the most negative outlook in at least 20 years. It faces a confluence of factors that are undermining the city's post COVID recovery.
1) The collapse of the downtown office market. This looks pretty much unchanged. If anything the situation has gotten worse. Vacancy rate continue to rise as leases expire and companies reduce space. Fannie Mae announced they are leaving their downtown office lease 5 years early, CoStar appears to be heading to Arlington. The office situation looks bleak. Zara closed, Tesla is moving to Georgetown.
I don't think any new office to residential projects kicked off in the past month. I believe there are currently 4 or 5 U/C (1010 Vermont- 84 units, 1111 20th street- 163 units, 1313 l street- 222 units, 1425 NY Ave - 243 units) 1125 15th street might also be U/C although it is hard to tell from the outside.
The 1010 Vermont Ave office to business hotel conversion landed a loan, but I believe it was already U/C. https://www.costar.com/article/10656...yle-apartments
2) Interest rates have killed off new market rate housing. Interest rates remain high and leading is tight for multifamily. A quick news search does not indicate any big multifamily construction breaking ground in January.
3) Crime (and fears of crime). There has been some modestly encouraging news on this front. The murder rate is down by half compared to last January and most other crimes are reporting slight Y/O/Y declines. The big caveat is the weather wasn't great in January, so it hard to tell if this is a real sustained improvement or just a weather related blip.
4) The uncertainty over the Capital One Arena. Really no movement on this. The move to VA is proceeding ahead. Although, it is far from finalized and there are some signs of neighborhood push back in Alexandria.
5) Metro/local government fiscal crunch. This has not really hit yet, but the signs of stress are emerging.
Location: That star on your map in the middle of the East Coast, DMV
8,128 posts, read 7,547,924 times
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Quote:
Originally Posted by jpdivola
Taking a look a month in to 2024
So with one month down, it looks like hopefully some potential improvement on the crime front, but the bad news continues on the other 4 fronts.
Idk why you're clocking this so hard, are you waiting for DC's downfall or something like that? The city's going through turbulence much like other big cities are NYC, SF etc. I'm willing to wait the ride out and see where things wind up. Let's revisit this Dec 31, 2024 and see where the trajectory of the city stands at that point. I do not expect the office market/demand issue to get better this year.
Also, it's not bad news on the other 4 fronts, as WMATA funding throughout the DMV appears to be en route to being solved for FY 2025. Short term issue looks to be resolved for one year at least with work to be done on a long term funding plan.
I only want to reply to #5) Metro/local government fiscal crunch.
Despite what most have to say, Metro needs to experience massive cuts. Every year, regardless of COVID, etc., METRO has been crying that if area governments don't offer more funding, there will be service cuts. Let Metro cut. In reality, METRO has consistently received money to support a system that is completely mismanaged and overrun with lazy, rude, and incompetent employees. Metro wants money to support its highly inflated salaries, lucrative pensions, etc. Metro needs to be revamped. Trains run inefficiently. Station Managers are literally rude, if not highly unprofessional (yes, I said it), and don't get me started on some of these bus drivers who act like they were just released from prison. Also, intra-racism needs to be addressed. Some riders have completely different experiences than others on Metro. There are too many unhinged workers, suffering with extremely low self-esteem and mental issues, employed with Metro. I am still dumbfounded over the recent story about a Metro worker beating an unarmed rider with a metal baton (and only received a sentence of 1-year in prison). Finally, Metro workers are not reprimanded for poor customer service. Their HR Depts and Unions protect them, even though they need to be held accountable for their actions.
I am just unclear as to why the region bows-down to Metro. I honestly wish its management/employee base could be dismantled and restructured by another entity. Having Metro workers that more accurately reflect the vast diversity of the area would be a good start.
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