Consequential Action

I remember when I first arrived in Washington, D.C., in 2018. I relocated from Manhattan to become CBRE’s Mid-Atlantic regional leader. The Washington that greeted me then was clearly a city on the rise.

New neighborhoods were sprouting up, and cranes were visible in all directions with office, multifamily and mixed-use developments underway. It was exciting to walk downtown and see the hustle and bustle of busy sidewalks and to discover great shopping and eateries—not to mention the growing list of new Michelin-starred restaurants that were opening, as operators from New York and other major cities were moving into the D.C. market.

But much has changed since then.

Washington, D.C., has been burdened with many of the same pandemic-induced challenges affecting cities across the country, including retrenching office tenants, reduced activity in the CBD due to hybrid work patterns, and increased crime.

But there is a unique difference in our local story.

In the past, D.C. seemed immune from the effects of recessions and economic cycles, buoyed by the federal government’s position as one of the largest employers and occupiers of office space in the city. But not anymore.

D.C. can no longer rest on the presence of the federal government to mute economic effects.

The federal government’s office-using footprint peaked in 2014. By 2018—my first year in the city—the federal government was in the early stages of a strategic pullback in an effort to reduce costs. Now, its total leased space has decreased by more than 30% from the peak a decade ago.

To make matters worse, Washington has been slow to recover from the pandemic, with return-to-office rates falling below those we see in other major U.S. markets.

D.C.’s lagging performance is driven by the public sector and mission-based nonprofits, which have embraced remote and hybrid work to compete with private, for-profit sectors for talent. Additionally, the U.S. Office of Personnel Management has left return-to-office mandates up to individual government agencies, and most have opted for more flexibility. The end result has been an excess supply of undifferentiated, commodity office space.

This has contributed to high vacancy rates and underutilized office space—and ultimately fewer office-based workers on the streets patronizing local merchants, sapping energy and vibrancy from parts of downtown.

D.C.’s second-largest office users, law firms, have shown stronger propensity to return to the office, but like the federal government, they are also reducing their office-using footprints.

The trend toward shrinking law firm footprints was underway before the pandemic and has continued apace. Since 2020, those firms that shrunk their footprint shed about one-third of their space, downsizing space devoted to administrative activities and storage, while moving into high-quality buildings with more efficient floorplates. Despite the downsizing, the space is often vibrant: Many law firms prioritize in-office work, and these moves have driven trophy office vacancies down to historic norms from their 2019 peak.

It’s time to build on our successes.

Collectively, we need to recognize that with hybrid work, occupancy rates are unlikely to return to pre-pandemic levels. We also need to recognize that the over-supply of commodity space has resulted in clusters of underused office buildings that are a drag on certain downtown neighborhoods.

We need to catalyze change to move forward, building on the federal government’s foundational presence in Washington, D.C.—not to replace it, but to grow from it. And we need to recognize that as the central hub of our metro area, what is detrimental for D.C. proper is detrimental for the region. Conversely, what is good for D.C. is good for the region.

And let’s highlight the good: Government affairs and contracting opportunities have attracted Fortune 500 companies throughout the region, and we’ve seen growth in the education sector as more universities open satellite campuses downtown. In fact, D.C.’s highly educated talent base and knowledge economy drive the nation’s fifth-largest number of office-using employers.

Given these advantages, we need to continue finding ways to collaborate regionally to encourage growth and create success for the private and public sectors as well as our workers and citizens.

We need to engage with each other and collaborate on a plan.

All of us—across local business improvement districts (BIDs), the Federal City Council (FC2) and other organizations focused on regional growth, the Mayor’s office, the D.C. Council, and local business leaders—need to come together for our future.

CBRE’s role is to provide data-driven input and strategic resources that help key stakeholders understand the issues, raise awareness, develop advocacy efforts and drive the case for change. In this vein, we created REVIVE to help track Greater Washington’s vibrancy, highlighting areas of improvement and where recovery is still needed.

Perhaps most importantly, we need to identify key sites throughout downtown D.C. that would catalyze transformative development and create new places for people to live, work and play. We need more high-quality office space, especially when created through new construction and major redevelopment projects. And we need to repurpose obsolete buildings to alternate uses via building conversion or tearing down and building anew.

Thanks to the hard work of several of these stakeholders, we have a strong head start.

The Mayor’s office—in collaboration with FC2, the Golden Triangle BID and Downtown D.C. BID—issued the Downtown Action Plan recommending nodes ripe for development.

As part of this plan, the Golden Triangle BID is working with its public- and private-sector stakeholders to identify a major redevelopment site, and the Gallery Place/Chinatown Task Force is creating an immediate activation plan and long-term vision, which should create a reimagined, vibrant entertainment district downtown.

The Wharf—a mixed-use development including office, residential, hotel, retail and restaurants—proves that demand is there if you get the ingredients right. The product of public-private partnership, The Wharf’s new high-quality office and residential buildings have been absorbed quickly, while shopping, dining and entertainment establishments are thriving. The streets and sidewalks are bustling day and night.

These successes should inspire continued efforts to bring the Downtown Action Plan to life.

Let’s take consequential action, together.

Change on this scale takes time, but it’s time to think big. By starting now, when market conditions are soft, we’ll be better positioned to execute plans when conditions improve.

We need public sector leaders across the federal, local and regional governments to establish meaningful partnerships with the private sector and other regional stakeholders to reposition underutilized federal real estate. These buildings could and should become vital components in major redevelopment sites. Those plans should also include much-needed affordable housing downtown to combat rising housing costs—particularly severe for low-income and middle-class families.

We know that truly consequential projects work best with public-private partnership, including multiple layers of government. This is essential to do the big things—such as changes to zoning, creating incentives to attract businesses and developers, and creating financing mechanisms for major redevelopment projects like bonds and PILOTs—that lead to even bigger things.

And we have blueprints for what to do.

After 9/11, Lower Manhattan was rebuilt into a thriving, mixed-use district. And years later in Manhattan, the railyards on the west side of Midtown—once an eyesore—were transformed into Hudson Yards, a business district the size of Atlanta’s downtown. And we’ve seen Boston’s Seaport district converted from a sea of parking lots and underused warehouses into a vibrant mixed-use destination.

Despite the pandemic-driven setbacks, I am confident the Washington, D.C. that greeted me six-plus years ago will outshine once again. After all, the presence of the federal government—although less dominant—still gives the district a distinctive identity and secure economic ecosystem that’s attractive to global investors and companies across industries. Finally, I see first-hand that all of our stakeholders envision the same greatness as evidenced by the collaborative efforts already underway. Let’s go big, together.