November 2024: The State of Greater Washington Facing a Precarious 2025

Speculation and uncertainty surrounding 2025 are abundant as 2024 comes to a close—especially in Greater Washington.

The risk of cuts to federal government spending and employment threaten a key pillar of the region’s vibrancy. However, if we take a step back and identify 2024’s key data trends in the Greater Washington REVIVE index we will see sources of regional stability that may buffer against the existing and potential challenges.

Let’s look at the numbers: Reflecting some of the regional stability, the REVIVE index inched 0.2% higher from the previous month and 2.5% increased from three months ago. The index is 6.9% higher than it was one year ago. Main drivers for this growth in vibrancy stem from higher growing mobility and visitation in the region, higher legislative activity on Capitol Hill and another record achieved for the region’s home prices.

Considering the arrival of a new Presidential administration with a potentially transformative agenda, risks for Greater Washington’s vibrancy appear skewed to the downside. However, if inflation remains contained and interest rates veer lower, there may be improvement in commercial real estate dynamics. Any improvement in private sector and household sentiment related to tax cuts may also provide a boost to local vibrancy.

In short, a lot remains unclear, but 2024’s existing trends certainly don’t all suggest a region spiraling into 2025.

2024’s positive trends:

• Mobility and visitation continue to activate the region.
  • While not back to full health, Greater Washington is showing more activity and momentum than it has in years.
  • Mobility data, captured by pedestrian and driver activity, showed its strongest growth in years in Downtown D.C. and urban pockets of Arlington and Alexandria.
  • Tourism and hotel occupancies are as high as they have been since pre-pandemic.

One-year Changes in Regional Mobility of Residents and Visitors

• The job market remains tight and stable.
  • The region’s unemployment rate ticked slightly higher in 2024 (3.1%, September 2024), but is still well-below the 10-year pre-pandemic average from 2010-2019 (4.7%) and remains below that of other major, peer metro areas.
  • The number of job openings in the region remained elevated in 2024, roughly 64% higher than the 10-year pre-pandemic average from 2010-2019.
• Residential real estate demand remains strong.
  • The Residential Real Estate component of the REVIVE index improved measurably in 2024 and was near its highest level on record, outside of a brief burst of activity in 2021.
  • Demand for Greater Washington’s apartment units improved in 2024 and had one of its best quarters on record in Q3. Average rents ascended to all-time highs.
  • The average home price in Greater Washington continued to rise in 2024, breaking new records.
  • Low residential home sale activity, pockets of multifamily distress, and affordability issues still weighed on residential real estate.

Residential Real Estate Component

2024’s negative trends:

• Local federal government contract spending stalled.
  • Local procurement of federal government contracts stalled over the last year, especially from research and innovation offices of key agencies. Through October 2024, local contracts totaled 1.2% less than the same time period last year, a stark contrast from prior years when local contract procurement grew roughly 65% between 2017 and 2022.
  • The recent slowdown reasserts the vulnerability of the region’s overreliance on the federal government, only to be targeted by the new administration for further cuts.
• The region’s office market challenges deteriorated, straining local tax coffers and dampening vibrancy.
  • The REVIVE index’s Commercial Real Estate component sank to its lowest levels in over a decade as the effect of higher interest rates continued to take a toll on values and transactions, most of the declines originating from the region’s abundance of office buildings. In 2025, there should be some signs of improvement, but a considerable amount of the office market will remain in distress.

Commercial Real Estate Component

Greater Washington’s Vibrancy in 2025:

As 2025 approaches, the following are a few of the dynamics we are closely watching that will impact the future of the Greater Washington’s vibrancy.

• The severity of potential federal government cutbacks. Clearly, the major downside risk for the region in 2025 that could drain significant resources out of the region.
• Federal government return-to-work measures. Will there be mass resignations? Or will stagnant pockets of the region become enlivened again with more workers back to the office?
• Tax cuts and a potentially reinvigorated private sector. How might tax cuts and efforts to spark the business sector boost regional activity.
• Inflation and interest rates. Our assumption is still for slightly lower interest rates, but how potential tax cuts and tariffs stimulate inflation and affect that assumption will be monitored closely.
• The office market. Other markets are seeing some improving signs of demand – could Greater Washington’s private sector spark some activity in 2025? Will the slight decline in interest rates stabilize recent declines in values?

Stay tuned for our next report in the new year.