Washington, D.C. is a real estate market in flux. Traditional tenants – such as government agencies and law firms – are reducing their office footprints. At the same time, multifamily development continues to grow as more Washingtonians seek to live in the city instead of the suburbs.
UNC Kenan Flagler students observed these developments firsthand as part of the MBA Real Estate Club’s D.C. Career Trek, one of seven student-led real estate treks planned annually. Our group met with D.C.-area real estate financiers and developers, and we noted several trends in the market.
New work styles are driving changes in office development.
Old-school offices are out. Law firms are shrinking in size, and government agencies are facing mandates to shrink their office footprints. The modern organization is flatter and more collaborative than ever—and companies demand office spaces that facilitate teamwork instead of hindering it. In response, developers are renovating legacy office spaces to provide open environments, flexible layouts and coworking spaces. Kai Reynolds (MBA ’00) of The JBG Companies noted that employers are willing to pay a premium for efficient, creative space. That’s an opportunity many developers are pursuing as corporate tenants in the DC market consider downsizing.
Multifamily development remains robust, but some worry about an oversupply of premium housing.
Millennials remain hesitant to jump into home ownership, so rental rates remain high in the D.C. area. Multifamily developments continue to pop up around metro D.C., including traditionally suburban locations. Some developers remain bullish about growth potential for the multifamily sector; however, others have expressed concern that the D.C. market will be oversupplied with multifamily housing when several major projects come online.
Despite interest rate worries, there’s still a healthy market for real estate.
Our group heard concern about the inevitable increase in interest rates that looms on the horizon. However, Eric Tracy (MBA ’05) of Eastdil Secured noted that the U.S. market remains a premier destination for investment, especially for large institutional investors such as sovereign wealth funds. As Pete Otteni (MBA ’00) of Boston Properties told our group, “Good real estate does well in bad times and even better in good times.” Each company that we visited had a unique vision for its real estate portfolio, and we benefited from hearing multiple perspectives on the market.
By Susan Hedglin (MBA ’17)