D.C. We Have a Problem!
An article appearing in the Washington Business Journal highlights the impact of younger DC residents with six-figure salaries leaving the city. Appropriately, this article appears in the Commercial Real Estate section of the paper. An analysis cited in the article highlights the16,000 tax-filing households that left D.C. between 2019 and 2021. The article is well worth the time, but it is important to remember a city is a system. D.C.'s goal, like that of any city, is to maintain a healthy population. In order for any development plan to be productive, it must support the goal of maintaining a sustainable population that annually attracts more people than it loses to other locations. In the absence of broad alignment on this goal, any efforts to develop a plan will be limited to playing games with numbers and words. It is a mistake to limit the focus of development to regaining the 16,000 tax-filing households. DC has constraints that stop its ability to reach its goal of a sustainable population. Government hurdles, certainly in need of reform, are not the primary constraints. The market-demand for housing in DC, along with that for commercial real estate, are not matching the current supply. DC has had a long standing issue with a lack of available housing. The consistently increasing demand, with increasing prices, has priced many younger home owners out of the market. This drives younger families, think - the ones having children, out of the city where they can afford to purchase a larger home. Commercial office space is also out of balance. Anyone involved with the process of buying, leasing, selling, or renting nonresidential properties, such as office or retail space, has inventory. Does their inventory align with market-demand? It does not look promising. Data from JLL's Global Real Estate Health Monitor show Washington, DC had a negative 39.7% leasing recovery during Q1 of 2023. In that same time frame, Washington's vacancy rate of 20.7% was only surpassed by San Francisco; which had a vacancy rate of 26.4%. While the signals for this combination were clear for years, that does not change the fact that this is where we are. Any strategy recommended to Mayor Bowser must address the need to balance the inventory of homes and offices in DC to the market. Without this, we will continue having too few homes, alarmingly high numbers for vacant offices, and a population demographic that is unsustainable.