Washington DC has experienced fast-paced growth and opportunity in the last decade and represents a healthy market to invest in commercial real estate. As the center of the US federal government and an international hub, Washington DC attracts investors and national tenants to its plentiful development and rising population.
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The State of Washington DC. Commercial Real Estate
The DMV metropolitan area is a vibrant and diverse region encompassing the District of Columbia, Maryland, and Virginia (DMV), with significant growth and development in recent years. As a hub for government, technology, defense, and professional services industries, the area presents many opportunities for businesses and individuals.
The strong economy and thriving job market have led to consistent population growth, fueling demand for housing, infrastructure, and services. Additionally, renowned educational institutions and research centers foster an environment of innovation and cultivate a highly skilled workforce. Supported by an extensive transportation network that connects the region to major markets across the country, the area is well-positioned for continued growth and prosperity.
This confluence of factors makes Washington DC and the entire metropolitan area an increasingly attractive destination for commercial real estate investment, business expansion, and talent acquisition.
Washington DC Regional Breakdown
The Washington DC metropolitan area has experienced steady population growth over the past few years, adding more than 1.1 million residents over the past ten years. This growth is driven by job opportunities, a strong economy, and an influx of young professionals attracted to the region’s thriving tech, government, and professional services sectors.
- DMV is home to nearly 6.4 million in the District of Columbia, Maryland, and Virginia.
- The metropolitan area is part of the Washington-Baltimore CSA.
- The largest cities include DC, Arlington, Alexandria, Bethesda, and Tysons.
- The median age is 37.9, about the same figure as the US.
- Over 40% are between the ages of 20 and 49.
- More than 53% hold a bachelor’s degree or higher, about 1.5 times the rate in the US.
- Per capita income is $55,165, and median household income is $110,355, based on data from Census Reporter.
Washington DC Job Market
The economy and job market in the DMV (District of Columbia, Maryland, and Virginia) region are diverse and robust, with key factors driving employment and job growth. The area benefits from a strong presence of federal government agencies, which provide stable employment opportunities. Additionally, the region has become a hub for technology, defense, and professional services industries, attracting a highly educated workforce.
The DMV’s thriving economy is also supported by world-class educational institutions and research centers that foster innovation and talent development.
- GDP for the Washington-Arlington-Alexandria MSA is nearly $608 billion, growing by nearly 38% over the last ten years.
- The unemployment rate is 2.4%, according to the US Bureau of Labor Statistics (April 2023).
- Metropolitan Washington has about 3.3 million non-farm jobs, based on a report from the Metropolitan Washington Council of Governments (MWCOG).
- Some of the largest technology, defense, and professional services companies in terms of employment include Amazon (particularly with its HQ2 in Arlington, VA), Microsoft, Google, Oracle, Lockheed Martin, Northrop Grumman, General Dynamics, Booz Allen Hamilton, Deloitte, and Accenture.
- Educational institutions and research centers include Georgetown University, George Washington University, American University, The National Institutes of Health (NIH), The National Science Foundation (NSF), and Johns Hopkins University (based in Baltimore but with a strong presence in the region).
Washington DC Transportation
The area’s strategic East Coast location and transportation infrastructure contribute to Washington DC’s economic strength and connectivity to other major markets.
- Transportation infrastructure in the Washington DC metropolitan area is extensive and well-developed, connecting the region to other major markets along the East Coast and beyond.
- Major highways such as I-95, I-66, I-495 (Capital Beltway), and I-270 provide critical connections within the region and neighboring states.
- The metropolitan area is home to three major airports: Ronald Reagan Washington National Airport (DCA), Washington Dulles International Airport (IAD), and Baltimore/Washington International Thurgood Marshall Airport (BWI).
- Although the DC metro area does not have a seaport, it benefits from proximity to the Port of Baltimore in Maryland and the Port of Virginia in Norfolk, both within a few hours’ drive.
Washington DC. Industrial Market
The Washington DC metropolitan area’s industrial commercial real estate market is performing well. According to a recent Transwestern study, the average asking rent for industrial properties has increased by 14% in Northern Virginia and nearly 13% in Suburban Maryland.
Looking ahead, trends such as rising interest rates and ballooning e-commerce demand are expected to continue driving growth in the industrial sector. This could make Washington DC’s industrial commercial real estate market an attractive target for institutional investors looking for a safe investment opportunity.
- Total industrial inventory: 199,740,571 SF
- Overall asking rents (average): $13.39/SF per year
- Overall vacancy rate: 5.3%
- Net Absorption (Q1 2023 YOY): 2,950,000 SF
- Largest industrial submarkets: Prince George’s County, Dulles Corridor, I-95 Corridor, Montgomery County
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Washington DC Office Market
In the first quarter of 2023, the DMV area’s office market displayed signs of softening but with some stabilization. According to the most recent report from Newmark, the slow return-to-office momentum may see a slight increase by summer 2023. However, if 2023 brings more economic uncertainties, fluctuations in net demand are possible, and consolidations may counterbalance untapped demand.
- Total office inventory: 371,400,000 SF
- Average asking rent (all classes): $42.09/SF per year, full-service gross
- Total vacancy rate: 19.6% overall
- Absorption: -1,100,000 SF (Q1 2023)
- Under construction: 2,100,000 SF
- Deliveries: 0 SF in Q1 2023
- Investment sales trends: $2.5 billion over the last 12 months, $367/SF trailing average price, 5.6% cap rate
- Recent transactions: 601 Massachusetts Avenue NW $531 million, Commonwealth Tower $245 million, Key West Corporate Center $148 million
- Submarket inventory: District of Columbia 130.8 million SF, Suburban Maryland 75.2 million SF, Northern Virginia 165.4 million SF
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Washington DC Retail Market
Retailers and developers are attracted to DC’s expanding suburban residential neighborhoods, particularly in Northern Virginia, which sees the majority of leasing activity, according to the most recent report from Institutional Property Advisors (IPA). Fueled by population, job growth, and hybrid and remote work schedules, these areas have experienced increased foot traffic.
Virginia submarkets have dominated new supply additions and net absorption metro-wide. Areas like Fairfax County, Manassas, Fredericksburg, Alexandria, Woodbridge, and Leesburg have witnessed strong demand from several tenant types, such as grocers, gyms, restaurants, discount retailers, outdoor suppliers, drug stores, and indoor entertainment centers. These are the current retail trends in DMV from Cushman & Wakefield:
- Total retail inventory: 123,661,171 SF
- Overall asking rent: $31.36/SF per year, full-service gross
- Overall vacancy rate: 4.8% in Q1 2023 vs. 5.3% in Q1 2022
- Deliveries: 24,467 SF in the current quarter
- New construction: 584,008 SF
- Investment trends (12-month): Average sales price increased by 6% to $385/SF, mean cap rates for multi-tenant property running around 6.5% (IPA)
- Most active retail assets and submarkets: Neighborhood and community centers in Dulles Corridor, Leesburg-Route 7 Corridor, and Greater Fairfax County (IPA)
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Washington DC Multifamily Market
Multifamily in the District of Columbia remains a safe investment haven in an uncertain economy, according to RE Business Online. This is partly due to the prominent presence of the federal government and Fortune 500 employers like Freddie Mac and General Dynamics. Newmark reports the most recent Washington metro area multifamily trends for Q1 2023:
- Total multifamily inventory: 674,5279 units in Q1 2023 vs. 661,690 in the same period last year
- Occupancy rate: 94.9%
- Net absorption (quarter): 1,754 units
- Effective rent: $2,044, an increase of 4% year over year
- Investment trends (12-month): $6.8 billion in transactions, $311,470 price per unit, 4.5% average cap rate
- Recent sales transactions: The Lydian, $181.5 million; Sussex At Kingstowne, $179 million; Highgate at Metropolitan Mile, $137 million
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