Washington DC Office Market: Record Vacancies, Foreclosures

The Washington, D.C., office market shows no signs of improving and the upcoming presidential election is unlikely to change that.

The district’s office market is suffering with its highest vacancy rate ever, increasing foreclosures and diminishing property values, the Wall Street Journal reported.

The usual suspects — remote work and high interest rates — have reduced property values by tens of billions of dollars, and loan defaults are common, according to the publication.

The Biden administration has struggled to get the D.C.-based federal workforce back to the office on a regular basis. The administration told Congress in April that it is working toward a goal in which those eligible for telework are in the office at least half of the time. That is not likely to change if Kamala Harris becomes president.

If Donald Trump makes it back to the White House, the office market might be hit even harder. Although some expect Trump to try to force more workers to return to their desks, he has promised to abolish the Department of Education. The elimination of more than 2,500 agency employees would more than offset a back-to-work mandate.

The district’s office vacancy rate has steadily increased over the past five years. The rate rose from less than 14 percent in the fourth quarter of 2019 to a new high of 22.4 percent in the second quarter, according to CBRE Group.

According to the credit-research firm KBRA Analytics, Washington office loans have the seventh highest rate of default in the country. In the first quarter, about 39 percent of securitized Washington office loans were either in default or at risk of default, according to the firm.

The Justice and Treasury departments are among six agencies with leases expiring between now and 2027. They are expected to vacate close to 600,000 square feet, according to Cushman & Wakefield.

The effects have rippled through the city.

“The District of Columbia’s economy has consistently underperformed the national economy across nearly all indicators,” Glen Lee, the city’s chief financial officer, said in a letter to elected officials earlier this year, the Journal reported.

There are other problems with federal office space in D.C. Former presidents going back to George W. Bush have determined that the deteriorating J. Edgar Hoover Building, the Federal Bureau of Investigation’s headquarters, needs replacing. The Biden administration’s plan for a new headquarters in Greenbelt, Maryland, would not begin construction until 2029.

Developer Matt Pestronk, president and co-founder of Post Brothers, purchased two heavily discounted office buildings to convert them into apartments.

Regarding Washington’s stagnation, Pestronk told the Journal, “Anything any president would have to do related to an agency occupying their space has to go through the bureaucracy.”

— Christina Previte