Even in the District, survival is still a real issue for many real estate firms, especially the ones that are over-leveraged. The bottom lineanswer to these woes--leaving aside the government programs that areemerging to help the industry--is job growth. Unfortunately, fewpanelists said they expected to see strong growth in the next 12months. "[This year]will be better in the second half and growth will start in 2011," predicted Brendan Owen, chief leasing officer forVornado/Charles E. Smith. "By 2012 we will see robust growth."

In other ways the DC area is feeling the recessionary pinch. Forexample, while the federal government has been aggressively expanding,it has also been a savvy tenant, negotiating tough deals withlandlords, according to Joe Stettinius, president of Cassidy Turley. "Theyhave gotten some very aggressive terms," he said, including 10-yearoptions on some leases. "They are really taking advantage of the factthat it is a tenant's market."

DC area landlords are also dealing with tenants that have becomehyper-conscious of the image they project to their own customers. Inshort, they don't want to be perceived as profligate. "Clients looking for space are saying that they don't want anything'garish' or that may give the perception of being too splashy," saidPetch Gibbons, executive director at Cushman Wakefield. "I have hadclients say to me 'I don't want to make a statement with our realestate.'"

It is these trends--and of course the crushing recession which isjust beginning to abate--that the government has beenworking overtime to address for developers and property owners, saidDeputy Mayor for Planning and Economic Development Valerie-Joy Santos. "We are definitely moving to the owner-occupied model forour real estate," she added.

Rather, the District government has been aggressively using financialtools and incentives at its disposal to spur development. Santospointed to a package of HUD funding, PILOT loans and New Market TaxIncentives it just announced that will finance a $108-milliontransit-oriented mixed-use project at the Brentwood/Rhode Island Ave.metro stop. The District will also be announcing a few big box retailers coming to the city in the near future, she said. And if all goes well, new funding for energy-conservation rehab work. The Districtapplied for a PACE federal grant that it hopes to hear good news aboutwithin a few weeks, according to Santos.

Finally, she said, the city has been fielding an increased number ofinquires from sovereign wealth funds interested in investing in DCarea real estate. The city government, though, can't take all of thecredit for that uptick, Santos said. "Let's face it, this is a greatplace for real estate investors to put their money."

Instant Insights /

Strong Tenants Continue to Bolster District

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