WASHINGTON, DC—Delta Associates CEO Greg Leisch was able to go out on a high note in his last presentation of TrendLines for the area—a very high note. While his annual prognostications for the area in 2013 and even 2014 were muted and cautionary, Thursday night's presentation was downright optimistic.

"2015 will present great new opportunities driven by growth," Leisch said. "Those who say the region is flagging simply don't understand the opportunities that are opening up."

This is how Leisch sees it in a nutshell: the region has weathered most of the pain the federal government will dish out in the form of sequestration, cut backs and repositioning. There still might be more of that to come but the worst is over. In the meantime, the local economy has been quietly reshaping in response to Millennial consumers who live, work, play and commute (or not) in new ways.

But at the same time, DC still has that fundamental engine of the federal government driving the economy—only now the private sector has started to flex its muscles as well. Granted, Leisch says, many of the new private-sector jobs are related somehow to the government, but then that has always been one of DC's strengths.

Finally there is this: while wage growth has been flat, both here and nationwide, discretionary income is rising thanks to a number of factors including the falling price of gas and Millennials' penchant to use the sharing economy—thus freeing up money for other purchases. Other factors driving up discretionary spending: consumers are starting to take on debt again (unfortunately student debt is part of that observation) and mortgage refinancing has reduced housing costs for millions of homeowners.

These trends are creating a virtuous circle for developers: Millennials are working more, albeit not necessarily in an office environment eight hours a day. They have more income at their disposal—enough to spend on experiences they want and certain products or services, which supports retail, but not necessarily enough to buy a home, which many do not want at this point anyway. Real estate is responding by focusing on the real estate that caters to these trends, such as transit-oriented development and multifamily products with a strong level of amenities.

In the background are the institutional investors who lend their support to these developments. Leisch pointed to the Association of Foreign Investors in Real Estate's dismal (for DC) survey this year, showing less interest in the nation's Capitol. On the ground, though, he said, the picture looks entirely different with interest routinely expressed by foreign funds and deals regularly inked. "Our cap rates are among the lowest in the nation," he said, largely for the very reasons that DC's real estate is so valued: the high barriers to entry and the stabilizing influence of the federal government. That is why the list of the top buyers over the past 24 months for office and apartment product in Washington has been dominated by such major domestic and international institutional investors as Norges, MetLife, TIAA-CREF, and Allianz, the TrendLines report notes.

It is Leisch's opinion that the era of declining cap rates in DC will be coming to an end as the market recognizes the limits to pricing and values here. The DC area will be just fine though. "The next generation of growth in Washington's economy and commercial markets is likely to attract additional investor attention, as property fundamentals catch up with investment capital flows," TrendLines said.