Avison Young Reveals 2020 DC Metro Forecast
The firm’s expert economists identify major trends and offer predictions for the region in the coming year.
WASHINGTON DC – Avison Young has released its annual, global 2020 forecast report; identifying major trends for the coming year and presenting national and local property market outlooks.
Focusing specifically on the firm’s Washington DC regional report, economists have provided perspectives on aspects that may impact the area’s various sectors in the coming year.
Foremost, the firm expects Washington DC’s overall economy to grow by an average of nearly 2% annually, throughout the next five years. Though the region’s economy has previously, primarily relied on federal spending growth, experts suggest that the area’s employment base is diversifying. A quarter of the market’s future industry expansion is anticipated to spur from the scientific and technical services sector, fueled in part by Amazon’s growing presence within the area.
The firm suggests that the region’s office market is becoming increasingly divided, as newer, amenity-rich product outperforms, with high-quality office assets trading at values of more than $1,100-per-square-foot, as tenants trade older building addresses for newer spaces. Even with the region’s increasing, positive absorption within the office market, vacancy remains elevated as office supply continues to outpace demand.
Despite elevated vacancy rates and although new developments are reducing regionally, large speculative projects continue to break ground, such as Foulger-Pratt’s Tysons Central. Though even with the increasingly urbanized Tysons submarket, the region’s overall vacancy rate could surge slightly in 2020, with a lack of increase in net new demand. The firm also notes, that despite DC’s small percentage of co-working occupancy, any pull-back from co-working operators, such as WeWork, could impact the DC market.
Amazon’s future HQ2 campus at National Landing, which will house at least 25,000 employees and is expected to take more than five years to fully buildout, showcases placemaking as the primary focus of socially-responsible investors. Planned developments and redevelopments are expected to assist in reinvigorating the submarket’s aged office and housing inventories. Various infrastructure improvements are also intended to enhance the submarket’s walkability and connectivity to its surroundings.
Additionally, economists suggest that retail activity for the area is mainly centered on tenant amenities within mixed-use development or existing property renovations – primarily for services or products that cannot be fulfilled online, such as fitness offerings, hair salons, nail salons and dry cleaners.
Separately, the firm’s professionals expect limited construction and continued, tight market conditions within the area’s industrial sector; revealing an overall vacancy rate in the single digits for the past several years. The region’s industrial demand, focused specifically in the Dulles Technology Corridor of Northern Virginia, is currently, significantly driven by data firms and the cloud-computing needs of the private and public sectors. The firm anticipates further rent growth within the sector for 2020, considering the seemingly endless demand for data centers and distribution facilities, combined with land constraints. The firm suggests for clients to seek multi-story, vertical buildings for warehouse development in the area, due to land scarcity.
Based on market knowledge of economic, geopolitical and business drivers, the firm’s experts additionally predict that the upcoming 2020 presidential election could enforce a temporary pause in leasing activity for the area, as some tenants are already pulling back on long-term lease commitments, due to future uncertainties.
Offering investors an optimistic view toward the region’s growth projections, Avison Young principal and managing director of US capital markets, John Kevill states, “buoyed by inbound population and technology growth, the Washington region can expect strong near-term growth, though it won’t be universal. Some markets quite frankly don’t have the same growth prospects, as the access to tech tenants and amenities differ dramatically from market to market.”
Overall, office and multifamily property types each exceeded $8 billion, and together accounted for 84% of the region’s 2019 sales volume. The gap between downtown and suburban pricing for stabilized office assets is currently at its smallest since 2013. As office cap rates continue to decrease, the firm suggests that a low-interest rate environment could allow them to trend even lower, resulting in investors seeking deals with a value-add component.
The region’s 2019 investment volume totaled $20.4 billion; representing a slight decrease from the 2018 figure. 2020’s overall sales volume is expected to increase slightly over 2019’s recorded total.
Globally, the firm predicts investors will continue to deal with a low inflation, low interest rate world, and additionally suggests that developers and occupiers observe local political activism to track future policy initiatives and to build resilience. The firm’s report advocates that opportunities remain across all sectors; driven by a strong focus on responsible investing, climate change and the implications of continued low interest rates.
Headquartered in Toronto, Canada and founded in 1978, Avison Young is a global commercial real estate services firm, which offers services in investment sales, leasing, advisory, management and financing for office, retail, industrial, multifamily and hospitality sectors. The firm employs 5,000 professionals and occupies 120 offices throughout 20 countries.