The DowntownDC BID area and D.C. are historically very strong office markets on a regional, national and international basis. However, Downtown and D.C. occupancy and rent growth performance declined significantly over the past few years due to (1) a reduction in federal employment, (2) a reduction in square feet per both private and government employee (otherwise known as “densification”) and (3) potential competition from regional office market competitors who lower rents to fill their vacant buildings. Office space densification is occurring because of changes in employee work habits and technological advances that reduce the need for administrative employees and physical storage space.
Thus, although the number of office workers in the DowntownDC BID area and D.C. is likely to remain relatively stable over the next five to ten years, the demand for office space could decline by 7 to 14 million SF. This would increase the current 14.4 percent private market office vacancy rate to 20 to 25 percent. The increase in vacancy rates would cause rents to decline further, and may significantly impact investor returns and the District’s commercial property tax revenues.