Two-plus years into the coronavirus pandemic, the businesses and office space that make up downtown D.C.’s Central Business District are still struggling to stay occupied and attract the workers and visitors necessary for a vibrant economy. And with the future of office work so deeply uncertain after two years of teleworking, the District — and other major cities around the country — are reimagining what the American downtown looks like.
That’s a shift that researchers and city leaders say had already been in the works for years as downtowns moved away from being strictly office districts and toward mixed-uses, such as buildings that might include apartments, office space and storefronts.
“A downtown can’t make it just as offices anymore. It has to be more of a social district, where there’s theater and arts and culture and education, and people living,” Chicago Loop Alliance President and chief executive Michael Edwards said. “That’s the future for downtown D.C., and that’s the future for the Loop.”
D.C. is already planning for that future. In March, the city council’s Special Committee on COVID-19 Pandemic Recovery approved a report with a recommendation to explore policies that support “the transformation of the downtown core to more vibrant, mixed uses and to support the creation of job centers across the District.”
This shift away from an office-only downtown model was not created by the pandemic, said Tracy Hadden Loh, a Brookings Institution Metro program fellow. But the pandemic has rapidly sped up the timeline for a traditionally slow-moving sector.
“These are trends that were going on before the pandemic and are really long-burning,” Loh said. “What covid did was kind of supercharge those trends.”
Part of those changes in D.C. was the emergence of new dense, mixed-use submarkets in areas like the Southwest Waterfront, Capitol Riverfront and NoMa — which have become competition for the traditional downtown. Loh said the demands in the types of office space have also changed. New businesses are opting for more modern spaces, leaving much of the city’s office vacancy concentrated in older downtown buildings.
Even outside the District, downtown has had rising competition with developments across the region, especially in areas that have embraced the mixed-use model like Arlington, where Amazon launched its HQ2, and Tysons, where the growing mixed-use community is sprouting shiny new high rises. (Amazon founder Jeff Bezos owns The Washington Post.)
“You see these mixed signals coming from the D.C. office market because there’s some signs of strong demand, like a lot of leasing activity, a lot of new construction, but then there’s also a high vacancy rate,” Loh said. “It’s this kind of more specific question, what do you do with these older, obsolete office buildings?”
While the capital city has historically relied on its status as home to the federal government to attract a wealth of political, professional and business services — and its convention center, Capital One Arena and hotels, as well as entertainment, retail and food fronts for tourism — office properties continue to represent about three-fourths of total square footage in D.C.’s central business district, according to CoStar, a company that tracks real estate.
So, when the pandemic hit in March 2020, the office buildings that were usually filled 10 hours a day, five days a week emptied — and the blocks of the downtown that Washington had always known transformed almost overnight.
In February 2020, just before the onset of the pandemic, nearly 99 percent of the office workers in the Washington, D.C., metro area were working in person, according to Kastle Systems, an office security firm that tracks key swipes into the 2,600 buildings in 138 cities that use their system.
In mid-March 2020 that figure dropped to 47.9, and by April 15 of that year, only about 12.9 percent of workers swiped into a building. In the DowntownDC Business Improvement District (BID) alone, it dropped to 9.69 percent, according to Kastle data. Different firms use different borders for D.C.’s Central Business District, but the area is generally understood as downtown, and made up of the DowntownDC BID, Golden Triangle BID and parts of Capitol Hill.
That shift left virtually no one to shop in downtown businesses and dine in restaurants that have so long relied on lunches, happy hours and errands from office workers.
“This will have far-reaching implications for cities if the numbers don’t increase,” said Mark Ein, Kastle Systems chairman. “If cities aren’t full with people in offices, that affects the ecosystem of the city.”
The number of people coming into offices has slowly started to rise, according to Kastle’s analysis, but has generally lagged behind other sectors, and has been deeply impacted by periodic surges in coronavirus case numbers.
And office real estate has struggled to rebound at all — in fact it’s weakened over the past six months. In 2019, 11.1 percent of office space downtown was vacant, and in March, more than 17 percent of office space downtown was vacant, according to a Brookings analysis of CoStar data.
The DowntownDC BID wrote in its Winter 2022 economic update that February 2022 reached a record level of office vacancy in downtown, with 9.7 million square feet of vacant office space. The trend tracked for the rest of D.C. as well, which reached a record office vacancy of 14.6 million square feet.
The report also noted that economic activity in downtown is at 52 percent of pre-pandemic levels, up from 33 percent in fall 2021 and 16 percent in winter 2021 — but office, hotel, and office-serving retail markets are all well behind in their recovery.
The District is also not alone in its downtown struggles. Officials and researchers around the country cited many of the same challenges in their regions, especially in smaller cities that don’t have tourism attractions or other sectors to attract customers.
Based on the number of people who’ve returned to working in offices, D.C. follows closely with trends in cities such as San Jose, Chicago and Philadelphia, according to the top 10 cities where Kastle has offices. The highest levels of return have been in cities in Texas, where coronavirus mitigation measures have been more relaxed; more than 50 percent of workers consistently swiped into buildings in Austin, Houston and Dallas in April.
D.C.’s connection to the federal government gives it a unique asset. The federal government owns about 21 million square feet of real estate in the DowntownDC BID, where about 50,000 to 60,000 employees work. When more of those workers begin to return to their offices — as President Biden vowed will happen eventually — the organization expects it could significantly increase daytime foot traffic.
“There is always going to be an inherent demand and benefit to what downtown has to offer because of our proximity, really to the seat of the federal power. We’re right next to the White House. We are right next to the U.S. Capitol building,” said acting DowntownDC BID president and chief executive Gerren Price.
But, as more companies embrace remote or hybrid work policies, banking on a full return to pre-pandemic office levels, even with federal employees, may not be reliable for the future of downtown D.C. — or any downtown in America.
Some leaders in D.C. are working to attract new schools, businesses and residents people to those valuable locations by making downtown a live, work, play destination — rather than just a work destination.
According to its winter report, there are 741 units under construction or announced in the DowntownDC BID, equating to a 10.6 percent increase in the housing supply there. D.C. Mayor Muriel E. Bowser’s (D) 2023 budget also includes investments in office-to-residential conversions with affordable housing, which could lead to the conversions of 500 to 1,000 residential units per year downtown over the next 10 years.
Price, the DowntownDC BID president, said he hopes that will “help tremendously in terms of both removing some of the vacant office, commercial office space out of the supply, but also helping to create more of that 24-hour vibrancy that you want in a city.”
Some of these projects are already underway. In the Golden Triangle BID, the building that formerly housed the Peace Corps is being transformed into residential space. BID executive director Leona Agouridis said these kind of projects, along with other investments and programming, make her optimistic about the future of the neighborhood.
“There’s something just great about being in a hustle-bustle kind of environment. So, we’re hopeful. There are things that you experience here that you don’t experience at your dining room table,” Agouridis said. “You can do yoga on K Street in the middle of rush hour. You can’t do that in your dining room.”