Explosive growth in public- and private-sector jobs buoys D.C.’s retail real estate market

Metro Washington, D.C., usually associated with government, museums and monuments, has seen a recent explosion of retail development and sales — and the reverberations continue. The retail market in the district, northern Virginia and much of Maryland (almost to Baltimore) is becoming one of the hottest in the U.S.

It is conventional wisdom that retail follows rooftops. For metro Washington, it may be more accurate to say retail is following the jobs mushrooming in both the public and private sectors. “There’s been a tremendous number of jobs created in recent years,” said Richard Lake, managing principal of Washington-based Madison Retail Group. “But not just any jobs — the government, high-tech companies and the biomedical industry have been creating a lot of high-paying positions.”

According to the U.S. Bureau of Labor Statistics, in the 12 months preceding September 2005 (the latest numbers available), metro Washington generated 79,400 new payroll jobs, an increase of 2.8 percent, compared with a nationwide rate of 1.6 percent. Of these new jobs, 23,400 were in the professional and business services categories, which tend to be higher-paying.

“There are a lot of reasons for this, but at its heart every administration increases the size of government, which increases the contracting and outsourcing to the private sector,” said Lake. “Then it starts to feed on itself. For instance, the National Institute of Health’s presence in Maryland has helped create a biomedical corridor along I-270.”

Even before this latest round of growth, some parts of metro Washington were already among the wealthier counties in the country. These include Fairfax County, Va., which reported an average household income of $130,000 last year, and Montgomery County, Md., which posted $128,300. Even the District of Columbia outpaces the national average household income ($64,800) with an average of $91,900 (income estimates by San Diego-based demographics firm Claritas Inc.).

Retail is responding to the demographics, especially with the growth of grocery stores and their attendant retail space. By the end of this year, 28 new grocery stores will open in the metro area, according to Alexandria, Va.-based Delta Associates, the research arm of Transwestern Commercial Services, which further notes that Harris Teeter, Trader Joe’s, Wegmans and Whole Foods are gaining prominence in the metro area. North Carolina-based Harris Teeter is the front-runner, with plans to bring 13 stores to the Washington metro area by year-end.

Besides grocery-anchored retail, metro Washington is home to a number of new, larger retail developments, often upscale components of mixed-use projects. In Loudoun County, Va., KSI Services is planning The Village at Leesburg, a mixed-used project on 150 acres that will contain about 440,000 square feet of retail space as well as offices and residential space. The upscale Wegmans has agreed to anchor the retail segment, with about 140,000 square feet. Among the other tenants will be Barnes & Noble and Talbots.

Also in Loudoun County, Soave Enterprises is developing Town Center at Brambleton, a mixed-use town center project. The development’s first phase contains a 57,000-square-foot Harris Teeter grocery store, which opened last fall. Other tenants include Cold Stone Creamery and Scotto’s Rigatoni Grille. A 16-screen movie theater is coming during a later phase.

In Prince George’s County, Md., in the eastern part of the region, The Peterson Cos. is developing National Harbor along the Potomac River, a 300-acre, mixed-use project that could ultimately contain 1 million square feet of retail, dining and entertainment space. No retail tenants have signed as yet for the development, which is slated for completion in 2008 and will be anchored by a 1,500-room Gaylord Hotel and Convention Center.

Perhaps the most surprising of the active retail submarkets in metro Washington is the District of Columbia itself. As its neighborhoods revitalize under an influx of affluent residents, retailers are following, from European-style boutiques that covet storefronts in Georgetown to the likes of Costco and Target, which are opening stores near the outer edges, where there is enough land. Harris Teeter is not neglecting the the District of Columbia either — two of the new stores it is opening this year will be located in the district itself, which has been overlooked in the past by most grocers.

“The growth in the federal government, and the greater accountability of local government in the last seven years, have helped spark a residential boom here,” said Keith Sellars, director of retail development at the Washington, DC Economic Partnership, an economic development organization that focuses on the district. “Whole neighborhoods are being rediscovered, such as downtown, Columbia Heights and 14th and U, just to name a few.”

According to the partnership, retail development in the district totaled 369,000 square feet in 2004, and as of third-quarter 2005 (the latest figures available), 658,000 square feet of retail had been completed, with an additional 563,000 square feet on the drawing boards. Also, about 100 new retail projects are now being planned or proposed for the district. “In terms of retail, the District of Columbia is busy reinventing itself,” said Sellars.

Retail fundamentals in metro Washington are strong and appear to be attracting investor interest. Delta reports that vacancies in Washington-area grocery-anchored retail spaces remain low; as of November, that segment’s vacancy rate stood at 2.9 percent, flat with the year-earlier 2.8 percent. Moreover, retail rents are up. Delta pegs them at $30.19 per square foot on average as of year-end 2005, up sharply from $24.60 per square foot a year earlier.