WASHINGTON, DC OFFICE: OVERVIEW & OUTLOOK...May 27, 2020 · COWORKING FOOTPRINT Q2 2020 3,008,124...

WASHINGTON, DC OFFICE:

OVERVIEW & OUTLOOK

WECOME & INTRODUCTIONS

Our Moderator:

• Peter Houstle – AIDC Executive Director

Our Presenter:

• Nathan J. Edwards - Senior Director, Research for the Mid-Atlantic for Cushman & Wakefield

Mark Your Calendars:

• June 11 - Artificial Intelligence, AVMs, and Blockchain: Implications for Valuation (Online)

• June 24 - Residential Real Estate Update...Reboot

• July 30-31 - Fundamentals of Separating Real Property, Personal Property, and Intangible Business Assets - Rockville, MD

Admin:

• Post questions in chat box (Alt-H)

• Recording will be posted on AIDC website

JOB GROWTH SOLID INTO THE CRISIS

Washington DC, Metro

Source: Bureau of Labor Statistics, Cushman & Wakefield Research,

-52

-9

36 38

26

46

64

74

94

118

41

9

55

7064

52

24

13

-51

11

4337

2617

5559

50

3645

14

-70

-50

-30

-10

10

30

50

70

90

110

130

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Feb 2

020

Total Nonfarm, 000's

DC METRO UNEMPLOYMENT

Bureau of Labor Statistics

0

20

40

60

80

100

120

140

5,000

5,200

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

Un

em

plo

ye

d (

tho

usa

nd

s)

Un

em

plo

ye

d (

Th

ou

sa

nd

s)

# of Unemployed

US DC Metro

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Unemployment Rate

US DC Metro

ZOOMING IN ON THE DEMAND DRIVERS

DC Metro as of 2/2020 reporting


-400

-200

0

200

400

600

800

1,000

Ja

n 2

01

8

Mar

2018

May 2

01

8

Ju

l 201

8

Sep 2

018

Nov 2

018

Ja

n 2

01

9

Mar

2019

May 2

01

9

Ju

l 201

9

Sep 2

019

Nov 2

019

Ja

n 2

02

0

Mar-

20

Law Firms

Job Growth (y/y)

0

2,000

4,000

6,000

8,000

10,000

12,000

Ja

n-1

8

Apr-

18

Ju

l-18

Oct-

18

Ja

n-1

9

Apr-

19

Ju

l-19

Oct-

19

Ja

n-2

0

Tech / Contracting

Job Growth (y/y)

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

Ja

n 2

01

8

Mar

2018

May 2

01

8

Ju

l 201

8

Sep 2

018

Nov 2

018

Ja

n 2

01

9

Mar

2019

May 2

01

9

Ju

l 201

9

Sep 2

019

Nov 2

019

Ja

n 2

02

0

Mar-

20

Federal Government

Job Growth (y/y)

0

5,000

10,000

15,000

20,000

25,000

30,000

Ja

n 2

01

8

Mar

2018

May 2

01

8

Ju

l 201

8

Sep 2

018

Nov 2

018

Ja

n 2

01

9

Mar

2019

May 2

01

9

Ju

l 201

9

Sep 2

019

Nov 2

019

Ja

n 2

02

0

Mar-

20

Other

PBS Job Growth Y/Y (Less Legal)

Financial Job Growth Y/Y

SCENARIOS

Source: Moody’s scenarios as of 4-10-2020

SCENARIO 1 (V-SHAPE) SCENARIO 2 (*U-SHAPE) SCENARIO 3 (NIKE SWOOSH)

Ep

idem

iolo

gic

al

Assu

mp

tio

ns

Eco

no

mic

Sta

tisti

cs

• 1-2 mil confirmed U.S. infections

• New infections peak in April

• 1.0% fatality rate

• Infections abate in May

• Ease back to work in May

• Assumes quicker medical

breakthrough or arrests


• New infections peak in May


• Infections abate but lingers

• Ease back to work in June

• Assumes slower medical

breakthrough


• New infections peak in June


• Inflections abates but lingers

• Ease back to work in June

• Assumes no medical

breakthrough

• Milder recession in Q1,sharp in Q2

• Strong recovery in 2020Q3 & after

• Peak unemployment 8% in 2020Q2

• Peak to trough real GDP of -4%

• Return to full employment by 2022

• Return to 2019 GDP (Real) by

2020Q4

• Harsh recession in H1

• Partial bounce in Q3, then slow

rebuild

• Peak unemployment 9% in

2020Q2




2021Q4)

• Deeper recession

• Partial bounce in Q3, then even

slower rebuild

• Peak unemployment 13% in

2020Q2




2023Q1

*C&W baseline

THE ROAD BACK TO 2019U.S. Real GDP, 19Q4 = 100

Source: Moody’s scenarios

80

85

90

95

100

105

110

115

120

201

9Q

4

202

0Q

1

202

0Q

2

202

0Q

3

202

0Q

4

202

1Q

1

202

1Q

2

202

1Q

3

202

1Q

4

202

2Q

1

202

2Q

2

202

2Q

3

202

2Q

4

202

3Q

1

202

3Q

2

202

3Q

3

202

3Q

4

202

4Q

1

202

4Q

2

202

4Q

3

202

4Q

4

19Q4 Index S1 (U-shape) S2 (V-shape) S3 Swoosh

V-shape: return

to 2019 GDP by

2020Q4

U-shape: return

to 2019 GDP by

2021Q3

Swoosh: return

to 2019 GDP by

2023Q1

REAL GDP BY SCENARIOAR (%)

Source: Moody’s Analytics, Oxford Economics, Federal Reserve Board

*Description of Fed scenario, which includes 35% decline in CRE prices and credit stress: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200206a1.pdf

20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 2020 2021When back at

19Q4 Levels

Moody’s Baseline -2.5 -18.3 11.0 2.4 2.6 3.3 5.1 5.1 -2.2 2.7 21Q3

Moody’s Downside (S3) -2.5 -25.3 0.8 -6.1 -5.5 1.1 4.4 6.6 -5.4 -3.2 23Q1

Moody’s Downside (S4) -2.5 -33.3 -1.3 -7.8 -5.2 -2.7 -0.3 3.1 -7.7 -5.9 24Q3

Oxford Baseline* -1.1 -31.7 8.8 23.6 15.7 4.4 2.4 1.1 -4.1 7.7 20Q4

Oxford Downside** TBD TBD

CCAR Severely

Adverse*-5.3 -9.9 -7.6 -5.3 -4.1 -1.6 -0.4 2.9 -3.8 -3.8 23Q4

Release date of forecasts:

Moody’s – Friday March 27, 2020

*Oxford Economics Baseline updated 4-8-2020

**Oxford Economics Downside – Friday March 20, 2020;

CCAR – February 6, 2020

JOB GROWTH FORECAST

Washington DC, Metro – Moody’s April 2020 Revised Forecast

Source: Bureau of Labor Statistics, Cushman & Wakefield Research

-52

-9

36 3826

46

6474

94

118

41

9

55

7064

52

2413

-51

11

4337

2617

55 5950

36 45

-134

-7

-150

-100

-50

0

50

100

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Total Nonfarm, 000's

APRIL JOBS REPORTIn Major Markets, 2020 Net Jobs

Moody’s

-337,300

-1,993,600

-995,900

-630,200

-375,000-485,856

-2,500,000

-2,000,000

-1,500,000

-1,000,000

-500,000

0

DC Metro NY Metro LA Metro Chicago SF Metro Boston

Job Losses

-385,445

-3,304-24,446

-59,099

-161,307

643

-14%

-2% -3%

-13%

-49%

0%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

-450,000

-400,000

-350,000

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

DC Metro Sector Data

Net Jobs % of Total Sector Employment

RECESSION IMPACTIn Major Markets, Jobs, GDP, Unemployment


-500,000

-450,000

-400,000

-350,000

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

Recessionary Job Losses

1991-1992 2001-2003 2008-2010

0%2%4%6%8%

10%12%14%

Recessionary Unemployment Rates

1991-1992 2001-2003 2008-2010

-6%-4%-2%0%2%4%6%

Recessionary GDP

2001-2003 2008-2010

DC METRO FORECASTED JOB LOSSES BY SECTOR

Moody’s

-22,450

-3,220

-22,770

-2,960

4,610

-14,230

-32,700

-4,640-1,930

6,440

-1,200

1,800

-1,510 -1,760

8.3%

0.9%

3.3%

7.2%

1.3%

3.2%

9.6%

0%

2%

4%

6%

8%

10%

12%

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

2020 2021 % of 2020 Sector Employment

RECESSION IMPACT FORECASTIn Major Markets, Jobs, Unemployment

Moody’s

-134,090

-534,970

-341,050

-214,430

-147,120-131,360

4.0%

5.3% 5.4%

4.5%

5.9%

4.7%

7.8%

14.6%13.9% 14.1%

12.2%

9.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-600,000

-500,000

-400,000

-300,000

-200,000

-100,000

0

DC Metro NY Metro LA Metro Chicago SF Metro Boston

Job Losses % of 2020 Employment Peak Unemployment Rate

JOBS LOST / REGAINEDGreat Recession - Quarters to Return to Peak Employment


-10%

-5%

0%

5%

10%

15%

20%

25%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Jo

b G

row

th %

Fro

m P

ea

k

Quarters from Peak Employment

DC Metro NYC Metro Boston LA Metro Chicago SF Metro

Market

Quarters Back to

Peak Employment

DC 14

SF Metro 16

Boston 18

NYC 19

Chicago 29

LA Metro 32

NET MIGRATION SURGES POST RECESSION

Census

DC Metro

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

Recession Net Migration

WASHINGTON, DC MACRO MARKET

Office Leasing Fundamentals

Source: C&W

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Vacancy R

ate

Square

Feet

(mill

ions)

New Deliveries Net Absorption Annual Avg. Delivered: 1.5 MSF

Annual Avg. Net Absorption: 900 MSF Vacancy Rate Average Annual Vacancy 12.5%

UPTICK IN SUBLET?

District of Columbia

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2017 2018 2019 2020

Sublet Space Available % of Competitive Inventory

WASHINGTON, DC MACRO MARKET


Source: C&W

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Vacancy R

ate

East End

New Deliveries Net Absorption Annual Avg. Deliveries

Annual Avg. Net Absorption Vacancy Rate Average Annual Vacancy

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Square

Feet

CBD

DEMAND AND LEASE ACTIVITY

Q1 2020

482,190

410,404

75,75549,602 46,127

30,03112,142

18.8%

15.6%

8.1%

13.6%

15.1%

12.1%

10.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

100,000

200,000

300,000

400,000

500,000

600,000

East End CBD Riverfront West End /Georgetown

Capitol Hill / NoMA Southwest Uptown

Leasing Activity Vacancy

DEMAND BY SECTOR

Q1 2020

-500,000

-70,000

-60,000

-40,000

-35,000

25,000

50,000

75,000

95,000

250,000

-600,000 -500,000 -400,000 -300,000 -200,000 -100,000 0 100,000 200,000 300,000

Federal

Legal

Business Services

Technology

FIRE

Government Affairs

NFP

Education/Healthcare

Coworking

Sublet Absorption

COWORKING FOOTPRINT

Q2 2020

3,008,124 61.1%

1,563,024 31.7%

355,820 7.2%

DC NoVA SMD

The District of Columbia represents over 60% of the region’s 5 million square feet (msf) coworking inventory. There is

currently just over 1 msf of coworking availability in DC giving an implied coworking

vacancy rate of 34% - double the vacancy rate for the overall market.

92,891,061

16,753,115 1,978,160

1,029,964112,652,300

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

DC Inventory by Space Type

Occupied Direct/Sublet Vacant Direct/Sublet

Occupied Coworking Vacant Coworking

LEASE ACTIVITY

Cushman & Wakefield

0

10

20

30

40

50

60Trend (Monthly)

Touring Proposal Sent Lease out for Signature Lease Execution

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

5

10

15

20

25

30

35

Tours ProposalsSent

LeasesOut for

Signature

LeasesExecuted

Year Over Year

May-19 May-20 % Delta

DC CORE VACANCY FORECAST

Cushman & Wakefield

13%

14%

15%

16%

17%

18%

19%

2019 2020 2021 2022 2023

Core Class A DC ALL

DC CORE CAP RATE SPREAD

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2016 2017 2018 2019 2020

US 10 Yr Treasury DC Trophy/A+ Cap Rate Cap Rate Spread

CORE NORTHERN VIRGINIA


Q1 2020YTD Deliveries: 200k SFYTD Net Absorption: 100k SFVacancy: 17.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

-3

-2

-1

0

1

2

3

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Vacancy R

ate

Square

Feet

(mill

ions)

New Deliveries Net Absorption Annual Avg. Delivered: 465k SF

Annual Avg. Net Absorption: 500k SF Vacancy Rate Average Annual Vacancy: 18.2%

60% of Inventory

57% of Vacancy

100% of Net Absorption

Source: C&W

2019 NOVA NEW DEAL ACTIVITY


0%

5%

10%

15%

20%

25%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2019 Leasing Activity 2020 Leasing Activity Vacancy

Source: Cushman & Wakefield Research

NOVA PRIVATE SECTOR DEMAND50k SF+ 2020-2023

HOT TOPICS

DC Tenant sectors that are of major concern

Not-for-Profit/Associations

We are in the season where galas and fundraisers are typically held and

some of these raise up to 50% of an organization’s annual revenue. With

social distance and lockdowns in effect, the hit to NFP financials are

expected to be significant

Legal

Preserving cash is most important

Deferred payment, staff reductions

Some have approached landlords about rent relief

One example is a restructure of the rent from 5/1 through year end

40% reduction in lease value

“Share the burden” approach to relief – discounted yet continued

cash flow – landlord and tenant both taking the hit

Coworking

Some providers deferring rent payment

Large providers in high level talks with owners about rent restructure

IWG – global request for rent deferment and would add term on the back of

the lease. Letter sent to 3300 Locations – 3 mo deferment for 3 months of

term on end of lease

Retrades

Deals that are moving forward are seeing more aggressive retrades at this point

Retrading is focusing on concessions but base rent is increasingly being targeted

10% +/- is often the ask

Uptick in short-term renewals

Rent Collection

Landlords averaged 93% to 95% of total rent collected in March with the 5-

7% loss coming mostly from retailers

Initial reporting for early April

Office collections down 12%

Retail down 55%

Industrial down 16%

Virtual Touring

Good feedback but there is still a lot of doubt whether a deal will be able to

be struck off a virtual tour

Large legal sector tenant

Virtual tour of 12 buildings in 2 hours

Feedback from real estate decision makers in the firm was that this

was the most efficient use of time and that it was better than 2-3

days of physical, in-person tours

Capital Markets

Most deals are on hold

Some MF land deals and core GSA leased deals are moving forward at this

point

Debt and Equity markets have yet to stabilize exacerbating deal flow

Increased scrutiny on rent roll credit and business viability

Dry Powder - Capital seeking distressed real estate has continued its uptick.

There are already books of distressed CMBS loans hitting the market, mostly

driven in the hotel and retail sectors.

WASHINGTON, DC OFFICE: OVERVIEW & OUTLOOK...May 27, 2020 · COWORKING FOOTPRINT Q2 2020 3,008,124...

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Transcript of WASHINGTON, DC OFFICE: OVERVIEW & OUTLOOK...May 27, 2020 · COWORKING FOOTPRINT Q2 2020 3,008,124...