Washington, D.C., Market Forecast

March 16, 2007
Because of its vibrant downtown construction scene and the steady flow of construction in many of its suburbs, Washington D.C. is proving itself to be one of the most resilient markets in the United States

Because of its vibrant downtown construction scene and the steady flow of construction in many of its suburbs, Washington D.C. is proving itself to be one of the most resilient markets in the United States.

“There’s always something going on in Washington,” says John Hardy, chief executive officer of Capital Lighting & Supply, Alexandria, Va. “It’s probably the most insulated market in the U.S. There’s always been something that’s driven the economy, and most often the federal government is the basis for it. There are a lot of different ups in the economy, but the downs are never like they are in the rest of the country.”

Indeed, Washington’s economy is thriving. As of August of 2006, Washington had $15.2 billion worth of construction projects completed since 2001 and $7.5 billion of projects currently under construction, according to the Washington, D.C. Economic Partnership (formerly the Washington, D.C. Marketing Center), a public/private partnership dedicated to facilitating economic development in the District of Columbia.

The outlook is good. Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Washington, D.C., metropolitan area will sell approximately $885 million in electrical products this year, a 7.5 percent increase over 2006. The increase in sales will be led by stronger growth in the contractor market.

Washington’s sprawling growth makes it tough to define the market’s exact boundaries. Capital Lighting & Supply’s Hardy says the market reaches east to Upper Marlboro, and Bowie, Md., Fredericksburg, Va., to the south, Laurel, Md., to the north, and Germantown, Md., to the west. “Washington and Baltimore are considered two separate markets, but they really merge,” he says. “It’s hard to say where one starts and the other stops. It used to be pretty simple because people didn’t do business in both markets, but now they do.”

Grant Shmelzer, executive director of the Independent Electrical Contractors (IEC) Chesapeake chapter, talks in terms of the Baltimore-Washington corridor when he addresses the metropolitan market. He says most of IEC’s Washington-based contractors also work in Baltimore, and most of IEC’s Baltimore-based contractors travel to Washington for work.

Schmelzer says a large federal project is keeping IEC members quite busy. The federal Base Realignment and Closure Commission plan, (BRAC), a reorganization of military bases, will give Maryland 45,000 federal and private-sector jobs. The reorganization will add workers to installations such as Fort Meade, five miles northeast of Laurel, Md., and Aberdeen Proving Ground, a U.S. Army facility located at Aberdeen, Md.

While the suburbs are seeing their fair share of commercial development, one electrical distributor who asked not to be identified said construction cranes are everywhere in downtown Washington, too. Office construction is particularly strong, and with its 7.5 percent office-vacancy rate Washington boasts one of the healthiest office-construction markets in the United States.

One of the city’s largest projects is the redevelopment of the Potomac waterfront. A team of developers plans to transform 47 acres of the southwestern area of Washington, from the 12th Street Bridge to Fort McNair, into a multimillion-dollar neighborhood with housing, restaurants, shops, offices and cultural attractions.

Another large project now underway is the construction of a new stadium for the city’s Washington Nationals baseball team. Due to open in early 2008, the ballpark is sparking the redevelopment of a large area that was depressed for many years and is now the site of several ongoing and planned projects.

The city plans to spend $18 million to upgrade streets near the stadium. An estimated $20 million will be spent on the Metro rapid-transit system’s Navy Yard Station, street repaving, lighting and landscaping. Near the baseball stadium, the Washington, D.C., Planning and Economic Development Agency approved a master plan for a $650 million mixed-use redevelopment of the old convention center at New York Avenue and Ninth Street, NW. The project will include 415,000 square feet of office space, 280,000 square feet of retail space and 686 residential units, said a recent article in the Washington Post. Groundbreaking is scheduled for the fall of 2008.

Hotel renovations are also booming. Projects now underway include major renovations of the St. Regis, a four-star deluxe hotel, and the 100-room Jefferson. In the city’s Georgetown neighborhood, the Latham Hotel and the Georgetown Inn will be renovated into luxury

Even the area’s housing market seems to be coming back. While single-family housing building permits are down 27 percent year-to-date through December 2006 for the Washington, D.C.,-Arlington, Md.,-Alexandria, W.V., metropolitan statistical area (MSA), several electrical distributors say they see encouraging signs that the housing market is picking up. One distributor says while the market was overbuilt and that it had a large inventory of homes, that inventory is beginning to dry up. As a result, builders are feeling more confident, and new housing developments are once again cropping up.

Electrical distributors are bullish about Washington’s economy over the next few years. For instance, Capital Lighting & Supply is building a new 220,000-square-foot regional distribution center (180,000 square feet of distribution center and 40,000 square feet of office space) in Forestville, Md., that will hold approximately $18 million in inventory. Now under construction, the new facility is set to open early in 2008. The company will move its current headquarters in Alexandria, Va., and its 85,000 square-foot-distribution center in Newington, Va., to the new building. The new RDC may one day serve as many as 40 branches. “That’s how bullish we are on the market,” says Hardy.