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Washington’s Development Machine Grinds On

Washington D.C. has seen its share of problems.

Over a 20-year period, the population in the city dropped from 638,000 in 1980 to 563,000 by 2003 even while the metropolitan area as a whole grew from 3.5 million people to 4.9 million during the same span. As a result, there was no real development going on within the city.

Much of turnaround stems from the city itself, where there continues to be a major push for development from the mayor’s office. The turn began under Anthony Williams, who served two terms beginning in 1998, and is continuing under the current administration of Adrian Fenty.

In recent years the city has put up a new basketball and hockey arena in Gallery Place and a new convention center—site of this week’s ICSC Mid-Atlantic Conference. New retail developments have cropped around those sites. And the site of the old convention center—now demolished—will be rebuilt as a mixed-use project.

The next push for the city is to develop the moribund Anacostia neighborhood—an economically depressed area to the east of the downtown.

“We have the opportunity to really for first time develop out Anacostia River and we have to take advantage of that,” Fenty said in his brief remarks at the conference. “It’s an exciting moment. … We need to talk about how we can be involved and make a great city even better.”

The transformation has been dramatic enough to the point that Washington D.C. has emerged as one of the brightest spots for retail development to the point that it rivals cites like Boston and San Francisco that traditionally have been considered stronger retail markets.

And the population trend has begun to reverse. The 2005 census estimate put the city’s population at 582,000.

Several factors have conspired to make the District an attractive site for retail development. Unemployment in the Washington area is down to 2.9 percent—well below the national rate of 4.4 percent, according to the Bureau of Labor Statistics. Last year alone 65,500 new jobs were created in the region—20 percent above its long-term average. Average household income is now $94,500—nearly $30,000 above the national average of $65,800, according to Claritas Inc.

Retail spending in the Washington D.C. region is now $19.2 billion a year—nearly double Boston’s figure of $11.8 billion and greater than San Francisco’s $17.1 billion, according to ESRI data.

The region will house a new ballpark for Major League Baseball’s Washington Nationals. That’s already spurring some commercial development alongside. For example, local firm Monument Realty is working on a 775,000-square-foot mixed-use project called Half Street that will be next to the stadium and include 275,000 square feet of office space, 50,000 square feet of retail, a 200-room hotel, and 320 residential units.

The health of the city itself is generating projects throughout the region.

The mixed-use University Town Center continues to take shape in Hyattsville, Md. The project is a redevelopment of office complex into a project with 1.4 million square feet of office space, 250,000 square feet of retail and a 14-screen theater in addition to a 910-unti student housing complex that came on line last August.

Also in Maryland, there’s Peterson Companies’ 7.3-million-square-foot National Harbor project just south of Washington D.C. in Maryland. Along a 1.25 mile-long stretch of the Potomac River the project will include a 2,000-room hotel and 450,000-square-foot convention center along with retail, office and residential components.

Even as the rebirth within the District continues, the push of the metro area into the countryside continues. The suburbs are still spreading—as far as parts of West Virginia—as a growing population looks for more affordable housing. In Ranson, W. Va., 60 miles from D.C., Carl M. Freeman Cos., has assembled a 235-acre site across from an existing development on which it will develop the mixed-use Potomac Towne Center project over the next 10 years. Some 30,000 homes are under construction in the city, says Michael T. Reilly, vice president and general manager with the company.

“Believe it or not, people are commuting from here to D.C.,” he says; 65 percent of the town’s residents work outside the state. Some drive. Others use a recently completed commuter-rail that connects to the Washington Metrorail system.

According to Gregory Leisch, founder, CEO and Director of Alexandria-based real estate research firm Delta Associates, the region has 100 million square feet of shopping space—63.8 million square feet of which is in 672 neighborhood and community centers. But a big chunk of that supply is dated. He estimates that 45 percent of the stock is more than 25 years old and 38 percent is 11 to 25 years old. That has created a lot of possibilities for redevelopment.

Moreover, even with that large stock of existing space, grocery store sales per square foot in the region stand at $591—much higher than the national average of $336—which Leisch points to as a reason why the area can support more retail space, especially grocery-anchored properties. Vacancy rates are also low—just 2.3 percent for the region. As a result, asking rates rose 5.7 percent in 2006 on top of a 22 percent increase the year before.

-- David Bodamer

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