Every industry seems to want a presence on Capitol Hill. From Fortune 500 companies lobbying government agencies to growing tech firms dealing with a changing regulatory atmosphere, D.C. remains a strategic market.
Businesses considering opening government affairs offices in Washington, D.C. have plenty of advantages in today’s market. Washington has a plethora of high-end choices, including flexible office providers who offer both flexibility and amenities.
“Companies of all sizes are responding to an increasingly uncertain business environment by shifting to a dynamic consumption model for office space,” said Nick LiVigne, head of product for Convene. “Additionally, many companies are looking to amenity-rich flexible office solutions to help them scale employee experience to offices outside their centralized campuses.”
Part of what’s driving this change is that many companies no longer require the same amount of physical space they once did. Take law firms for example—one of the biggest tenants in the District. In the digital age, they no longer need space for a huge law library or paper storage. Plus, tech savvy lawyers don’t need executive administrators the same way they did years ago. So why stay in an office designed for an antiquated way of working?
“The leases executed 25 years ago carried all this excess space that is just not germane to today’s workplace strategy,” said Kevin Howard, executive vice president at CBRE. “A company renting 300,000 square feet can move to 225,000 and not lay anyone off. They can move to brand-new construction, fit people into less space and not have to live through a renovation.”
Competition for tenants has led to an amenities arms race with dramatic improvements to rooftop terraces, meeting spaces, fitness centers, and cafeterias.
“They’re appealing to high end groups and high-end people,” said Bill Zonghetti, executive vice president at Colliers International. “As a result of all these amenities, a tenant’s rentable square footage has shrunk and the core factor has gone up.”
Flexibility, the Ultimate Amenity
Today’s Washington, D.C. tenants are craving flexibility in their lease terms and arrangements. One major reason is a 2019 corporate accounting rule requiring public companies to record the cost of office space rentals on their balance sheets. The change added $3 trillion to the books of U.S. publicly traded companies. It’s led real estate directors to consider flexible office space and coworking options that don’t require long leases. Plus, the spaces are nice, the amenities are plentiful, and buildout costs are minimal.
“For these real estate directors, anything that’s easy for them and helps them make a strong business case to their superiors, they’re doing,” said Zonghetti.
Howard adds that corporate real estate departments are also demanding shorter lease terms and flexibility because their businesses are continuously evolving. They might require a large D.C. workforce today but a much smaller staff tomorrow.
“They are looking to build in the maximum amount of flexibility they can so they can grow or shrink as their needs change,” said Howard.
The Tech Migration
The tech industry is quickly becoming a major player in D.C. That’s a direct result of increased scrutiny from regulators and government officials concerned about privacy and data security. Facebook tripled its D.C. footprint recently with a 73,000 square foot lease, according to Bisnow. The company is hardly alone. The publication reports that “ten Fortune 100 technology companies have doubled their collective D.C. office footprint” from 2013-2018. CBRE reports that tech had the third-most leasing activity by sector in 2019.
“Federal lobbying has become really important to tech companies,” said Howard. “Regulation is becoming one of the biggest issues their businesses have to deal with, so having a presence in Washington just makes sense.”
A Changing Market?
While occupiers have a wide array of options, change may be on the horizon.
“There are signs that things are getting a little tighter,” said Howard. “In seven of the past eight quarters, we’ve had positive net absorption—tenants are leasing more space than they were in before— in part because of coworking and technology growth. That could make the market tighter as time goes by.”
Either way, access to Capitol Hill is everything.
“Location always matters. Being proximate to Capitol Hill matters,” said Zonghetti. “They’re in town to lobby members of Congress, so being in the East End Pennsylvania Avenue corridor between the White House and the Capitol seems to be the prime target for government affairs groups, but ultimately they really do like and value building quality, so they gravitate towards the best options in town.”