DC development will continue when we recover, and it marches east
A lot of talk about economic recovery in cities has been something like this: there was a NY Times shot across the bow blaming density for a public health crises; and then urbanists (myself included) saying, no, it is not density that ails us. While I believe there will indeed be an increased focus on public health in urban design and architecture, more work from home, and less demand for office space, cities will generally continue growing in the direction they were back in the pre-Covid times. For DC, this means a steady movement of development eastward towards, and into, east of the Anacostia River.
If you talk to commercial real estate experts, there are two submarkets that they will tell you traditionally define DC, especially the office market: the central business district (CBD) and something they like to call the “East End” (a DC term exclusive to the commercial real estate industry that I’ve never heard a local resident or urbanist use — it means the Gallery Place/Chinatown area for everyone else). Broadly speaking these two areas comprise what most residents otherwise call “Downtown” east-west from 17th Street NW to I-395, with the National Mall to the south, and M Street NW to the north.
However, we all know the story of DC development by now, at least by looking at cranes, and it is one that includes a lot of places with an address that is anything but “Northwest.” In the past decade we have seen Navy Yard (Southeast), NoMa (Northeast) and Buzzard Point (Southwest) take off. Tick by tick this goes eastward.
Looking forward, DC’s future will include critical growth and development east of the Anacostia River in Wards 7 and 8. As much of DC’s land builds out in the coming decade, areas planned for growth east of the Anacostia contain sites that can support DC’s future prosperity. Developers and investors are already looking “east of the River” — a sign that other types of commercial real estate professionals should pay more attention to this area. Here is why.
Investment Momentum
The investment story is clear, as 2019 was a record year for commercial real estate capital investment in Anacostia wards, with $577 million in transaction volume directed there in the past five years according to Real Capital Analytics. When an area begins attracting the attention of foreign investors, this is usually a sign of positive momentum and encouraging for future growth. Fortunately, for this part of the District, cross-border investment constituted 32% of capital transactions in 2018. Investors from countries such as Switzerland, Canada and Germany have all participated in investing east of the Anacostia during the past decade, suggesting that the global attention to the DC has crossed the Anacostia River.
While the Anacostia wards of the District are still an emerging market, a critical point is the momentum of investment. In 2009, there was little proportional investment in this area, with the area barely accounting for less than one half of one percent of the District’s total capital transaction volume. However, momentum is on the side of Anacostia, as the area has increased its capital market share, attracting 3.1 percent of the District’s commercial real estate capital in 2019, and growing.
Living and Working East of the Anacostia River
Two major developments near the Anacostia and Congress Heights Metro stations are an indication of the District’s future, and they illustrate what drives investors to look east.
The St. Elizabeths East campus, in its first phase, plans to bring 47,000 sq. ft. of retail, 171,000 sq. ft. of office development, and 310 residential units next to a 5,000-seat entertainment arena in an area that historically has had little office development or new retail. Likewise, the six-acre Columbian Quarter site stands to be transformative and market-making, with plans for 1.7 million sq. ft. of office, 50,000 sq. ft. of retail and likely over 700 residential units. By comparison, there is presently 1.3 million sq. ft. of office space in all of Wards 7 and 8, with very little of that consisting of new space with modern amenities.
Putting these real estate numbers in terms of people, I estimate that these two developments alone can translate to 1,500 new residents, over 215 retail jobs and easily over 10,000 office employees at full build-out and utilization. The transformative nature for growth east of the Anacostia cannot be understated. Presently, all of Wards 7 and 8 only have about 9,000 jobs in total.
This means that these two major developments in the District’s pipeline would more than double the job density of an area where D.C. mayors have attempted to direct job creation for decades. Finally, the investment and momentum has materialized in tangible ways with actual plans in the works.
This means more residents would be able to live and work in Wards 7 and 8, and the area would draw residents from elsewhere, while stimulating the existing population (median age of 35 years old) with additional job opportunities. According to U.S. Census commuting estimates, only 639 people (2.2%) of all workers in Wards 7 and 8 (the “study area”) live and work there. With new live-learn-work-play environments planned on the horizon, the so-called “24-hour” population begins to change. With another 10,000 workers in this area — notwithstanding other federal and District government moves into the area — local residents would be able to find and access jobs in their community. In doing so, the community will begin to become a major office, retail, and multifamily submarket for the region.
Infrastructure Tying East of the River
The area East of the River can support this new development because it contains the critical investment of two WMATA Metrorail stations along the Green Line: Anacostia and Congress Heights. Consider that the Silver Line Phase 1 through Tysons and Reston delivered at a cost in excess of $580 million per station. Therefore, one can estimate that the Anacostia wards benefits from a transportation investment, the two Metro stations, easily valued at over $1 billion.
For this valuable transportation asset, East of the River has a 30-minute transportation access to most of the CBD and critical parts of the region: National Landing in Virginia, and the future home of Amazon HQ2; Dupont Circle; the White House; the U.S. Capitol; NoMA; Navy Yard; and U Street. CBRE research indicates that 56% of millennials desire commutes no longer than 30 minutes, placing the areas east of the Anacostia within critical access to the region’s core.
Additionally, the District government is rehabilitating the Frederick Douglas bridge — a trail envisioned as D.C.’s version of New York’s High Line — to become a major mixed-use access gateway. Finally, there are plans to eventually extend the D.C. Streetcar to the Anacostia Station which would further increase ease of travel to Union Station and Amtrak.
Conclusion
The future of development east of the Anacostia River is bright, and major players in the commercial real estate industry have already taken notice. Yes, this future, like all real estate developments, will take a few years to materialize and come out of the ground, especially in a post-Covid economy. However, the major developments are already going through the planning and development process. Slowly but surely, institutional and foreign investors are placing their capital and hopes on the transformative growth of this part of the District.
With major job creation anticipated for the future, and some of the best transportation access in the region, this area is poised for a boom. Pay attention now, because before you know it, you’ll witness the transformation of this part of D.C.
