Film location scouts working in Washington, D.C., will tell you that Hollywood always wants a view of the Washington Monument – and it's a tall order even on a, er, monumental Hollywood budget.
So putting that dream aside (at least for now), the first thing you should know about hunting for any space in D.C. is that there's very little of it as government agencies – and the contractors who work for them – expand. Still, D.C.'s vacancy rate grew from 11.5 percent in the first quarter of this year to 11.7 percent because construction finished on four new office buildings (total: 1.4 million square feet), one of which wasn't fully leased when it opened.
The Washington metro area (which includes the District, plus parts of Maryland and northern Virginia) is one of the country's strongest commercial real estate markets, based on a comparison of current rates to early 2008 rates done by commercial real estate firm Cassidy Turley. Washington's were down just 5 percent, compared to New York (down 30 percent) and Boston and Las Vegas (both down 15 percent).
"Washington has some of the best employment numbers in the nation, so this quarterly report wasn't a surprise," says Jeffrey Kottmeier, Cassidy Turley's vice president and director of research. "We also saw a lot of government leases and government contractors completing leases."
Nor is the scramble for space expected to slow. A 2010 Grubb & Ellis report predicted the national vacancy rate would hit 19 percent by the end of this year – the highest since the company began keeping records in 1986. D.C. is No. 2 (after Austin) on the Most Likely to Recover Quickly list. So if you plan on setting up a D.C. office in the near future, here are some tips for finding a capital space.
1. Think beyond the physical space. Everyone wants to be near a Metro stop at a location with plenty of free parking and lots of foot traffic during business hours, but realistically, how many places in the city fit that description and have moderate rents? "Precious few," says Cyril Crocker, vice president of development for D.C.'s The Menkiti Group. (Bo Menkiti, the six-year-old real estate company's founder, was No. 3 on Inc.'s 2007 "30 Under 30" list.) Adds Crocker, a former project manager in the office of D.C.'s deputy mayor for planning and economic development: "National retailers, large law firms, financial institutions, and of course the federal government are going to land the 'primo' spots along with high end merchants."
So he suggests considering the value of a location that is part of a Main Streets program, the city's eight-year-old program to help revitalize neighborhood business districts with grants and other assistance.
Also look for neighborhoods where there is a strong business association that encourages cross-referrals. How to find one? Consult other businesses in the area, asking old-timers what changes they've seen, and newcomers whether the local community has embraced them. Also compare the demographics of your customer base to the neighborhoods you're considering; the Washington, D.C. Economic Partnership has profiles of many of D.C.'s commercial corridors.
2. Think about in-transition neighborhoods. Says Crocker: "It can be far better to lock in your location just before an area becomes the new hot spot rather than just after."
He suggests businesses take a closer look at Rhode Island Avenue NE, a major commuter corridor that so far has failed to take advantage of its assets – among them, a metro station on D.C.'s popular Red Line. Crocker may be biased – he is a resident of Ward 5, which includes the location – but he also may be right: D.C. recently declared Rhode Island Avenue a "Great Street," which means an infusion of city resources is forthcoming. The city's Office of Planning also has released the results of a study showing how future development could unfold, and the area has received a Neighborhood Investment Fund grant to provide technical assistance to businesses along the corridor. It doesn't hurt that work has begun on a mixed use development at the metro station, with the developers committing 10 percent of the available commercial space to local businesses. Finally, the area has been identified as part of the next phase of the District's return to light rail – often a boon to commercial development.
Another potential hot area: Martin Luther King Avenue in Southeast D.C., currently home to the largest federal construction job since the Pentagon in the 1940s. In 2016, the Homeland Security department will move to its $3.4 billion home, a 4.5 million square foot campus on the west side of the former St Elizabeth's Hospital, D.C.'s famous psychiatric hospital. (For more on the area, click here.) Other pluses: A Metro (Congress Heights, on the Green Line), plus the Anacostia Economic Development Corporation has developed new commercial space along the corridor.
3. If you don't need 24-hour dedicated space, consider an incubator or co-working situation. "It's a matter of economics with the D.C. community," says Ken Yarmosh, a D.C.-based Internet strategy specialist. "Most entrepreneurs – full-time entrepreneurs, not those running businesses on the side – boot-strap and hence co-work or use shared public areas."
One popular choice is small business incubator Affinity Lab, which started in 2001 with a 2,700-square-foot former auto parts shop in the city's Adams Morgan neighbourhood. As demand for the space grew during the recession, with people seeking to reinvent themselves as entrepreneurs, Affinity later expanded to include a 4,000-square-foot storefront space on U Street, which includes a large meeting room wired for multimedia presentations.
The incubator has 67 members, 75 percent of which are commercial (the other 25 percent are nonprofit. Tenants at Affinity had an 82 percent success rate as of June 2009, and in February 2010 – the last time the incubator compiled its statistics – the number rose to 84 percent, says CEO Charles Planck. That's in stark contrast with the difficulties experienced by a growing number of small businesses. About 595,600 small businesses closed in 2008, according to the U.S. Small Business Administration, up from 541,047 in 2004. Bankruptcy filings among small businesses rose to 43,546 in 2008, up from 34,317 in 2004. And self-employed business owners close their doors at three times the rate of firms with workers. Planck says no member that ever made it past year three has failed.
Affinity acts more like an agency, with members often asking each other questions, sharing contacts and experience and "backstopping each other when work comes in," says Planck. "As intangible as culture may seem, it's what really drives the success statistics – we don't think it's the fancy networked printer/copier." (Membership is month-to-month, and graduated, starting at $235 per month.)
Another option: iPhone app development and product company Pointabout recently launched an "innovation center" in its headquarters, a four-story townhouse near Dupont Circle. It features conference rooms, office and open workspaces, with rooms named after historic innovators such as Nikola Tesla and Leonardo da Vinci.
"We've tried to create what we wish we had when we were starting businesses," says co-founder Daniel Odio of the space, billed as a place to share ideas and hang out as well as work. Desks rent for $250 per month.
4. Know your options when it comes to District and federal incentives. A full listing of them is available on the website of the Deputy Mayor for Planning and Economic Development. The city's two-tiered Enterprise Zone – its most broadly applicable business incentives – was established in 2007, and is based on census tracts. (To see if your proposed location is eligible, click here) Others incentives, such as the aforementioned Neighborhood Investment Fund grants, are determined by boundaries set out in legislation. The incentives range from grants to tax abatements, to tax credits for hiring certain qualified employees. The city also offers special breaks for tech companies.
5. Don't underestimate the power of good old-fashioned hard work. D.C. is all about whom you know, and the same applies to real estate, whether you're looking for a desk or your own space. Entrepreneur Zvi Band of Web development firm skeevisArts accepted an offer of a Dupont Circle desk from his friend (and client) Peter Corbett at iStrategyLabs. Band's tip: Ask clients, "especially larger clients will have a cube or two available", and other start-ups. He also suggests trying to barter your services for some free space.
Do as any D.C. power broker would do and network, network, network. Crocker says: "There may be some properties that come available at a below market rate for some unusual reason. Be in a position to learn about these opportunities before they are widely marketed."