Leaders talk state of the Washington DC market and Brexit

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From Peter Spradling
Pursuit Analytics Analyst

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In a morning filled with cautious optimism and DC pride, leaders of the local and national real estate industries talked about their views on the market at Bisnow‘s DC State of the Market event. Every speaker spoke confidently about the state of the DC market even under the uncertain times we are living in.

Panel I: DC and Metro

The first to take the stage was JBG Companies Managing Partner Matt Kelly and First Potomac Realty Trust CEO Robert Milkovich, moderated by Arent Fox Chairman Mark Katz. Katz began by mentioning that it is a “Pretty phenomenal time to be investing in Washington”, highlighting future plans in a number of submarkets including Rosslyn, Union Marker, Eckington and Shaw. Kelly commented on the uncertainty of the market due to Brexit but assured that it would not have a negative impact on capital allocation flows, “a lot of foreign investment in DC will continue and increase with people looking for safe investment.” The JBG boss also noted that Brexit creates opportunity for the risk taking investors saying “Britain is not going away, London is not going away”. Milkovich reiterated Kelly’s points about conservative capital remaining in the safe harbor markets like Washington DC and opportunistic capital flowing to Europe.

Metro was another hot topic of discussion that morning. Kelly expressed confidence with Metro saying “metro is very important…it has a robust ridership and will continue to be critical in our market”. On the Safe Track repairs, “we don’t look at it as a problem, we take some confidence on what they are doing”.

The panel ended with optimism about what’s to come in DC. [pullquote align=”full” cite=”” link=”” color=”” class=”” size=””][pullquote align=”left” cite=”” link=”” color=”” class=”” size=””]”I think nationally, we’re late in the cycle, and when you look at the information and data we read, we see red-hot markets like Silicon Valley and Boston are peaking,” Milkovich said. “DC has always been counter-market, it’s coming back in. We’re very bullish on the future of DC. If you look at the net migration of people, it’s really a great story.”[/pullquote]

Panel II: Multifamily

The second panel was composed of Kettler founder and CEO Bob Kettler and Ron Paul, founder and CEO of EagleBank, moderated by David Kessler, national director at CohnReznick. Kettler began by commenting on the multifamily market, where 25,000 units are under development but it is experiencing only 3% rent growth, below the national average at 5% to 6%. “We’ve been very concerned about it over the years,” Kettler commented. “If you look at the 25,000 units, another 5,500 or so in the pipeline, that would be about 30,000 units delivering over the next three years. We’re currently absorbing last year’s 15,000 units and projecting 13,000 or 14,000 this year and averaging that for the next three years,” he continued. “So it seems like, at least in the aggregate, the supply and demand are matching up, at least enough for some modest rent growth.” He was quick to mention that job growth would drive future demand, “we are not that concerned with the volume of development, especially with the growing income.” Paul echoed Kettler’s optimistic tone saying he sees an incredible growth opportunity inside the beltway, especially in the suburbs. Paul went on to describe the new trends that are leading people to move farther away from public transportation. Things like Uber and bike paths are allowing individuals to avoid buying that expensive car, “my apartment has 75% vacancy in the garage”. People are also looking for apartment living with lots of amenities, with very functional spaces and retail on almost every first floor, “we are moving into the value add business” Kettler chimed in. Paul ended the panel mentioning that we are experiencing an extraordinary amount of capital coming in and that he believed it would continue, being careful to not overlook the uncertainty in the market.

Panel III: Brexit

The last panel was composed of JLL Americas CEO Greg O’Brien and Cushman & Wakefield Americas CEO Joseph Stettinius, the two biggest names in US commercial real estate. The first topic of discussion was Brexit. Stettinius gave his take by saying that it was “really early to tell” and there is no way to know if Britain will become more isolationist or create essentially the same environment through treaties. JLL’s Greg O’Brien had more optimism for Britain. Praising its consistency for talent and as being the most diverse city in the world, “if you think this is it for London you are wrong”. O’Brien went on to mention how the UK represent only 4% of our exports and exports are 13% of our GDP, so we should not expect a big impact on that end. O’Brien went on to comment about the challenge of the current uncertainty in world markets but assured that “capital will flow into core markets”.

After the Brexit discussion, the conversation continued with views about the future of the Real Estate service industry and if they foresaw any service disruptors in the horizon. Stettinius was quick to respond with “we are the Uber of our industry, we are the disruptor”. Claiming that Cushman & Wakefield did not own any hard assets either [as Uber and Airbnb]. Greg O’Brien took a more detailed approach. He argued that services are a disruptor. That at JLL we being solutions together. Investing heavily in data infrastructure and technology JLL is leading the way in client facing technology. “We get up every day and think about our people and our clients and how to make us more efficient” proudly espoused O’Brien. “We are building the right culture and the right platform…always thinking where we need to be in 10 years so we can stay ahead for our clients, at the end of the day our people and our clients are the most important thing.” O’Brien also mentioned JLL’s recent placing in Linkedin’s top attractors, “the key is to build the right platform and the right culture, thinking about how technology impacts real estate and attracting data and analytics specialist from other industries.”

The conversation ended with both CEO’s praising Washington, DC and everything it had to offer. Companies look at places where they can attract the best people, and DC is the perfect place; with great public transportation and a young and diverse population. [pullquote align=”full” cite=”” link=”” color=”” class=”” size=””]”We have that unbelievable magnet that’s going to bring and keep companies here, in whole or in part, and that’s going to make this, long term, a better and better region,” said O’Brien[/pullquote]

Stettinius joked “Buffalo would kill for our traffic” and contended that “we have to be bigger advocates for what we have and not take it for granted”.

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