Serious Capital! D.C. Office Market Trumps New York

Go south, young broker! Washington, D.C., is, believe it or not, the new New York City.

“It’s kind of the tale of two cities with New York City and D.C., to use a tired term,” said Robert Sammons, the managing director for research at Colliers ABR, during its Tuesday morning Capital Markets Overview on the 11th floor of 40 East 52nd Street.

Or rather, it’s the tale of two brothers. New York is the hard-partying, high-flying younger brother who pulls in reams of money in good times and comes begging for loans in bad. D.C. is the dull, staid, sensible older brother who, in good times and bad, just keeps plugging along. And so, while New York’s economy hemorrhages jobs, and its real estate sector is near lifeless, D.C. is actually adding jobs, and its commercial real estate sector, while slumping, is hardly a corpse.

In Manhattan, average asking rents are down 5.6 percent from their peak in May, while in D.C. they are holding steady. In Manhattan, the Class A vacancy rate is 9.1 percent to D.C.’s 7.8, according to Colliers’ third-quarter reports. New York has a negative absorption rate, D.C. has a positive one. And while sublet availability in Manhattan has skyrocketed 113 percent compared to the third quarter last year, it has only risen 15.6 percent in D.C.

Why? Well, first of all, as David Webb, the senior managing director of Cassidy & Pinkard Colliers International, pointed out, D.C. has more stringent building-height limits. That means that, historically, its buildings, both old and new, have been smaller and cheaper, and construction and acquisition financing have been less reliant on risky CMBS loans.

And then there’s the presence of the federal government, which, by Colliers’ count, makes up one-third of the D.C. economy (and counting).

“One of the nice things about D.C. is that government is counter-cyclical,” said William Collins, senior managing director of Cassidy & Pinkard. When the real estate market is in the dumps, the government tends to enact some sort of stimulus package, hiring more people and occupying even more office space.

Today, there’s TARP, the Troubled Asset Relief Program; increased regulation of the financial sector; and, of course, the new Obama administration, all of which are creating new jobs. Indeed, D.C. has a 4 percent unemployment rate, while New York City’s stands at 5.7 percent.

“Job growth continues and is picking up momentum [in D.C.],” said Kevin Thorpe, vice president and director of research for Cassidy & Pinkard. Indeed, the D.C. economy is on pace to add 31,200 jobs in 2008, another 29,000 in 2009, and yet another 42,500 in 2010!

The New York City comptroller, in contrast, recently predicted that the city would lose up to 165,000 private-sector jobs in the next two years.

“My part is a bit more uplifting,” said Mr. Thorpe, who presented the D.C. stats after Mr. Sammons presented New York’s. “I should probably follow Robert around for the next two years and speak immediately after him.”

Indeed, Mr. Thorpe’s presentation was nothing short of a tall glass of water on a desperately hot day after a three-hour hike through the Negev Desert.

“One could make the argument that the D.C. economy is the strongest in the country,” Mr. Thorpe said.

drubinstein@observer.com