Services, fitness and restaurants buoy Washington’s retail market

September 30, 2012

While that old sad song about Washington’s challenging office market is sounding a bit like a broken record, there is good news on the retail front.

The office vacancy rate in the nation’s capital ticked up 50 basis points over the past year, contrary to the 40-basis-point decline in office vacancy for the broader United States. The trends are reversed for retail property. The Washington region is experiencing better-than average improvement in the sector while nationally, retail continues to ride out the choppy economy. The national retail average vacancy rate recovered only 50 basis points, meanwhile retail vacancy in the president’s backyard improved nearly twice as much, by about 90 basis points.

Local store closures such as Sears and Bloom, the Food Lion concept grocery, have been a drag on the retail market here, just as they have been across the country. However, demand for retail space in the region has been buoyed by three important business segments: services, fitness and restaurants.

Local professional and everyday service shops have been springing up in an attempt to meet the demand spawned by new households in the region, and outsized absorption of retail space has been posted in Maryland’s outlying suburbs, the Largo area, Frederick County, and Germantown. In Northern Virginia, Springfield has also benefited, largely as a result of influx of works from moves related to the Pentagon’s base closure and relocation process.

New restaurants have been chasing affluent households, with Fairfax registering the strongest growth in restaurants in 2012, while Potomac and enclaves along the Dulles Tech Corridor placed just behind. Somewhat surprising perhaps, is that already well-established hot dining destinations in downtown D.C. have continued to add new establishments, with a net gain of 21 new eateries over the past nine months.

The region’s demographic profile is quite active, which has drawn the attention of national fitness chains in a big way. So far this year, 30 new gyms have opened here, and a high concentration of those new sweat shops dot the path of household growth from Falls Church to Loudoun County.

So it is clear from recent retail trends that D.C. residents still want to pay people to do stuff for them, work out, and not have to make every meal at home.

Erica Champion is a senior real estate economist with CoStar Group in Washington.

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