For 2010 economy, glass is half empty and half full

The economic outlook for the Washington region in 2010 is mixed -- with continued sluggishness in convention bookings and commercial real estate but some improvement in employment and productivity projected.

Like much of the country, the area suffered in 2009 under the recession as unemployment and office vacancy rates rose and retail sales and construction activity slowed. But the federal government, which has largely shielded the region from the full brunt of the economic downturn, is expected to help propel it into recovery.

Federal spending, the engine that drives the region, should fuel a slow but robust recovery that will materialize sooner here than in most other parts of the country, local economists say. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, forecast that the region's economy will grow 2.8 percent in 2010 and 4.0 percent in 2011. That would surpass projections for the U.S. economy to grow 2.2 percent in 2010 and 2.8 percent in 2011.

Over the next several years, the federal government is planning to hire as many as 120,000 workers in the region for various agencies, including the Department of Veterans Affairs, the Department of Labor, and the Food and Drug Administration. The expansion would not only boost employment but also absorb a portion of the vast supply of empty office space in the region.

Jobs lost in 2009 should be offset in 2010, Fuller said, with a net gain of 23,900 positions by year's end. That number is projected to grow to 34,900 in 2011 and 42,000 in 2012.

The region's unemployment rate, though, is likely to rise slightly before it falls. Fuller forecast that the rate will peak at 6.4 percent in June, typically the month with the highest rate, from 6.2 percent in October. Then it is expected to fall below 6 percent by the end of the year.

Demand for office space has been down, with corporations and small businesses postponing growth plans and reducing staffs. Federal expansion is reviving the commercial real estate market -- but slowly. In late 2009, the Internal Revenue Service signed a deal to lease 175,000 square feet of office space in a new building at 77 K St. NE in what is known as the NoMa area of the District. The IRS is one of several agencies seeking space in the private market, according to analysts at CB Richard Ellis.

Still, real estate experts say they expect office vacancy in 2010 to surpass the 11.8 percent rate of late 2009. That's because several soon-to-be-completed office buildings are scheduled to hit the market, compounding the glut. Vacancy rates, experts say, should come down once hiring resumes.

"We're very excited 2009 is over. That was a very challenging year in a constrained environment when many real estate investors decided not to participate in the market," said Ernie Jarvis, managing director of CB Richard Ellis's D.C. office. In 2010, he said he expects to see "activity from the private sector slowly reemerging into the market."

The District, the hub of the region's convention business, will host several high-profile conferences in 2010, including those of the American Association for Cancer Research, hoping for 9,000 in April; the American Library Association, bringing 26,000 in June; the Microsoft Worldwide Partner Conference, attracting an estimated 10,000 in July; and the American College of Surgeons, bringing 15,000 in October. Some of the organizations have agreed to return for future conferences, said Elliott Ferguson, president and chief executive of Destination DC, a nonprofit corporation that oversees tourism and conventions in the city.

Nevertheless, Ferguson said, 2010 "is on track to be one of the lowest years booked for conventions to date." The city has 15 conventions scheduled for 2010, compared with 16 in 2009 and 24 in 2008. Attendance also is expected to lag -- 172,530 are registered for 2010, compared with 279,689 in 2009.

Ferguson said conventions should rebound in 2011; 22 shows are booked with 361,500 guests.