Immediate prospects for residential and commercial construction and broad-ranging real estate activity brightened in recent months but some areas of moderate concern persist for 1977.
And while the basic fact of a change of national administration and some legislative personnel moves on Capitol Hill tends to inject new vitality and confidence into the real estate market, most of the new confidence seems to be merely the result of the end of the usual uncertainty that grips this area in the weeks preceding a national election.
On the bright side, there's a notable resurgence of construction of single-family dwelling in the Washington area that has resulted in approximately 13,500 housing starts in 1976 and has prompted estimates of 14,500 for this year. The significance of those numbers is magnified when considered in the perspective of only 7,230 single-family-dwelling starts in 1975, a disastrous year in residential housing here.
Meanwhile, area multi-family-dwelling construction has been weak, with 2,324 units started in 1975 and 3,263 in 1976. However, the forecast for 1977 is somewhat better, with 5,200 new rental units predicted. That's still far below the big years of the mid-1960s, when multi-family starts of 20,000 to 30,000 were not uncommon. Much o the recent lethargy in apartment construction resulted from lack of investor confidence and higher operating costs - and even more from a period of exorbitantly high construction and mortgage loan interest rates and a shortage of those funds.
However, in the waning months of 1976, mortgage credit became more plentiful and rates on loans of all kinds dropped considerably. In addition, some stimulus is now expected from government action that would make some apartment mortgage funds available at 7 1/2 per cent, still fairly well below the conventional interest level that has dropped to near 9 per cent for some commercial loans and closer to 8 1/2 per cent for individual home mortgages. The FHA/VA interest rate ceiling was dropped to 8 per cent about two months ago, another signal of the greater availability of mortgage funds at lower rates in the general market.
On balance, there has been an areawide resurgence in construction of single-family dwellings, some upturn in apartment building despite the still overbuilt condition of the condominium market, and a remarkable new vitality in in-city residential rehabilition. Also, there were more home starts than usual in the District, which seems to have established a new attraction to young couples wanting to set up households.
However, prospects for the general construction are less encouraging. Carleton L. Cotting, president of the Washington Building Congress, put it this way: In 1977, we do not see a rosy picture or even some type of general upswing. While costs will rise, the quantity of work is steadily dwindling. Metro construction has decreased. Federal and local governments have in the past been one of our major clients but they tremendously reduced spending in 1976 and their planned austerity programs for 1977 will do nothing to help the outlook . . . For 1977, we find money basically available but lenders are looking much harder at proposals and, therefore, lending less.
". . . the only possible bright spot we now see is office buildings, mostly small in size. Apartments, warehouses and general commercial buildings show no signs of coming back in the immediate future."
His statement was amplified by a report from James M. Sprouse, executive vice president of the Associated General Contractors of America, based here: "The impression I get in talking to general contractors throughout the country is that, unless the federal pump is primed and primed hard and other conditions such as consumer confidence and capital spending fall in place, I think we can expect only a modest 2 to 3 per cent real increase in actual construction put in place in 1977."
Another viewpoint was expressed by James A. Clark, president of George Hyman Construction Co., a firm with many large contracts here and elsewhere in the United States:
"We see more speculative and non-speculative construction in 1977 and a better rental and leasing market - but a less-than-active role by the federal government. We are working on the foundation for a new Senate office building and the full job will likely get going in 1977. But the Metro pace has slowed.
"Much of our work now is in wastewater treatment plants and related construction elsewhere in the nation," Clark added. "We expect our total volume to increase about $20 million to $190 million nationally. Construction costs rose 5 to 6 per cent in 1976 but 1977 is a question mark."
Locally, prospects for office building construction in the private market are good.New space coming on line in 1976 was relatively light as the result of a soft market in 1975. One report indicated that an estimated 1.5 million square feet of new downtown space was leased last year but there is some heavy carryover of available space near Capitol Hill. In the midtown area, most of the new space has been leased and the prospects are strong for leasing of space to be completed in 1977. The current price per square foot in top locations is around $11, up several dollars from a few years ago. Yet, more than 450,000 square feet of space were leased in two autumn months of 1976, with buildings at 2626 Pennsylvania Ave. NW. and 1055 Thomas Jefferson St. NW (in Georgetown) being completely leased.
The three 'As' - attorneys, associations and accountants - still make the major leasing market, contributing heavily to an areawide absorption rate estimated by a private study to be about 1.9 million square feet a year. Leasing specialists agreed that well less than 800,000 square feet of new space hit the downtown market in 1976 but the figure is expected to be considerably higher in 1977, with much of it preleased as the result of a recent trend to require leasing commitments as a basis for financing.
The estimate for new space in 1977 is about 1.3 million square feet, which should help to take care of some of the carryover of unleased space that totaled more than 1.1 million square feet in various locations. One of the major new downtown office buildings to be occupied early in 1977 is the first phase of the big International Square complex with more than 350,000 square feet at 19th and K NW, where the price level is reported over $11 a foot.
Outside the city, the Tysons Corner area continues to provide a strong site for development, with the T.N. Lerner shopping mall as a base and the unrelated Westpark business complex as an adjunct. Tysons also is the site of the vast new Rotunda condominium apartment complex of an eventual 1,200 dwellings started by Giuseppe Ceechi and his IDI firm.
In the Crustal City area of South Arlington, the Charles E. Smith firm plans to continue the development of office buildings, apartments and shopping or ready started more than a decade ago. An expanded underground shopping mall will be unveiled later in 1977. The Smith firm also plans to continue development at its big Skyline Center development at Baileys Crossroads. And recently, the Levitt building firm indicated that it plans finally, to make a start on the new town that has been part of its planning for the Bowie area. Another developer also has plans for an office building and shopping areas in the southwest quadrant of the major intersection of Routes 50 and 301 (3).
The big towns of Columbia and Reston, among the private pacesetters across the nation, are continuing development after a lean period in 1975 and a comeback in 1976. And Montgomery Village, St. Charles, Dale City and Lake Ridge also are showing increased vitality.
On the warehouse-industrial building scene, action has been rather lethargic for several years but an upturn in the national economy should spark new interest in space now available under $2 a square foot for rental and about the same for buildable ground.
Overall, moderate interest rates and new consumer confidence seem to be the keys to resurgent activity in real estate and construction in 1977.