City leaders had hoped that the hustle and bustle of downtown D.C. would be back by July 4. Then it was Labor Day. And now, well into fall, a report questions whether that traditional office culture will fully return and if the pandemic might have permanently altered the heart of the nation’s capital.
The report released Thursday by the DowntownDC Business Improvement District painted a bleak picture of fall in downtown Washington, driven largely by the continued absence of nine-to-fivers. Office vacancies hit record highs, dozens of restaurants remain closed, and less than 25 percent of employees had returned to their downtown buildings by mid-September — up less than 2 percent from July. In a telltale sign of hard times in downtown Washington, it is difficult to find a shop open for coffee after 4 p.m.
“Going forward, downtown will be different,” said Gerry Widdicombe, director of economic development for the DowntownDC Business Improvement District. “And offices are highly likely to be less prevalent.”
The District has tried hard to lure workers out of their homes and back into the office. They renovated Franklin Park in the heart of downtown, where they’ve hosted a variety of events including break dancing competitions and salsa shows. They gave away free coffee on Monday mornings. The downtown BID put on a free “roller skating experience” on F Street. And the neighboring Golden Triangle BID — which covers the area from Dupont Circle to Pennsylvania Avenue — opened an “outdoor office” with free WiFi and socially distanced furniture in a park.
But in a world where coronavirus variants and flexible work-from-home policies are increasingly the norm, the report signaled that city leaders may need to pursue more drastic and permanent changes to maintain vibrancy downtown — and residential housing has emerged as a potential solution. The downtown apartment market recorded one of its strongest ever quarters this fall, nearing an all-time low vacancy rate of less than 4 percent and an all-time high in average rent with $3.44 per square foot per month, according to the report.
The D.C. Policy Center came out with its own study Thursday focused on the potential of turning office buildings downtown into residential space. It painted those conversions as an answer to both chronic housing shortages and the office vacancy problem downtown that had been simmering for years before the pandemic but has since become untenable.
Tracy Loh, a fellow at the Brookings Metropolitan Policy Program, saw the reports on the state of downtown as strong indicators that D.C. should re-envision the structure and purpose of its city center.
“I see this as incredibly hopeful because now we can try something else that is more diverse and inclusive of different land uses,” said Loh, who penned her own report titled “To recover from COVID-19, downtowns must adapt.” “A downtown that invites us and includes us as whole people and not just workers.”
Without a rush back to the office or significant changes to building use downtown, the BID report detailed how the dearth of office workers could have serious financial implications for small businesses and hotels. By the end of September, there were still 59 “temporarily closed” restaurants and stores in the Downtown BID, according to the report, and a retail vacancy rate that hovered above 20 percent. Employment downtown, which had been recovering since hotels and restaurants began to reopen last year, plateaued for the first time in August. And only 11 percent of D.C.'s hotel workers who lost their jobs during the pandemic have returned to work, according to the BID report, a striking difference from the 77 percent of hotel workers nationwide who have been rehired.
And while the D.C. government is awash in money from federal relief programs, the city’s budget has also been impacted by vacant office buildings that have decreased in value. In the 2022 fiscal year, the property tax revenue from large office buildings fell by approximately $121 million, caused by a 9.7 percent drop in large office building assessments, according to the report.
“The District’s economy has really shown how resilient it is over the course of the pandemic,” said John Falcicchio, the deputy mayor for planning and economic development. “But we cannot hold if this is a long-term trend.”
The District launched a new fund meant to “restore economic vibrancy and promote job growth” downtown with financial incentives for companies that commit to locations in the central business district and new investment in BIDs organizing outdoor activities such as street festivals and markets.
D.C. officials have repeatedly stressed the importance of federal government employees returning to their offices — saying that their presence downtown would attract more business travelers.
The report highlighted the culture and entertainment sector of the economy as a potential lifeline for the city center this winter. After more than a year and a half of closures and partial reopenings, plays, musicals and concerts will return to downtown in the fourth quarter of this year. All eight performance venues and 12 museums in the downtown BID are open with more relaxed restrictions.
The report cast conventions, too, as vital to recovery downtown. The city has booked 20 citywide conventions for 2022 and 19 for 2023, close to the average of 22 citywide conventions in previous years.
But those invested in the health of downtown Washington remain cautious and focused on finding innovative ways forward, especially as other parts of the city have usurped some of its old desirability. Sales at D.C. restaurants outside of the Downtown BID are, on average, pacing above pre-pandemic levels. Hotel occupancy rates, per the report, are also significantly higher outside of the central business district.
“There is no magic solution here,” Widdicombe said. “All I know is it’s going to be different.”