While it may not be totally recession-proof, consistent construction spending by the federal government and a lack of heavy industry tend to insulate the Washington, D.C., market from the ups and downs in the U.S. economy.
Because of its vibrant downtown construction scene and the steady flow of construction in many of its suburbs, Washington D.C. is proving itself to be one of the most resilient markets in the United States.
“There's always something going on in Washington,” says John Hardy, chief executive officer of Capital Lighting & Supply, Alexandria, Va. “It's probably the most insulated market in the U.S. There's always been something that's driven the economy, and most often the federal government is the basis for it. There are a lot of different ups in the economy, but the downs are never like they are in the rest of the country.”
Another Washington, D.C., electrical distributor isn't certain he agrees with the folks who call the area's economy “recession-proof.” The city does seem to be less prone to recession than other areas of the country because of ongoing business from the federal government and the absence of heavy industry. “I don't know that it's recession-proof, but it's going to be the last area to feel a recession,” he says. “When the rest of the country feels it, we sort of feel it last.”
Indeed, Washington's economy is thriving. As of August of 2006, Washington had $15.2 billion worth of construction projects completed since 2001 and $7.5 billion of projects currently under construction, according to the Washington, D.C. Economic Partnership (formerly the Washington, D.C. Marketing Center), a public/private partnership dedicated to facilitating economic development in the District of Columbia.
The outlook is good. Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Washington, D.C., metropolitan area will sell approximately $885 million in electrical products this year, a 7.5 percent increase over 2006. The increase in sales will be led by stronger growth in the contractor market.
Washington's sprawling growth makes it tough to define the market's exact boundaries. Capital Lighting & Supply's Hardy says the market reaches east to Upper Marlboro, and Bowie, Md., Fredericksburg, Va., to the south, Laurel, Md., to the north, and Germantown, Md., to the west. “Washington and Baltimore are considered two separate markets, but they really merge,” he says. “It's hard to say where one starts and the other stops. It used to be pretty simple because people didn't do business in both markets, but now they do.”
Grant Shmelzer, executive director of the Independent Electrical Contractors (IEC) Chesapeake chapter, talks in terms of the Baltimore-Washington corridor when he addresses the metropolitan market. He says most of IEC's Washington-based contractors also work in Baltimore, and most of IEC's Baltimore-based contractors travel to Washington for work.
Schmelzer says a large federal project is keeping IEC members quite busy. The federal Base Realignment and Closure Commission plan, (BRAC), a reorganization of military bases, will give Maryland 45,000 federal and private-sector jobs. The reorganization will add workers to installations such as Fort Meade, five miles northeast of Laurel, Md., and Aberdeen Proving Ground, a U.S. Army facility located at Aberdeen, Md. “This is one of the biggest projects going on in the region because the individuals are being relocated or hired and relocated here,” he says. “The infrastructure has to be built out, and that means we have to build out housing, too. With that infrastructure being built out, you're building out your commercial infrastructure — your supermarkets, your CVS/pharmacies.”
While the suburbs are seeing their fair share of commercial development, one electrical distributor who asked not to be identified said construction cranes are everywhere in downtown Washington, too. Office construction is particularly strong, and with its 7.5 percent office-vacancy rate Washington boasts one of the healthiest office-construction markets in the United States.
“There are all kinds of people who want to associate themselves with Washington, D.C., so there's always commercial space being developed,” he says. “It's a place where people want to be.”
One of the city's largest projects is the redevelopment of the Potomac waterfront. A team of developers plans to transform 47 acres of the southwestern area of Washington, from the 12th Street Bridge to Fort McNair, into a multimillion-dollar neighborhood with housing, restaurants, shops, offices and cultural attractions.
Another large project now underway is the construction of a new stadium for the city's Washington Nationals baseball team. Due to open in early 2008, the ballpark is sparking the redevelopment of a large area that was depressed for many years and is now the site of several ongoing and planned projects.
While a union contractor is doing the work on the stadium, work right outside the stadium is plentiful for non-union contractors, says IEC's Grant Shmelzer. “While my contractors are not involved in the actual stadium build-out, they're involved in all the projects that are going on around the stadium.”
The city plans to spend $18 million to upgrade streets near the stadium. An estimated $20 million will be spent on the Metro rapid-transit system's Navy Yard Station, street repaving, lighting and landscaping. Near the baseball stadium, the Washington, D.C., Planning and Economic Development Agency approved a master plan for a $650 million mixed-use redevelopment of the old convention center at New York Avenue and Ninth Street, NW. The project will include 415,000 square feet of office space, 280,000 square feet of retail space and 686 residential units, said a recent article in the Washington Post. Groundbreaking is scheduled for the fall of 2008.
Hotel renovations are also booming. Projects now underway include major renovations of the St. Regis, a four-star deluxe hotel, and the 100-room Jefferson. In the city's Georgetown neighborhood, the Latham Hotel and the Georgetown Inn will be renovated into luxury properties.
Even the area's housing market seems to be coming back. While single-family housing building permits are down 27 percent year-to-date through December 2006 for the Washington, D.C.,-Arlington, Md.,-Alexandria, W.V., metropolitan statistical area (MSA), several electrical distributors say they see encouraging signs that the housing market is picking up. One distributor says while the market was overbuilt and that it had a large inventory of homes, that inventory is beginning to dry up. As a result, builders are feeling more confident, and new housing developments are once again cropping up in northern Virginia and in some parts of Maryland.
“Builders are starting to look at new starts and they're starting to sell new homes again,” says Capital Lighting & Supply's Hardy. “The inventory is getting eaten up now, so some of the builders we were doing business with are starting to gear up again, although not to the level they were.”
One electrical distributors says the new housing developments tend to be in the outer reaches of the metropolitan area because people are willing to endure long commutes from areas such as Loudon County in the western suburbs to take advantage of the job opportunities in downtown Washington and suburbs inside the beltway. “People are moving farther out because they want to make the money that District of Columbia can offer, but they want to live where they're not stepping on their neighbors,” he says. “Many people are gravitating to Loudon County, where they can live in beautiful surroundings at real estate prices that aren't nearly as high.”
Electrical distributors are bullish about Washington's economy over the next few years. For instance, Capital Lighting & Supply is building a new 220,000-square-foot regional distribution center (180,000 square feet of distribution center and 40,000 square feet of office space) in Forestville, Md., that will hold approximately $18 million in inventory. Now under construction, the new facility is set to open early in 2008. The company will move its current headquarters in Alexandria, Va., and its 85,000 square-foot-distribution center in Newington, Va., to the new building. The new RDC may one day serve as many as 40 branches. “That's how bullish we are on the market,” says Hardy.
Washington, D.C., by the Numbers
2007 sales through electrical distributors
$885 million in sales, according to forecast data provided by DISC Corp., Orange, Conn., for www.hotspots.com. That compares to forecasted sales of $824 million for 2006. Sales are expected to be up 7.5 percent for 2007 over 2006, according to DISC.
The Washington, D.C.,-Arlington, Md.,-Alexandria, W.V., metropolitan statistical area (MSA) had 27,710 building permits (single-family and multi-family) year-to-date through December. That's down 22 percent over December 2005.
Major construction projects underway
The largest construction project underway is Washington Nationals Park, a $611 million, 41,000-seat baseball stadium scheduled to open in April 2008. The stadium will be located in southeast Washington. Features include 22,000 seats in the lower bowl, 12,100 in the upper seating bowl from where fans can see the U.S. Capitol building, 2,500 club seats, 1,112 suite seats, a 500-seat founder's club with indoor dining, and a 1,300-seat diamond club with indoor dining.
Across town, the Anacostia Waterfront Corp. plans to redevelop 47 acres of the southwest Washington waterfront into a 2-million-square-foot development of housing, shops, restaurants, offices and cultural attractions. The $800-million plan includes constructing public piers, a waterfront promenade, parks and other maritime attractions. Building is expected to begin in 2009 and take eight years.