In the News...The 50 States of Construction: DC's Building boom driven by more than the government

Feb 22, 2017

Construction Dive

By: Hallie Busta

Capitol Hill may be perpetually hamstrung, but the rest of the Federal City is in anything but a holding pattern. Where construction is concerned, the District of Columbia is moving full-steam ahead, with cranes in the sky, footers in the ground and truckloads of materials navigating the city’s already busy streets.

Just how big is DC’s building boom? The District added 13.7 million square feet of built space in 2016 with nearly that much planned for 2017, according to the Washington, DC Economic Partnership. The 2016 figure is the highest mark since the WDCEP began tracking it in 2001. Additionally, more than 14,800 residential units were under construction as of August 2016, compared to 13,294 a year earlier, with nearly half of those in three neighborhoods: Capitol Riverfront, NoMa (North of Massachusetts Avenue)/Union Market and Southwest.

The presence of a primary industry — the federal government — largely insulated from swings in the market (though it can undoubtedly cause them), is one driver. Another is the hordes of young professionals seeking employment with the government contractors, legal firms and nonprofits that round out the policy supply chain and who need a place to live. But there’s more to it.

Construction Dive spoke with Mark Carroll, the DC-based executive vice president of Skanska USA Commercial Development, to learn how new industries, revisited neighborhoods and old planning standards are shaping the capital city today and in the future.

This interview has been edited and condensed.

Let’s start in NoMa, since that’s where Skanska has its first multifamily project in DC and one of only a few in the U.S. for the company right now. How did the company get involved in that neighborhood?

CARROLL: As a developer, we're trying to find the emerging and developing neighborhoods. With the height limits [in DC], we can't build any higher, and [the challenges associated with] redeveloping some of the older buildings force you to look at other markets. NoMa has grown around a couple of different things. One has been the Metro station there, which Skanska built as part of a joint venture in 2004. That created a new stop along the Red Line, which is a popular Metro line. That neighborhood was viewed as a great opportunity for development. A lot of government tenants started to find their way there around 2010. It was right around that time that we started looking at land over there. We acquired the land that is now planned for two office buildings, and then a year later we acquired the site that we're now building on, which is 22 M Street NE.

That’s Resa, the multifamily component of Skanska’s Tyber Place master plan in NoMa. Why did the company go for that project, in that neighborhood?

CARROLL: As we were looking at the area — a developing mixed-use market — we started to see multifamily projects going up with some success there. We thought [Resa] would complement the mix of retail and office space we had envisioned for the site. We planned that development around the Meander, which we coordinated with the NoMa Business Improvement District. They had a vision of a pedestrian walkway to connect the blocks because the blocks in that area of NoMa are pretty big. We saw this as a way of making a connection internal to the neighborhood from development to development, and we thought that having that kind of outdoor experience mixed in with multifamily, office and retail would create a real community environment.

The height limits are a challenge throughout DC, and so developers need to maximize width. In this kind of a project, how do you make room for the streetscape while still maximizing the site?

CARROLL: Placemaking is the term that everybody likes to use: How do you create a community or an environment where people want to go that has a good retail base and good living and work environments? There are a couple of things we’re trying to do in NoMa. First, we're not building out to full density. We wanted to take advantage of an outdoor space, so we planned that development around the Meander. We also set back the middle building so that there is an exterior courtyard for outdoor seating or other activities. It creates a sense of place, which I think in NoMa will be very welcomed.

Is the level of urban revitalization currently underway in NoMa occurring elsewhere in the city?

CARROLL: There’s a lot of redevelopment going on in the Capitol Riverfront BID. A lot of that is being driven by new multifamily, but we believe in that market as an office market as well. We're invested there with an office building at 99 M Street.

The live-work-play environment is certainly there, but you also have the entertainment component with the [Nationals] ballpark and the [DC United] stadium coming. You also have a lot of parks. The mix there has come together well to create a nice neighborhood community. The other thing that has been helpful for that market is that the Green Line is becoming a very popular Metro Line. A lot of millennials have been moving along the Green Line, and so that helps that market because a lot of the new development is attracting not only public spaces like parks but also new retail, apartments and some of the amenities we're providing in buildings such as rooftop terraces and fitness centers.

Is Capitol Riverfront on par with NoMa as far as the shift in demographics and built space?

CARROLL: They're pretty comparable. Both markets are driven by multifamily development, though you're starting to see more office interest.

How do those two neighborhoods compare to a more established one like Foggy Bottom, where Skanska is building 2112 Pennsylvania Avenue?

CARROLL: From an office perspective, it's a different tenant base. The tenants that we're talking to there like the Pennsylvania Avenue address. The building is already about 50% leased to Cleary Gottlieb, a law firm. What helps that location is the revitalization that has occurred with the development around Washington Circle [in recent years] and along the south side of Pennsylvania Avenue with our project, which are changing the streetscape there. It's already an established market, but it is changing. You're starting to see more retail activity, more street life.

You've been in DC for a while, but much of this development has occurred in the last decade. How does the District today, development-wise, compare with the planning expectations set a decade ago?

CARROLL: You know, it's funny. The downturn in the market slowed the Riverfront and NoMa, but in different ways. The ballpark was great addition to the Riverfront [in 2008] and started to get more interest there. That market was gaining momentum before the downturn, which set it back from a timing standpoint, but it has come back very strong. In NoMa, a lot of the leasing that occurred [around 2010] came out of the stimulus package, which created more office opportunities and street activity that got people comfortable with the neighborhood. Since then, you've seen a lot of residential development, and that's come along quickly in the NoMa market.

Do you see the federal government — which is a huge landowner and tenant base and spurs a lot of economic activity in the District — as being a major differentiator for DC, or is it comparable with key industries in other states?

CARROLL: The government certainly is a big driver. We're a global gateway city stabilized by the government [as an industry]. That's very attractive for foreign investors, which helps us from a real estate perspective. We've got a well-educated workforce here and great universities, and all of those things create a great foundation for the city as it develops.

The cycles in DC aren't steep cycles. When the market goes up and down, DC always seems stable compared to other cities, and I think that's because the government is such a strong anchor here. We've had great population and job growth over the last couple of years, and not all of that is done by the government, but I do think it is a differentiator. Having the government in town also brings in the contractors and lobbyists, which provide a stable economy. In the last couple of years, though, we've seen more growth outside the government.

What are some of the sources of that growth?

CARROLL: You're starting to see more tech coming into DC. With that comes a different type of office use. If you look at some of the leasing activity last year, a lot was around the co-working environment. There's been a significant increase in co-working-type users that have come into the market, and I think they're filling a need for more entrepreneurial smaller businesses, [many of which are] tech-oriented.

Changing gears, to what extent has Skanska in DC experienced the labor shortage that is being reported nationwide?

CARROLL: That’s following with the amount of development and building that is going on. We have a building division that builds all our work, and what we're hearing from them is there’s a lot of labor in demand. That creates a couple of different challenges for what we do: a need for skilled workers, as it makes it a little bit more of a challenge for staffing projects; it also creates more of an economic demand because with a lack of skilled labor, your prices tend to go up.

Is there a way around it?

CARROLL: No. You're seeing it in subcontractor bids with an increase in cost. The costs are mostly being carried by labor, and for some of the trades — concrete labor, for example — it seems to be significant.

What about green building? The General Services Administration has a LEED requirement for most projects. What’s the approach to green building in DC, and how is that different from what you see Skanska facing elsewhere in the country?

CARROLL: We like to see some of the initiatives the DC government has taken for green building such as the Green Area Ratio. Skanska overall is focused on sustainability, so our goal is to be designing all our office buildings to LEED Gold or more, and our multifamily projects to LEED Silver. A lot of what we're doing certainly meets DC standards and often exceeds them. We think it's good for the market, that it’s the right thing to do.

Are there any federal policies that the company has its eye on?

CARROLL: Any change in the government here creates different opportunities. With the new administration, there is certainly a focus on infrastructure. Skanska does a lot of that work for infrastructure development and construction. We're trying to keep an eye out for any of those opportunities, as well as other initiatives we've seen from the new administration like defense spending, which would create more opportunities in DC because we have a lot of defense contractors here.

What do you think sets DC’s construction industry apart — for better or worse — from that of the rest of the country?

CARROLL: I've lived here for a while and I love DC. When you compare it to other cities, there is a unique character to it. We have the master plan — the L'Enfant Plan — which I think everyone has a great deal of respect for. Some of the height restrictions create a different dynamic from what you might find in other cities. While we don't have the large, tall buildings, we still have a very elegant city and it's integrated with great parks. You see that respect for outdoor space with some of the neighborhoods being developed. With Tyber Place in NoMa, we’re trying to have an outdoor environment. At 99M, down near the ballpark, that neighborhood [already] has some great parks. The balance between the built environment and outdoor space is one thing that makes DC great.

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