WASHINGTON, D.C. – Commercial construction declined by 31 percent between 2014 and 2015, according to a new report by the Metropolitan Washington Council of Governments (COG), Commercial Construction Indicators: 2015 Report. This represents a decline of more than 3 million square feet of new commercial space, making 2015 one of the lowest years of production for the region in the past 35 years.
Commercial construction is considered non-residential property, and includes office, retail, industrial, hospitality, health care, and sports and entertainment properties.
Industrial property—led by warehouses and data centers—was the only commercial construction sector to increase square footage in the region last year. 2.1 million new square feet of rentable industrial space was added in 2015, the highest total since 2008.
New office construction saw the largest decline in the region in 2015; only 1.7 million new square feet of rentable space was constructed, resulting in the smallest yearly total since 1994.
Since 2009, the overall regional commercial real estate vacancy rate has hovered above the national average, at around 11 percent. However, the vacancy for office buildings in the region climbed to its highest level in over 20 years in 2015 to 14.9 percent.
Despite the decline in construction and high vacancy rate, more than half (60 percent) of new construction square footage in the region in 2015 occurred in Activity Centers, locations identified by COG and local governments that will best accommodate the majority of the region’s future growth and are critical for ensuring the region’s future competitiveness and success. This falls short of the Region Forward goal of 75 percent established by the COG Board of Directors in 2010, suggesting there is still need for focusing more development in Activity Centers.
This decline in commercial construction mirrors a period of declining federal procurement and stagnant job growth in metropolitan Washington. COG’s State of the Region: Economic Competitiveness report released earlier this year notes that in 2014, the annual job growth rate in the region was 0.5 percent, one of the lowest rates in the country. It also notes growth in inflation has outpaced regional median wages since 2011, according to Bureau of Labor and Statistics numbers. The report also highlights a Center for Regional Analysis figure that federal procurement spending has declined by $11.2 billion since 2010.
“The Commercial Construction Indicators report reiterates the need for deeper coordination to address the region’s stagnated economic growth,” said COG Executive Director Chuck Bean.
Metropolitan Washington's exports total $26 billion—a number that COG and local government, business, and higher education leaders throughout the region are trying to expand through participation in the Global Cities Initiative (GCI). GCI is a joint project of the Brookings Institution and JPMorgan Chase which helps public and private sector leaders grow their economies by strengthening international connections and competitiveness.