Recent WBJ data indicates that DC Gov’t is posting “high value assessments.”  This is timely, if for no other reason assessment notices are pending.  It is also important on another, more material level:  DC Gov’t MUST be very aware that they are rapidly approaching the edge of a cliff.

If property taxes continue to increase, they run the risk of forcing DC tenants to other jurisdictions.  Already, one prime tenant , Carlyle Group, has offloaded some of its space to Rosslyn.  If Carlyle cannot afford to operate in DC, who can?  In addition to that, RCDH sees a secular trend for increasing the use of telecommuting, office hoteling, etc as occupancy costs continue to escalate.  Thus, demand for office space in DC may erode.  With pending (material) federal budget cutbacks, either rent erosion or cost-cutting are, without question, of the federal agenda.

DC has done this in the past (i.e., ignored operating cost dilemmas faced by tenants).  In the early 1990’s, DCBIA warned DC Gov’t of the striking gap between DC and the adjacent suburbs in terms of operating costs (for office space, now approaching $12-$15/SF as of 2011).  Those warning were, essentially, ignored.  A year or two later, DC Gov’t came back to DCBIA and asked for “assistance” in marketing the City as a prime business location.  DCBIA is a champion of this city and gladly provided any and all assistance it could.

Moving forward, this time, in my view, is VERY different.  Federal deficits are unconscionable and getting worse, not better. There appears to be a growing political backlash against more spending.  This was NOT the case 20 years ago.  Thus, the primary tenant base for the City may be eroding, if not by choice, by circumstance.  It is mandatory for DC Gov’t to cut expenses (as the Feds are just now beginning to do), fairly tax occupants, and provide a “pro-business” climate (which pays most of the bills you reference).  Most of the recent legislation, tax rates, etc proposed in the City are anything but “pro-business.”

Please encourage the City to take this to heart before more “Carlyle situations” arise and budget woes worsen.

Feb 2011

Dennis Duffy, MAI

Principal/CEO

RCDH & Co.

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