DC businesses blame government for emptying district offices

Kostas Fostieris winced as he recalled the weekday crowds that once flocked to Greek Deli & Catering, a small restaurant a few blocks from the White House that he has operated for 35 years. At lunch, the line would stretch to the block, Mr. Fostieris said. But then the coronavirus pandemic swept the nation and the lunch crowds disappeared. They still haven’t returned.

It’s like night and day, Mr. Fostieris complained as he sat in front of a wall adorned with signed photographs of current and former presidents, as well as a host of framed comments, some faded, all flashed from newspapers, magazines and guidebooks.

Asked if business on certain days of the week was particularly slow, Mr. Fostieris quickly replied: Every day.

But unlike the other two, Seattle and San Francisco, Washington is not a tech hub, but a company town that relies on a single employer to a degree not seen elsewhere. The local economy is powered by about 160,000 federal workers in the district, who are only now slowly returning to their workplaces from their suburban offices. Last fall, an annual survey of 625,568 federal employees found that more than two-thirds were still working remotely some of the time.

Nina Albert, the district’s deputy mayor for planning and economic development, said working with the federal government to convince workers to return to the office was a challenge.

We would like the federal government to make a more concerted effort to get people back into office because we think it’s better for the federal government, as well as better for us, she said.

These dynamics have put real estate companies and local businesses at odds with the federal government. Businesses said the thousands of federal workers still sitting in their suburban home offices were accelerating Washington’s fiscal and social decline.

The federal government is now a hindrance rather than a benefit to the district, said Steven Teitelbaum, a former real estate attorney who now teaches at American University.

A collapse in commercial real estate market vacancy rates that rose above 20 percent in Washington by the end of 2023 would affect not only landlords and developers, but the district itself. As buildings lose value, tax revenue could drop: Last year, the city’s chief financial officer predicted that Washington could lose $464 million from 2024 to 2026.

Executive branch agencies have issued back-to-office plans, but in a city with strong worker protections, those directives can be difficult to enforce. Each agency has its own rules for returning to the office. In September, the Justice Department told its 115,000 employees (about 20 percent of whom work in Washington) that they were expected to work in the office for six days every two weeks. But the announcement made it clear that managers could make exceptions to the new rule. And it was unclear how the six-day minimum would be enforced.

In January, Jeff Zients, the White House chief of staff, issued a memo calling for concrete plans from agency heads to return workers to the office.

Returning to office is a priority for President Biden, Mr. Zients said in an email to The New York Times.

Jacqueline Simon, policy director for the American Federation of Government Employees, a union that represents about 750,000 federal workers, disputed suggestions that productivity was falling. She also challenged the argument that Washington’s civic fortunes depended on the office participation of union members.

The federal governments mission is not to provide customers for restaurants and stores, Ms. Simon said.

However, the shortage of office workers in the city is widespread and pronounced. The Public Works Reform Board, a federal agency created to help offload some of the government’s large real estate holdings, used cell phone location data to track worker office attendance at several federal agencies. The boards’ findings, released in March, revealed that those agencies were using an average of just 12 percent of their 90 million square feet of office space in the Washington region.

The board called for the sale of some federal properties so the city could find new uses for them and avoid the worst effects of the deepening economic crisis.

Stephen Buschbom, director of research at Trepp, a firm that analyzes real estate finance, told Bloomberg in December that Washington had surpassed San Francisco for the highest share of office buildings with loans that were at risk of default and that Washington could be young. ground zero for worry in the office.

Washington’s recovery is also complicated because the city has few vibrant job districts like Lower Manhattan, where several office towers were converted to apartments after September. 11, 2001, terrorist attacks. Even before the pandemic, the district had a higher ratio of daytime workers to city residents, said Tracy Hadden Loh, an urban affairs scholar at the Brookings Institution.

Muriel E. Bowser, the mayor of Washington, has a plan to invest $400 million to increase the population downtown by 15,000 as a way to revive the city. The plan calls for a more pedestrian-friendly street and for easing regulations for small businesses and housing developers.

Building owners are also getting creative. A vacant building on M Street was recently the site of an art fair.

But in the absence of what Nathan J. Edwards, a senior real estate analyst at Cushman & Wakefield, called a serious infusion of capital, he estimated that half of Washington’s junk office stock was headed for a meeting with the ball. demolition once interest rates fell, making new construction more feasible.

Some blue-chip tenants are continuing to reduce their footprint or move their offices out of the city. Mortgage giant Fannie Mae said in January it would end its lease early at Midtown Center, a shiny new tower it has occupied since late 2017. Consulting firm Chemonics International said in March it was preparing to sublease 153,000 square feet, or about half the space it leases in a New Jersey Avenue building. And real estate data giant CoStar Group is moving its headquarters and about 500 employees to Arlington, Va., from downtown Washington.

We are in a long and slow transition process, said Stijn Van Nieuwerburgh, a real estate professor at Columbia University, speaking broadly about the office sector. Demand is very weak and continues to weaken.

George Marinakos sees this pain every day. His bar, the Exchange Lounge, is near the White House and across from the Consumer Financial Protection Bureau on G Street. He pointed to the agency’s windows, almost uniformly dark early on a recent Friday afternoon.

It was brutal, Mr. said Marinakos. I think with the days that come, they just go by early.

Before the pandemic, he said, he served 200 lunches on an average day. Now, he gives 40 on the best days. God. Marinakos said he wants federal employees to see the telecommuting debate as more than a personal cost-benefit calculation.

I’m not the only one struggling, he said.