Tech Has Become A ‘Perpetual Driver Of Growth’ In DC After Years Of False Starts

The recent history of Washington, DC’s homegrown technology companies is dotted with modest success stories and high-profile failures, but industry experts say the market is finally starting to mature, with enough of a foundation to build a robust tech sector through a steady, sustainable growth path.

Though Silicon Valley’s biggest players have been setting up outposts in or around DC in recent years – most notably Amazon HQ2 in Arlington – the number of homegrown firms taking up space is on the rise, creating a much-needed demand driver for an office market that has struggled with record-high vacancy.

Bisnow / Jon Banister

The Signal House office building at 1255 Union St. NE near Union Market, where TikTok signed a 50K SF lease in November.

“The tech sector has continued to grow quarter after quarter, year after year in downtown, even throughout the entire pandemic,” said Wei Xie, CBRE’s mid-Atlantic director of research. “We think that the fundamental fabric of the DC ecosystem has changed in a way where the tech sector has become a perpetual driver of growth.”

Since the start of last year, tech firms have committed to 450K SF of net new office space in the region, according to CBRE, bolstered by high-profile deals like TikTok signing for 50K SF at Signal House near Union Market and MorningConsult, a homegrown tech firm that leased 49K SF at 1025 F St. NW in December.

The sector’s growth has been far from linear, with missteps along the way.

Last month, Enovational backed out of the 97K SF downtown lease it signed in June after filing for bankruptcy, leaving landlord The Meridian Group to seek another tenant to fill the top six floors of its 1400 L St. NW renovation. The region has seen its fair share of flameouts of homegrown tech firms, including the shuttering of tech incubator 1776 and the exits of Blackboard and LivingSocial.

Jon Glass, a broker with Savills who had a hand in bringing TikTok to Union Market, said over the past two years, the occasional misstep in tech leasing comes with the territory of the industry.

“I think there’s risk in any kind of company in general. I do not think it’s necessarily something in the DC water, ”Glass said. “On the flip side, you’ve seen really successful companies like MorningConsult and MapBox… It goes both ways.”

The successes have outweighed the failures in recent years, and the sector as a whole has played a disproportionate role in the recovery of DC’s office market: Since the start of last year, tech tenants have accounted for 15% of private sector leasing despite making up just 4% of the tenant base. Two-thirds of new tech leases have been expansions, according to CBRE.

“I think a handful of years ago, this was sort of an up-and-coming region for tech,” Cushman & Wakefield Director George Men said. “I think it is still. But I get the feeling that it’s starting to mature. ”

Douglas Development’s Woodies Building at 1025 F St. NW, where MorningConsult signed a 49K SF lease on Dec. 2, 2020.

Growth From Inside And Out

In one sign of the region’s maturity, midsized tech firms are also opening outposts in the DMV, a departure from the Silicon Valley giants and local tech startups that have been the backbone of the region’s tech growth in recent years.

TaxBit, a crypto tax and accounting firm, recently opened its first DC office at 2300 Clarendon Blvd., a 4,300 SF sublease with a lease term just over three years. And blockchain data platform Chainalysis, which recently signed to more than 77K SF in Manhattan’s Flatiron District, just opened a nearly 17K SF office at 401 Ninth St. on a two-year lease, with a more permanent footprint likely, according to Savills’ Marc Shapses, who represents the firm.

Another sign that has prognosticators optimistic about tech’s rise is venture capital raising in the region. Firms in the mid-Atlantic have received more than $ 1.5B in funding in 2022 so far, funneled largely to software and financial companies, according to JLL. The median funding size is also on the rise, and the overall investment pace puts the region on pace to meet or exceed last year’s record year.

But Men said he’s seen the most growth from local firms in their middle funding rounds – after the seed stages but before going public or being acquired – which means there are plenty of startups out there that may be looking for extra square footage soon.

Virtru, a cybersecurity firm founded in DC, completed a $ 60M Series C funding round in January. The firm, which is based in Dupont Circle, plans to double its headcount thanks to the new funding and expand its office footprint accordingly, founder John Ackerly said.

Ackerly said the region has become more attractive as the housing costs rise in other tech hubs and investors begin to take notice of the opportunities for growth within the government contracting space.

“People are moving here from San Francisco, they are moving here from New York City because it is more user-friendly from a lifestyle perspective, from a cost-of-living perspective,” Ackerly said. “I think now is a really interesting time to be in DC”

Venture capital is flowing to other firms that see the same environment. Local startups Kryptowire raised $ 21M in a Series A round and Shift5 raised $ 50M in a Series B funding, both completed this year.

Jonathan Aberman, dean of Marymount University’s College of Business, Innovation, Leadership and Technology, consulted with Virginia leaders as they developed their pitch to Amazon HQ2, an economic development victory he said has helped entice some of its largest competitors to beef up their presence. Among them, Facebook and Microsoft leased 75K SF and 400K SF in Reston Town Center, respectively, last year, and Google leased 164K SF at Reston East.

Bisnow / Jacob Wallace

The first phase of Amazon’s HQ2 development will include two 22-story office buildings in Arlington’s Met Park.

The Talent Foundation

Experts say the same thing that attracted Amazon to the market is attracting other tech firms large and small: talent.

When Amazon’s HQ2 was first announced, its proponents were quick to argue the arrival of a giant would bring plenty of smaller businesses with it, said Savills’ Glass. But after three years, he is not sure that’s true.

“I have not seen anybody particularly or specifically state they relocated here or established an office in Crystal City directly because of HQ2,” Glass said. “I do not think that tail that everybody was expecting… really emerged.”

Glass notes that the pandemic likely slowed that tail, and said it may change once HQ2’s first buildings deliver, although the Seattle-based company has added thousands of jobs in the region already.

Instead, he believes if anything is attracting tech firms to the region, it’s the talent pipeline undergirding Virginia’s pitch to Amazon.

The DC market ranked as the third-best in North America for tech talent, according to a 2021 report from CBRE. That’s largely due to its universities, which got a $ 2B boost from the state of Virginia as part of its pitch to Amazon.

The Virginia Economic Development Partnership is ahead of schedule in achieving its goal of adding 32,000 new workers to the tech talent pipeline in 20 years, VEDP President and CEO Jason El Koubi told Bisnow.

He said the success of that program is crucial because it was the “single most important location decision factor” for Amazon.

“We also knew that investing in a strong pipeline of talent would be the single biggest thing we could do to nurture the growth of the tech sector generally in Northern Virginia and across the commonwealth,” El Koubi said.

Aberman believes Amazon, Google, Microsoft and Facebook help keep talent in the region, and given time, some of their more entrepreneurially minded workers will develop the skills, financing and expertise needed to strike out on their own.

“The idea is people get skilled… and say, ‘Hey, I want to do a startup,'” Aberman said. “But they’re here. And they’re talented. So that part of the puzzle takes time. ”

Phase 1 of MLK Gateway opened with a Capital One Café and is slated to house fast-casual Southern bistro Kitchen Savages.

There are efforts in DC city to expand the pipeline of diverse talent as well, said Antwanye Ford, president and CEO of cybersecurity firm Enlightened Inc.

His firm expanded from its previous 8K SF office near Farragut Square to roughly 20K SF in the first phase of the MLK Gateway project in Historic Anacostia, which opened in November.

Ford, who also chairs the DC Workforce Investment Council, said tech firms seeking to diversify their workforces could leverage the city’s abundance of color workers, and he’s been pushing the city to invest more in workforce training programs through the Department of Employment Services, which he said have been helpful for his own efforts and for the District’s tech sector at large.

“You have this interesting thing of you can not find enough tech sector [talent], but you also do not have enough diverse candidates in those jobs, “Ford said.” There’s a gold reserve in certain places that we’ve got people over here that are untapped. Why don’t we tap them? “

To that end, the WIC has launched training and investment programs in IT to support hundreds of District students and workers who are trying to break into the sector.

In her proposed budget, DC Mayor Muriel Bowser included $ 2M to support the Golden Triangle Business Improvement District in its efforts to create an Innovation District, which would attract tech firms to office spaces in an area on Pennsylvania Avenue just west of the White House, said Leona Agouridis, the BID’s executive director.

The Innovation District would also strengthen Golden Triangle’s partnership with George Washington University, leveraging their STEM education programs to encourage businesses to locate within the concentration area.

Agouridis said the Innovation District gives the area an opportunity to reinvent itself and hitch its wagon to a sector that she believes is the key to the region’s future.

“From an economic development perspective, it’s very important or critical for the DC tech sector to grow its office economy,” Agouridis said. “This region has one of the most educated workforces in the country, and it just seems reasonable that we’re in a position to grow the technology sector.”

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