Winners and Losers: How DC Gov. Layoffs Are Reshaping Real Estate Power Players
The DC real estate world is undergoing a seismic shake-up. As the federal government downsizes and local agencies face budget cuts, office vacancies are surging. DC’s vacancy rate is approaching 20%, and agencies like the Department of Justice are shedding space—DOJ recently renewed a lease in NoMa with 30% less square footage.
In response, the District has launched incentive programs like a 20-year tax abatement to convert unused office space into housing. The market is splitting sharply: legacy landlords are struggling to hold the line, while a new generation of developers is turning adversity into opportunity.
The Fallout: Big Bets Gone Bad
Some of the biggest players in DC real estate are seeing their assets drop in value—or disappear altogether:
Brookfield defaulted on a $161M mortgage backed by a dozen DC-area offices, walking away as vacancy rates soared and property values plunged.
BentallGreenOak (BGO) gave up ownership of 1200 New Hampshire Ave NW, a once-prized 290,000 SF building, after struggling to keep tenants despite a renovation.
Institutional landlords like Northwestern Mutual (owner of DOJ’s building) are facing revenue hits as government tenants scale back. And even REITs like Boston Properties and Paramount Group are being forced to offer incentives and rethink their exposure to DC office space.
The Survivors: Holding the Line
A handful of developers are managing to stay competitive by focusing on trophy assets and long-term relationships:
Boston Properties is 87% pre-leased on its upcoming downtown tower, showing that best-in-class buildings can still attract tenants.
Carr Properties landed a major lease with Fannie Mae at Midtown Center (340,000 SF), demonstrating that brand-new, amenity-rich spaces are still viable.
JBG Smith has offloaded much of its DC office portfolio and shifted to multifamily and major developments like Amazon’s HQ2—a move that now looks prescient.
The Opportunists: Building the Future
While others are bleeding cash, a new wave of developers is transforming vacant offices into high-demand housing and mixed-use hubs:
Willco turned the former Peace Corps HQ into The Elle, with 163 new apartments. It’s the first major office-to-residential conversion in DC’s central business district.
Foulger-Pratt is wrapping up a 243-unit conversion at 1425 New York Ave NW, backed by city incentives.
Post Brothers, a Philadelphia-based developer, is converting a 301,000 SF office into a 400-unit apartment building with affordable housing and retail.
MRP Realty scooped up Gallery Place’s distressed office component for a song, with plans to reposition the space and capitalize on the recovery.
Transwestern Development Co. is looking to bundle older office buildings for large-scale residential redevelopment—signaling confidence in a long-term transformation of DC’s core.
The Takeaway
DC’s government layoffs and shrinking office footprint are accelerating a dramatic shift in the city’s real estate map. The losers? Legacy landlords stuck with outdated, empty buildings. The winners? Developers and investors who are quick to pivot, convert and capitalize on a city eager for reinvention.
