(Updated at 8:40 a.m.) Some federal agencies are looking to continue remote and hybrid working options for employees post-pandemic — a shift with potential impacts on Arlington’s office and residential real estate markets.
The Biden administration expects White House staff to return for full-time, in-person work in July, but on Thursday federal agencies were told that they will be able to offer increased work-from-home flexibility, even after the pandemic. Remote work may become a permanent option for some federal workers, just as is happening for many private-sector workers.
“I think the office market will cool as companies continue to assess what the remote work shift means for their workforce and space needs in the next few years,” said Eric Maribojoc, the executive director of the Center for Real Estate Entrepreneurship at George Mason University.
Arlington has a sizable federal presence despite the Base Realignment and Closure Act, which saw the relocation of military-occupied office space. The experience taught the county some lessons about diversifying its economic base, meaning Arlington today, preparing for more telework, is in a different boat than in 2005 facing BRAC.
Those familiar with the county’s market trends say there will be impacts but they will likely be tempered by a more diverse economy, a trend toward hybrid options that involve some time in offices, and a continued need for in-person work among certain agencies and large tech companies.
“Many companies are just beginning to plan for their potential return to the office and discussing a fully remote future is still largely speculative,” Arlington Economic Development spokeswoman Kirby Clark said. “We anticipate companies will continue to offer telework flexibility during this next stage of recovery. However, we hear from many of our major employers that there is no substitute for in-person collaboration in the office, especially for knowledge-based science and technology industries.”
Arlington’s federal workforce
Although it took a while, Arlington did experience a significant drop in federally-occupied office space.
Today Arlington has 29,200 federal employees — excluding military personnel — and is home to the offices of a number of agencies, including the State Department, U.S. Marshals Service, the Environmental Protection Agency and the Drug Enforcement Agency, Clark said.
Some former government tenants have been replaced with corporate, tech and research anchors and a lot more housing, however. Between 2016 and 2020, Arlington added 5,193 housing units, with 3,175 units under construction and 5,907 units planned for future construction, she said.
“Over the last ten years, the landscape of Arlington’s Urban Villages transformed, becoming more economically diverse and land-use balanced, with residential development replacing old, obsolete office spaces formerly occupied by federal tenants,” said Clark.
As a region, D.C. has the nation’s second-largest pool of potential remote workers, at 49%, behind the San Francisco Bay Area, at 50%, according to a February report from the Greater Washington Partnership. The northern half of Arlington has one of the highest concentrations of remote-capable workers, alongside portions of Northwest D.C. and the Bethesda and Potomac areas of Montgomery County.
The report, which came out before the news of the changing federal work-from-home guidelines was first reported, predicted that some of the largest gains in remote work post-pandemic will likely be among government jobs.
“Two in five federal government workers may spend some time at home, with smaller shares of state and local public-sector professionals working remotely,” the report said.
Among government employees, according to Clark and Maribojoc, these options will likely be expanded for those who perform individual tasks that require focus but not high levels of security clearance.
“Due to the presence of the Pentagon and other defense and security agencies in Arlington, many federal-supporting tenants have security requirements that may require physical office spaces or proximity to major government and defense anchors,” Clark noted.
If more federal government employees go fully remote — a conversation that Clark said is still largely speculative — she predicted that it would be “a challenge not limited to Arlington and has the potential for broader regional impacts in the future.”
Hybrid options more likely to expand
Post-pandemic, the report anticipates there will be more hybrid options than fully remote options. Between 24-28% of the region’s remote-capable workforce will be remote at least once a week and 14-18% will be remote three to five days a week, the study predicted.
With the majority of teleworkers dividing their time between home and an office environment, flexible working spaces will be in high demand, Maribojoc said. This year, two new co-working spaces launched in Arlington, one in Courthouse and another in Crystal City, while a third shut down.
“Office environments will need to be designed to seamlessly accommodate people who spend two to three days working from home,” he said. “Flexible co-working space has become in demand again, with surviving firms like WeWork reporting demand returning to pre-pandemic levels. Viewing office space as a service instead of a hard asset had begun before the pandemic and will return.”
Still, Arlington has companies with employees who predominantly work in collaborative teams, necessitating that they maintain or expand their office spaces.
“Amazon, for example, has continued to lease office space as scheduled before the pandemic and is moving forward with designing their new office towers in Arlington,” Maribojoc said. “Other tech tenants such as Microsoft have also announced major new office leases.”
Stability in real estate
Maribojoc said the residential real estate market will likely feel fewer shocks on the scale of those felt elsewhere during the pandemic.
“There will be some residential migration to apartment markets with lower rents as commuting to one’s workplace becomes less of a burden with working from home several days a week,” he said. “However, distance from the workplace is only one aspect of a decision on where to rent. Particularly among younger workers, walkable social amenities such as bars, restaurants, parks, sports and concert venues are important even when working from home.”
That appears to be true generally in the D.C. area, which is not experiencing a large-scale migration of teleworkers out of the region, according to the Greater Washington study. Rather, the study suggests lots of movement within the region.
In order to retain some teleworkers within the immediate D.C. area, Maribojoc said apartment buildings will need to offer more space so people can work remotely comfortably, while the county will need to expand options for building plexes and smaller apartment buildings.
“[These options] near or in traditionally low-density single-family neighborhoods can offer these missing features and provide more housing choices from residents at prices lower than those of detached single-family houses,” he said.
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