Q&A on the DC Tech Scene

Jon Glass is a Corporate Managing Director in the Washington DC office at Savills. Jon advises clients across all industries but has a particular focus on the Technology sector in DC, currently serving as the DC market leader for Savills National Tech Practice Group. 

Jon shares his thoughts on the tech market in the DC region.

First of all, how would you characterize the term “tech” in the DC region?

There’s no question that the word “tech” is a broad term that covers a wide range of industries and services, especially here in the DC region. Traditionally, the technology sector is defined as those involved in making, creating, enabling, integrating, or supporting technology, whether as a product, platform or service. 

That definition may sound straightforward, but the DC region has several companies that provide technology services or products but only as a small percentage of their overall business, which is most common in the GovCon (Government Contactor) sector. For instance, is Lockheed Martin a “tech” company because of its cybersecurity and defense technology, or is it an aerospace defense contractor? Is Capital One a “tech” company because of its technology development program, or is it a bank?

At the end of the day, companies can be many things and the term “tech” is simply a label that I am not overly concerned about, but it is relevant when we are citing statistics on the technology sector in the region, whether from a real estate or employment perspective.

Speaking of statistics, can you quantify the DC region’s tech talent?

The region’s tech talent is strong and growing each year. This shouldn’t come as a surprise given the diverse and educated workforce, dense urban community, growing municipal incentives and opportunities in government contracting. According to the 2020 Cyberstates Report, the DC region boasts the following:

1. Tech-Industry Employment: 81,184
2. Employment as a % of overall workforce: 10.2%
3. Tech-Industry Establishments: 4,196
4. Tech-Industry Payroll: $3.9 Billion
5. Average Wage in Tech Industry: $112,928
6.  % of DC’s economy from the tech industry: 6.3% ($8.4 Billion)

What has VC funding looked like in DC compared to other areas like Silicon Valley and NYC?

VC funding in the DC-region has underperformed compared to other major markets like Silicon Valley, LA, New York, Boston, Austin and Seattle. According to a recent report prepared by Pitchbook and The National Venture Capital Association, the DC-Region raised ~$1.91 Billion in 2019, spanning 246 venture deals and representing ~1.5% of the $136.5 billion in total VC transactions completed in the U.S. (10,777 deals). There were a handful of companies that received major funding of $100 million or more in 2019, but only a fraction compared the markets mentioned above. That said, I am optimistic about the future of VC funding in the area as I anticipate more start-ups will emerge from the larger players in the market like Amazon and Microsoft, as well as more entrepreneurs graduating from the various education institutions in the area.  

What does Amazon’s decision to establish its HQ2 in the region mean for the tech community?

Amazon’s HQ2 announcement to relocate to National Landing was a major win for the region for a number of reasons:

• Less Dependency on the Public Sector: National Landing, the home of Amazon’s HQ2, struggled to attract and retain tenants for the better part of a decade, largely due to the Base Realignment and Closure (BRAC), sequestration and government consolidations. National Landing lost over 17,000 Department of Defense workers since 2012, causing the vacancy rate to skyrocket to as high as 27%. The fact that a single government initiative – in this case BRAC – can impact a market so drastically is what makes the Amazon announcement such an important win for the area. There’s no doubt that the federal government will continue to be the primary anchor for the region, but having a healthy balance of private sector tenants will benefit the region in the long-run.
• Battle for Talent: The battle to attract and retain talent is going to intensify as Amazon settles and other major employers follow. Skilled workers, especially those with security clearances, are enthusiastic at the prospect of a bidding war for their services. I think wages for tech sector employees will increase, benefiting those already in the region, as well as attracting new talent to the area. Smaller companies that can’t offer higher salaries will have to get creative in order to attract and retain talent.
• Education: Virginia Tech plans to build a $1 billion graduate campus within walking distance to National Landing in an attempt to double the annual number of graduates with bachelor’s and master’s degrees in computer science and related fields. Similarly, George Mason University plans to build a new school for computing and digital innovation, as well as committing up to $125 million over the next 20 years to expand GMU’s campus in Arlington. These innovation campuses will mold the next generation of tech leaders, which will strengthen the region’s tech community for decades to come.
• Ripple Effect: I anticipate many companies will migrate to the DMV in the coming years as a result of Amazon’s announcement. Some forecast a 3x tail that will span from retail operators, restaurants, other tech companies, professional firms, recruiters, etc. in hopes of being close to Amazon to either do business with the giant or compete against it. Furthermore, Amazon employees will inevitably leave the company over time to start their own ventures which will help bolster the tech community even further.

What should early-stage, fast-growing tech companies be thinking about in terms of real estate?

Stay as cheap as you can for as long as you can. It is critical for young companies to be lean and nimble. Locking into an expensive, long-term term lease (which is often a company’s second largest expense behind salaries), can burden a company’s balance sheet and growth plans. This is not to say that the office space doesn’t play a critical role in a company’s growth – it is essential for culture and collaboration – but the priority should be flexibility. Don’t be tempted to overextend too soon on “cool” space. If you remain patient and stay focused on building your core business, the day will come when you can find the space of your dreams.

Savills Tech Practice Group recently conducted a survey of tech companies across the country. What was the takeaway?

We gathered responses from 250+ tech tenants across the U.S. to gauge the anticipated impacts of COVID-19 on their plans for office space both in the near term and in post-vaccine world. The main takeaways were as follows:

1. 55% of the respondents anticipate disposing of at least some portion of their space in the next 12-18 months and over 80% anticipate needing less than originally planned for pre-COVI
2. 94% of respondents anticipate that working remotely part-time will be normalized in a post-vaccine environment
3. 40% of respondents were unsure about an updated density (RSF per seat) target and 34% anticipate requiring more RSF per seat.

What’s your favorite building in DC that’s most conducive to the look and feel for which most tech companies are looking?

When I think of classic DC tech buildings, there are a few that come to mind. The Wonder Bread Building in Shaw, Uline Arena in NoMa and 655 New York Avenue in the East End are all fantastic buildings with unique characteristics that cater very well to the tech community. 

The building I am most excited about that is under construction now is Signal House (350 Morse Street NE) in Union Market. Signal House is a 10-story building being developed by Carr that I think will become the new benchmark for future tech buildings. Delivering net year, the building will feature 12’ celling heights, over 12,000 SF of outdoor space, a start-of-the-art fitness enter and a rooftop terrace perfect for catering events that even includes a recording studio. It’s going to be a really cool building in a hip, up-and-coming. (click picture for more information)