Washington, D.C.'s office market, struggling with record-high vacancies and low demand, faces another blow with a move by the Federal National Mortgage Association to vacate its prominent downtown headquarters.
The national mortgage giant known as Fannie Mae has put its 713,500-square-foot space in the city's Midtown Center complex on market more than half a decade before its lease at 1100 15th St. NW is now set to expire in June 2029, according to marketing materials and CoStar data. Fannie Mae in recent years exercised an option to move up the exit date from the initial expiration of 2031.
It's the latest in a string of space reductions, terminations, sublease listings and closings among D.C. employers trying to adapt to the fallout of COVID-19 pandemic-related shifts such as remote and flexible-work policies. The move also reflects the struggles some major cities are having with higher office vacancies.
The listing includes Fannie Mae's entire footprint across Midtown Center, where it occupies about 306,000 square feet in the east tower and roughly 414,000 square feet in the western one. The federal government-sponsored company signed on for the space in 2015 in a $770 million agreement that, at the time, was one of the largest office deals in D.C.'s history.
Carr Properties, Midtown Center's developer and partial owner, declined to comment on the impending vacancy. Fannie Mae did not respond to CoStar News' multiple requests for details about its future real estate plans.
Carr broke ground on the property — a site that previously housed the former Washington Post headquarters — in 2016, and the mortgage giant relocated to the $650 million development a couple of years later. In early 2021, Washington, D.C.-based Carr sold a 49% stake in the more than 868,700-square-foot project to a consortium of Korean investors led by IGIS Asset Management and Hana Financial Investment.
To be clear, there’s no guarantee that Fannie Mae will end up somewhere else, and there’s always the possibility this far out in time that it might end up with some variation such as taking less space in the same location.
Shifting Dynamics
Fannie Mae operates as Washington, D.C.'s largest publicly traded company, though its real estate moves fall in line with concerns about the federal government's role in helping to boost the region's challenged office market.
D.C., like many large municipalities, has struggled to rebound from the shift to remote work that occurred during the pandemic. It has been particularly acute in the nation's capital though, as the federal government — the city's largest employer — has yet to implement a widespread mandate requiring employees to return to the office.
The General Services Administration, the manager of the federal government's vast real estate portfolio, leases about 180 million square feet of office space across the country, and the federal government owns roughly 500 million square feet.
Only a quarter of its federal headquarters space in the Washington, D.C., and Baltimore area was being used on a regular basis, according to a recent report from the Government Accountability Office. The report also found the federal government spends $5 billion a year to lease office buildings, and that half of its leases were due to expire between 2023 and 2027.
The city's record-high vacancy and availability rates have largely been attributed to many federal government agency workers still working primarily remotely. Availability in D.C.'s East End surpassed 25% by the end of last year, according to CoStar data, and the neighborhood has struggled in the face of plummeting rents and valuations.
Those challenges are unlikely to be resolved anytime soon, given that leasing volume in the area has fallen to nearly 40% below pre-pandemic levels, according to the data.
One bright spot, albeit a small one, could be a new city official mandate requiring government employees one day of telework per week instead of two.
The revised in-office policy is being implemented to enhance the local government's "engagement with the community, foster a more collaborative work environment, and support the local economy," Charles Hall Jr., director of the D.C. Department of Human Resources, wrote in a memo sent out to district employees earlier this year. "It's up to us to serve as an example for other large employers in the District."
This story was updated Jan. 19 to further reflect in headline and seventh paragraph that the eventual outcome could still change at this early point.