D.C. businesses expect to be worse off financially in 6 months than region and nation, survey shows

As the seat of the federal government, Washington has long been regarded as being shielded from most economic turbulence. But businesses inside the District expect to be worse off financially in six months than companies in the D.C. region and the nation, according to a new survey.

The nonpartisan D.C. Policy Center sent surveys to 91 city businesses in January. Among them, 73% predicted the D.C. economy would worsen, 13% said it would hardly change and 14% said it would be “somewhat” stronger.

Meanwhile, about 60% expected the D.C. region’s economy to deteriorate, 20% anticipated no change and 20% predicted it would be “somewhat” stronger.

In addition, 29% expected the national economy to be “somewhat” or “much” weaker, 33% predicted “minimal or no change” and 37% said it would be “somewhat” or “much” stronger.

“Businesses no longer consider D.C. a safe haven protected from inflation by the federal government,” Yesim Sayin, executive director of the D.C. Policy Center, told The Washington Times. “This is a big change, because in the past the District has always outperformed the nation’s economy, and now we’re seeing it lag.”

According to the Small Business Administration, Washington had 79,814 small businesses last year, accounting for 98.2% of all companies in the city.

The D.C. Policy Center said local businesses that were at least 10 years old, employed more than 100 people and had more than $5 million in operating revenue in the last 12 months “accounted for a substantial portion of the survey sample.”

Their pessimism could reflect the city’s “weak commercial real estate market” since real estate, rental and leasing companies had a “strong representation” among survey participants, the think tank said.

The survey also found that 4 in 10 District businesses expect gross revenues to be “somewhat” or “much” lower in the next six months, even though most said they were not letting employees go.

It pointed to data showing that Washington’s economy has declined as the rest of the nation recovers from the pandemic.

For example, the national economy added 2.76 million jobs from January 2023 to January 2024, a 1.8% increase. Over the same period, the District added 2,700 jobs, a 0.3% increase that the D.C. Policy Center said is “not statistically significant.”

As of November, 22% of all available office spaces in the D.C. Central Business District were not being used, according to the property management company Kastle Systems. The policy center expects that percentage to grow as former commuters keep working virtually from Maryland and Virginia over the next few years, prompting more businesses to end their commercial leases.

According to Ms. Sayin, nearly 800,000 people worked in Washington before the pandemic, with two-thirds of them commuting daily from Maryland and Virginia. That included roughly 200,000 government workers and 570,000 private sector workers.

She said private sector office occupancy is now about 50% “on the best day.”

“The federal government, nobody knows who is working from the office,” Ms. Sayin added. “Since the pandemic, people are just not coming into the office as often. Furthermore, a lot of people have moved from high-cost metro areas like D.C. to smaller, lower-cost Sunbelt cities like Atlanta.”

The survey comes as Washington grapples with an unprecedented funding crisis.

City officials have blamed it on fewer people shopping, dining or working downtown on weekdays since the outbreak of COVID-19.

Other problems include pandemic relief funding drying up this year, crime-plagued retailers pulling out of depopulated streets, plunging commercial real estate values, mass transit ridership declining and struggling restaurants closing.

D.C. Mayor Muriel Bowser has proposed deep cuts to social programs such as affordable housing grants and several tax increases — including a gradual sales tax hike — to offset $800 million in budget deficits for fiscal 2025, which begins Oct. 1.

The D.C. Council must approve a new budget by June 12.

In the D.C. Policy Center survey, 89% of businesses reported making more investments in security over the past year — including paying for additional surveillance cameras, alarms and security guards.

Businesses that reported being plagued by crime over the past 12 months said the most common problems were disruptive behavior such as loitering, drug or alcohol use, and property damage such as graffiti, vandalism and arson.

The Times has reached out to the D.C. Council, the mayor’s office and the Office of the Chief Financial Officer for comment on the survey.

Fitzroy Lee, the District’s deputy CFO and chief economist, said the D.C. job market has struggled to grow since the pandemic as business and professional services have expanded work-from-home hiring.

“This has narrowed the pool of labor available for hiring, and many of the District’s key sectors, such as the leisure and hospitality sector, have had difficulty hiring employees,” Mr. Lee said. “In the past, the federal government was a significant contributor to D.C.’s job growth, but, after continuing to grow during the pandemic, the federal government has been shedding jobs in the post-pandemic period.”

Council member Matt Frumin, Ward 3 Democrat, and Chairman Phil Mendelson, at-large Democrat, were unavailable for comment.

Council member Robert C. White, at-large Democrat, blamed remote work and rampant crime for the city’s bleak financial outlook emerging from the pandemic.

“The District’s business ecosystem … is still contending with spikes in crime, as well as the shift to remote work in a city that has historically relied on the presence of federal workers,” said Mr. White, who unsuccessfully challenged Ms. Bowser for his party’s nomination in the 2022 mayoral election. “I’ve spoken with leaders of businesses of all sizes, and too many feel neglected and unheard when they share their realities.”

At a ribbon-cutting Monday for the Metropolitan Police Department’s Real-Time Crime Center, Ms. Bowser’s office touted roughly $29.5 million of public safety funding in her proposed budget that it said will produce a “net gain” in hiring cops for the first time in five years.

The mayor also promoted a program that will let residents and businesses share security camera footage 24/7 with law enforcement agencies through the center.

“We have been focused, for many years now, on how we expand our network of cameras, because we know that video plays a key role in investigating cases and successfully prosecuting criminals,” Ms. Bowser said. “Now, we are calling on residents and businesses to partner with us … to help us build a safer, stronger D.C.”