JBG Smith, the company leading the development of the neighborhood near Washington, D.C., that houses Amazon's second headquarters, said it's shifted from selling office properties to apartment complexes as the local market appears headed for a slowdown.
Bethesda, Maryland-based JBG Smith plans to focus on selling its “attractively priced” multifamily assets in and around the nation’s capital given that “office values have bottomed and remain at historically distressed pricing levels,” CEO Matt Kelly said this week in a letter to shareholders that accompanied its first-quarter earnings report.
The real estate investment trust had been shedding some of its office properties in the District as it focused on its holdings in National Landing, the neighborhood that houses Amazon's HQ2. The district encompasses parts of the Crystal City and Pentagon City neighborhoods of Arlington County and Potomac Yard in Alexandria.
JBG Smith is adjusting its strategy ahead of what it expects to be a sluggish business period.
"DC seems headed for some sort of slowdown in economic growth,” Kelly said in the letter. “Selling office assets in this market would obviously be value destructive and likely will be for some time.” He also said the REIT is better positioned to take advantage of its multifamily portfolio that it sees as a better priced source of capital.
JGB Smith said its apartment portfolio benefited from Amazon's decision to have its workers return to the office on a full-time basis.
"Since Amazon brought their employees back to the office five days a week on January 2nd, we have seen a 12.7% increase in the number of Amazonians living in our National Landing multifamily portfolio," Kelly said in his letter.
Uncertainty over federal job cuts and tariffs has made it difficult for the REIT to fully forecast a market outlook, and though it contends it remains too early to tell how policy actions could collectively affect the area, it is preparing to take a break from offloading workplaces to find other ways to best liquidate assets.
Recession odds increasing
On Wednesday, the government said U.S. real gross domestic product decreased at an annual rate of 0.3% in the first quarter. The data released by the U.S. Department of Commerce said the contraction represents the country's lowest quarterly real, or inflation-adjusted, GDP performance since early 2022. The GDP grew 2.4% in the fourth quarter of last year.
Global real estate services firm Cushman & Wakefield agreed with JBG Smith's outlook and, in a report released to coincide with President Trump's first 100 days in office for his second term, said recession odds are rising and short-term stagflation is emerging as a real possibility this year. Stagflation is a combination of slow economic growth and sticky inflation. In its report Cushman & Wakefield said a stronger growth scenario is forming for 2026.
Even with shifts in tariff policy and attempts to slim the government’s real estate portfolio , the brokerage said the property sector has largely remained resilient.
In its earnings report, JBG said its in-service multifamily portfolio was 95.7% leased and 94.3% occupied at the end of the first quarter, with both numbers representing a 0.5% quarter-over-quarter decrease. Still the REIT said it sees strength in its residential assets, especially compared to “anemic” office leasing activity in the first quarter.
Nearly a quarter of the REIT’s nearly 5 million-square-foot office and retail portfolio is leased to the government and another roughly 1.3 million to government contractors.
As for its operating commercial portfolio, it was 78.3% leased and 76.4% occupied as of March 31, compared to 78.6% and 76.5% as of Dec. 31.
JBG said its funds from operations, or FFO, of its core properties totaled $7.2 million for the quarter, a large drop-off from $26.9 million over the same period in 2024. FFO is a key indicator of a REIT's financial performance and cash flow.
"We are currently marketing for sale select multifamily and land assets in both the District and Northern Virginia,” Kelly said. Bisnow reported that the REIT intends to sell The Batley apartment complex at 1270 4th St. NE in Washington's Union Market neighborhood.
JBG declined to comment beyond its letter on multifamily properties it was considering offloading.
Earlier this year, the REIT sold the 322-unit apartment building at 8001 Woodmont Ave. in Bethesda, Maryland, for $194 million.