Greater Greater Washington

Where is the DC tech hub? It keeps moving

DC officials are trying hard to woo technology companies to DC, and one strategy to do that is to establish a place in the city with a critical mass of tech jobs. But the location officials say they are focusing on keeps moving.


Photo by Danja Vasiliev on Flickr.

Before 2002, DC offered a tax break to high tech companies, as long as they located in one of multiple "high tech development zones." Those encompassed the majority of land in the city, but excluded a lot of DC west of Rock Creek Park, some lower-density neighborhoods along the Maryland border in the north and northeast, and a few other areas.

In 2012, Mayor Gray pushed for legislation that removed these boundaries and let tech companies anywhere in the city get the tax breaks. Around the same time, Gray announced plans to turn St. Elizabeths East Campus into an Innovation Hub that would "stimulate formation of a technology cluster." The administration reached out to many universities and companies like Microsoft about establishing a significant presence there.

Then, in 2013, the administration invested $380,000 in a new coworking and incubator space, 1776, at 15th and M Street NW. Many small new businesses will definitely want to locate downtown even if and when there is a thriving tech center at St. E's, and St. Elizabeths is far from ready to be a center of tech jobs.


Left: Former "high tech development zones." Image from Google Maps with data from GeoCommons. Right: Locations of St. Elizabeths, 1776, and the Digital DC Tech Corridor. Image from Google Maps.

But last month, the Gray administration announced a new initiative, the Digital DC Tech Corridor, which runs along 7th Street and Georgia Avenue from New York Avenue downtown to Kansas Avenue in Petworth.

A new Digital DC Tech Fund offered venture funding to startups, so long as they locate in this corridor. This is the opposite of the earlier move to eliminate the requirement that tech companies locate within a "tech zone" to qualify for incentives. Georgia Avenue is also a part of the city that could benefit from new jobs and economic growth, but it seemed odd to have a fund that specifically targets one area that's totally different from the other two.

Tech startups in 1776 will not qualify for these grants. Neither will those in the Innovation Hub at St Elizabeth's, nor those at private tech startup hubs like The Hive in Anacostia or Canvas in Dupont Circle. District Cap Table pointed out how the new tech corridor misses the many existing incubator and coworking spaces:


Image from District Cap Table.

Finally, earlier this week and just before the Democratic Primary where the mayor is struggling to win renomination, he announced plans to build a $300 million hospital at St Elizabeths East Campus. This is a completely new idea that's nowhere in the 5-Year Economic Development Plan for St Elizabeths East, and doesn't seem that compatible with the walkable tech hub previous plans envision.

This isn't to say the city has to pick just one and only one spot within the entire District for tech jobs and only focus on that. There will be different kinds of tech companies that might want different sizes of office space, want to be near other companies of a certain type, and have workers who live in different parts of the city.

But all of these changesto remove a specific zone for incentives and then add one, to announce one tech hub, then create another, and change plansis creating whiplash. The city can only create and un-create so many tech hubs before tech policy looks more like a political football than a serious strategy to diversify our tax base beyond the federal government.

Ken Archer is CTO of a software firm in Tysons Corner. He commutes to Tysons by bus from his home in Georgetown, where he lives with his wife and son. Ken completed a Masters degree in Philosophy from The Catholic University of America. 

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Great post Ken, thanks for sharing. Wanted to supplement with a detailed map of DC's evolving tech sector and the proposed Tech Corridor at http://districtcaptable.files.wordpress.com/2014/03/technology-corridor-map.jpg.

by Jon B. on Mar 28, 2014 12:37 pm • linkreport

um, to get some insight into this read some Jane Jacobs. DC's tech doesn't have a center/hub because the building stock nature of the commercial space isn't conducive to concentration.

You can put a special tax districtd along Georgia Ave. but for the most part the kinds of buildings conducive to adaptive reuse for innovation don't exist there. We just don't have many of those buildings.

If we had a height increase, you'd get more of that in the core but now no comparatively cheap space exists. But you're beginning to see the start, with the move of the Washington Design Center to an L St. NW location.

In the older days of the city, slightly before my time, that kind of space existed in Class B and Class C buildings at the outskirts of the core like the building atop Dupont Circle South Metro (where the donut shop is), the building that was located where the Q st. exit of the Metro is, and the old Park Lane Building near GWU on Pennsylvania Ave.

by Richard Layman on Mar 28, 2014 12:43 pm • linkreport

RL

would the broadside mount shops work? (thats the large old building, the easternmost one of the Yards development adjacent to the Navy Yard proper that is currently slated for condos? http://www.jdland.com/dc/sfc.cfm?tab=no3

by AWalkerInTheCity on Mar 28, 2014 12:52 pm • linkreport

This is just reason #372 why it's stupid for the city government to give tax breaks for tech companies...

If the city wants more economic development, the things to do are to get rid of the artificial supply constraints on housing and office space (e.g., the height limit) and eliminate the unnecessary bureaucratic hassles of starting and running a business in DC. Those will make it easier to attract all kinds of businesses, which is much more effective than throwing tax breaks at whatever industry happens to be in favor at the moment.

by Rob on Mar 28, 2014 12:59 pm • linkreport

To get some insight into this read some Jane Jacobs. DC's tech doesn't have a center/hub because the building stock nature of the commercial space isn't conducive to concentration.

Completely agree, Richard. I argued in What Drive's DC's Tech Sector, that we have an organic tech hub around Dupont that should be leveraged, not distorted and undermined by incentivizing startups with govt $$ to go somewhere in town they don't want to go.

The first commenter above, Jon B, also wrote a great blog post making a similar point, called Does DC Need a "Tech Corridor"?

by Ken Archer on Mar 28, 2014 1:10 pm • linkreport

I was under the impression the most of the tech jobs in this area were in Northern Virginia anyway.

by Ervin on Mar 28, 2014 1:26 pm • linkreport

Thanks, Jon B! I've added the map to the post with a link to your post. (Let me know if that's not what you had in mind but I think so.)

by David Alpert on Mar 28, 2014 1:55 pm • linkreport

Ervin,

Obligatory height restriction argument #4212. If I were to start a tech company in this area, there is no chance I would spend $110,000 (1100 sqft space) for rent in year 1 to be further from venture capital and other collaborating companies, than to be in Fairfax for $35,000, in brand new class A space, next to fortune 500s and other tech companies.

Putting up banners won't do anything. Tech companies are full of smart people, smart people think about the cash of it vs the benefit of it. Build taller, lease rates come down, tech corridor happens without needing tax breaks which only retain a company for so long until their contract is up and then they head for SV or NYC.

by Navid Roshan on Mar 28, 2014 2:03 pm • linkreport

@Ervin, if it wasn't clear I was agreeing with you. Re-read my post and it started off sounding like I disagreed.

by Navid Roshan on Mar 28, 2014 2:03 pm • linkreport

Start up an internet fiber (FTTP) co-op with the goal of bringing 1 gigabit connections to every residential and commercial property in DC.

Think of libraries as coworking locations. Rentable conf rooms, printers, etc.

by duncan on Mar 28, 2014 2:14 pm • linkreport

@Navid Roshan

Tech startups want to locate in places with a specific set of criteria - 1) easily accessible by metro, bus, walking and biking, 2) very near to where their employees want to live, 3) easily walkable/bikeable to other amenities, such as coffee shops, craft beer bars, and coworking spaces.

Fairfax can't offer the same transit friendliness, bikeability, and locational advantages that DC has.

by JDS32 on Mar 28, 2014 2:26 pm • linkreport

I suppose trying to craft policy which would make DC more attractive for business regardless of industry is completely out of the question.

by Fitz on Mar 28, 2014 2:44 pm • linkreport

what made me, a historic preservationist with reasonably strong credentials in that arena, strongly favor the height limit change are the arguments in _Death and Life_ about the value of "a large stock of old buildings" to support innovation which because of their low running costs are cheaper to rent.

For the most part, DC lacks the kinds of buildings present in other cities because we weren't industrial really, although there are examples but not a plethora of for DC decently sized distribution buildings, and because the kind of buildings Jacobs wrote about have mostly been torn down in favor of newer buildings that could get more rent/s.f.

The restriction on space supply means that the highest value uses end up crowding out lower value uses, even if over time those lower value uses could become high value (e.g., think Amazon in SoDo or Compuware in Downtown Detroit, etc.).

Were buildings able to be higher in the core, the pressure to make everything else over to maximum FAR would be reduced, and distribution buildings along the railroad corridor might have been able to be maintained too (e.g., in NoMA) as buildings capable of adaptive reuse at lower rents.

Baltimore is a great counter example.

And yes, St. E's has a serious location deficit that despite all the various attempts the city will make it very hard for that area to become the kind of tech center that it wants.

Again, if the height limit was expanded, cheaper space would open up in the core and those businesses could develop there especially, but also elsewhere in the city as circumstances and desires warranted.

AWITC -- I don't know that building/complex. Theoretically yes, but the problem is that the general rents in that area are higher than "what they should be" to support innovative uses and the pressures on the owner to rent to higher rent uses will be high, based on assessment values, demand, etc.

The tech corridor that could have been would be between Union Station and up almost to Fort Totten, using the various industrial buildings along the railyard, although the area's place value for other characteristics (cool spaces for bars, restaurants, third places, etc.) are pretty low.

by Richard Layman on Mar 28, 2014 3:09 pm • linkreport

AWITC -- the other thing is that a building or two does not a district make. I remember breathless coverage about H St. 10 years ago when an arts use opened on the second floor of a building in the 400 block and there was a piece in the Hill Rag probably about how this made H St. an "arts district."

by Richard Layman on Mar 28, 2014 3:11 pm • linkreport

@JDS32 - you've never run a business have you. Start ups have to get VC funding. In early phases (ie start up) they need to cut costs, unlike how the insane party bus of Living Social portrayed it, because they have to justify every amount of VC funds they receive.

They give away a lot at seed phases in order to get that money, so lessening the amount they use helps retain more of the company.

All that fun stuff you just painted is great, except when you consider Fairfax has all the engineers. Fairfax has plenty of transit accessible (and cheaper) apartments. Fairfax lease rates on office are 1/5th that of DC, and despite the ego's of many a DC resident, there are indeed things to do on this side of the Potomac as well.

You guys have a dozen or so start ups, its cute. When you get to triple digits perhaps Fairfax will start taking notes on how to incubate STEM startups and small businesses.

Costs preempt every thing, DC doesn't have that much of an advantage to require 5 times higher costs. NYC does. SV does. DC doesn't. Deal with the cost.

by Navid Roshan on Mar 28, 2014 3:36 pm • linkreport

I apologize in advance for the snark, but when you start off being as condescending as you did in your response I thought the response required that level of retort.

by Navid Roshan on Mar 28, 2014 3:44 pm • linkreport

@Navid Roshan

You're being awfully defensive here. Where in my comments did I condescend? I understand that you're a big NoVa booster, and I respect that you are passionate about where you live and work. But there's no reason to be rude to everyone with a different point of view.

I also don't think that any of the criteria that I have mentioned are wrong. I never implied that there's nothing to do in Virginia, but I think you'd be hard pressed to argue that Fairfax has the dining, bar, and coworking scenes that DC has, and these factors are incredibly attractive to young engineers and entrepreneurs.

Same thing with transit, bikeability, and walkability. There are pockets of it, of course, and there are tremendous opportunities to improve. I certainly do not relish that Fairfax/NoVa lags behind in these categories, and the whole region is better off when there are more vibrant, livable places to live and work. But please do not act as though the discrepancy does not exist.

by JDS32 on Mar 28, 2014 4:39 pm • linkreport

@JDS32, as a person who continues to see DC lag in the tech industry and employment in this area, I simply suggest you not act as though this discrepancy does not exist.

DC has a tech problem unlike its neighbors and unlike world class cities and time after time talking to industry folks I hear the same thing, the lease rates are ridiculous compared to the benefit. $100,000 per year for 1000sf of office (a 5-7 person space). That is insane amounts of money being lost for businesses that choose that path.

Nothing would make me happier than DC finally starting to address this in more ways than just putting up some banners, or calling a former industrial site its new tech hub.

Referring to me as a "nova booster" is the condescension I speak to. [Deleted for violating the comment policy.] Unlike DC NOVA doesn't really need boosting, businesses usually come here because of the very reasons I am mentioning, not because someone says how vibrant it is.

Both sides of the spectrum can learn something. Fairfax is seeing that vibrancy and livability is important to retaining a young and educated residential character... unlike DC they are actually addressing it by releasing the hounds of better urbanism.

I'm not sure the opposite can be said about DC's continued dismissal of the high cost of business (which has nothing to do with taxes btw) but keeping the status quo in terms of development patterns.

I again question, what would be the end of the world scenario if they allowed the waterfront to build as high as anyone would want? What is the death spiral of walkability that would occur especially if you set concessions than any office space above 10-floors be price capped, thereby allowing small businesses to be in DC?

I know the answer, we'll never be able to see the stars.

by Navid Roshan on Mar 28, 2014 4:54 pm • linkreport

The relevant parts of NoVA (unless City of ALex can leverage PTO and other govt agencies) is not all of NoVa - but mostly the Reston/Herndon/Ashburn corridor. Other than RTC, its weak on urban amenities, though I hope Old Town Herndon can take off one day. But Navid is probably correct that other things are more important.

Im not sure how crucial the cheap office space - I note both that the Reston-Ashburn area has cheaper space than Tysons, and that some submarkets in DC (like Navy Yard) are much softer than downtown DC.

Neither DC nor NoVa have much in the way of the kinds of buildings that Mr Layman discusses. I believe they are also both similarly handicapped by lack of local VC (though I know very little about that) and by lack of the kind of university involvement/spinoffs that has helped other tech centers - I am sure GMU would like to see itself playing that role in NoVa - their main campus is a bit far from the tech corridor.

by AWalkerInTheCity on Mar 28, 2014 5:09 pm • linkreport

"Referring to me as a "nova booster" is the condescension I speak to."

navid, I live in FFX, im not dc booster, but you really do come off that way.

"Unlike DC NOVA doesn't really need boosting"

someone tell that to FFX econ development, which is now an NPR sponsor ;)

"businesses usually come here because of the very reasons I am mentioning, not because someone says how vibrant it is."

Most of the businesses continue to be on the larger side, and most of the tech ones are still heavily involved in govt contracting, or in telecom/internet. I know there are some software firms with different orientations, and thats good, but its not really central to FFX's jobs base.

Im sorry but in a context of talking about SV or NYC it sounds a little silly talking as if FFX is filled with tech startups. Despite the many engineers who live here.

by AWalkerInTheCity on Mar 28, 2014 5:14 pm • linkreport

Navid -- $100K for 1,000 s.f. can't be right, that'd be $100/s.f. Only the retail spaces on the 700 block of 7th St. NW command that much in rent.

But the general point pertains, which is why I write about it all the time. Sadly, the discussion about these issues as it relates to the height limit was very weak in the current consideration of the issue (along with the necessity to increase the tax base to pay for Metrorail expansion).

Another advantage Fairfax etc. has is the spillover from the military and communications investments for decades. That's the basis of the tech world in NoVA, even as it has expanded into other sectors like training, etc.

An advantage DC could have is what we might call the "naturally occurring research park" that is not contained and constrained within campuses, like between Clarendon and Ballston, except (1) our universities are mostly set apart from the city and (2) we don't have that kind of space because office space has been dominated by federal-related uses (law firms, lobbyists, contractors, trade associations) willing to pay high rents to be very close to their clients.

We need to do what we can to support this kind of development, but it's hard. It's about financing, it's about schools producing able graduates in the engineering and computer science disciplines, it's about clients, it's about space, etc.

I can't find it now but I remember reading the obit of a engineering prof. at CUA who had created a bunch of companies, but in Columbia, MD where he lived.

Maybe the best thing the city could do is fund the creation of the research park that CUA has wanted to build for a decade or more to the west of their campus on land they got from AFRH. But again, building from the ground up means you don't have cheap rents. But you can make the place urban form and eventually it could tie up with AFRH and the Washington Hospital Center and build off the university too.

e.g., I've been meaning to write about this master plan in Bloomington, IN for awhile, along with rementioning SoDo in Seattle and SoMA in SF.

http://www.mkskstudios.com/news/2013/9/11/tech-park-master-plan-adopted.html?utm_source=Bloomington&utm_campaign=MKSK+Launch&utm_medium=email

by Richard Layman on Mar 28, 2014 5:21 pm • linkreport

@Navid Roshan

I think we agree on more than you realize (which, to be fair, isn't necessarily evident from the things I have written). I, too, think that a series of public policy decisions and social and economic factors has led to a commercial market that favors large law firms at the expense of small businesses.

However, it's just not as cut and dry as you make it out to be. Earlier, you stated that costs preempt everything. This is simply not the case, else Manhattan would have no startups and we would see startups dotting the Great Plains states. Colocation, proximity to amenities and transit, and proximity to where their targeted workforce lives are also primary considerations for a startup.

DC has some advantages over its neighbors, and I'm glad that they realize they need to make things easier on tech startups. I think we both agree that's a good thing, and I also think we agree that setting aside some monetary incentives probably isn't enough to move the dial.

But it's a start.

(By the way, you interpret booster in a different way than I do. I simply intended to point out that you are passionate about where you work and live, and like to tout its benefits. Is that not true? At any rate, I do not believe it is condescending, but regardless I apologize for the offense you have taken.)

by JDS32 on Mar 28, 2014 5:35 pm • linkreport

Apology accepted and I apologize for the overly defensive stance I likely took, booster to me clearly means something else.

I think both regions would be better learning from what the other does right.

I would say in the case of Manhattan, the reason why tech works there is because the lease rates while being insane, are offset by the benefits financially of being there. The exit strategy for those companies is much more lucrative there because the companies that would either partner with them, or buy them out right, have the ability to throw out billions and not blink.

DC simply doesn't have that, therefore they can't compete on a comparable pricing. Now you point out other parts outside of the traditional commercial corridor being less expensive than the $100 psf rents. Thats true, but then again you can't say cost isn't so high in this spot, but then not accept that those spots are not the urban image people enjoy about DC.

Sure NOMA is cheaper, but is it really any better than Tysons? Perhaps to a trained urbanists eye you can see some of the benefits, but what most people experience is, it takes 40 minutes to get there via metro because it is not in the higher density regions, the food options are formulaic, and the night life is non-existent. And if those areas were to transition to that point, then their rates as well would increase to the true DC CBD costs because the amount of supply currently is restrained to the point where they could.

So you are left with three things as a person starting a company. Do you go to where the hip areas are and pay $100psf, close to prices in NYC? Do you move to NYC if you are gonna pay that anyways? Or do you move to the transitioning burbs where the amount of amenities is the same as the cheaper parts of DC, but the prices are half to 1/3 of even the cheapest parts of DC because of the aging stock of 12 to 20 story office buildings?

Very few choose 1, as evidence by the continued lack of tech companies in DC. What may shock some people is that Booz Allen, as the #1 private employer in Fairfax only has 4% of the total private employment in the County. The majority of private positions in Fairfax are actually at companies less than 50 employees.

Any one of the following would be a gem for DC to land

http://www.fairfaxcountyeda.org/facts-and-figures/business-lists/virginia-chamber-of-commerce-fantastic-50-list

Fairfax has more than 4600 tech firms, which make up 136,000 jobs. That averages out to ~30 per firm, ie a lot of small start up firms.

by Navid Roshan on Mar 28, 2014 5:53 pm • linkreport

JDS32, in defense of Navid, he's only really a booster (is cheerleader a better word?) of one portion of northern Virginia.

by selxic on Mar 28, 2014 8:25 pm • linkreport

This map shows where the ecosystem of startups in the region is and shows concentration levels by geography - http://dcstartu.ps

by Calista Loggins on Mar 28, 2014 9:26 pm • linkreport

Yes, speculative real estate prices make creating a real Tech or any kind of hub difficult accept retail "Nightlife Bar" hubs very difficult. Leveraging government owned land like St Es is the best approach. Especially for start-ups which is where DC has a shot given its ability to attract that demographic; however, many will seek cheaper space as businesses grow. Speculative Gentrification has distorted all models.

by W Jordan on Mar 29, 2014 10:00 am • linkreport

AWITC -- it's not really about the type of building so much as the level of rent. There are plenty of buildings in NoVA that rent for less/s.f. than buildings in DC. It's all relative. It might not be as well located, but there are other propinquity values for locating in NoVA, again, recognizing that the basis of the industry there started because of DoD.

It's like I say wrt MoCo's feeling behind Fairfax. It's only because FFX is much more a part of the military economy + the Ag Reserve in MoCo that puts MoCo at a competitive disadvantage.

by Richard Layman on Mar 29, 2014 12:48 pm • linkreport

When you look at what creates successful tech areas, local government efforts are barely on the list.

You needs talent, an strong university system and venture capital.

San Francisco is one of the most expensive cities in the nation to do business or live, but people want to be around other successful firms. They want to be close to the ideas and the energy.

DC has some good things going for itself. It has a lot of potential. If a San Francisco-style tech industry begins to take off in this city, it won't because of local government. It may be in spite of it.

by kob on Mar 29, 2014 11:02 pm • linkreport

Hi Ken--

Nikki from The HIVE 2.0 in Anacostia. Great article. I would like to offer a point of clarification. The HIVE 2.0 (fyi we closed The HIVE in 2013) is considered a small business incubator and a co-working space with and without walls (we service companies that aren't even members). We don't consider ourselves a "tech" incubator - we don't discriminate or target a particular industry. We provide below market office space, services, and assistance to any small business -- regardless of industry. Our focus is on providing support and opportunities for all who come in our doors (including the public). If I had to categorize most of our members I would say they are social entrepreneurs, nonprofits, and creative types. Even our for-profit businesses have some kind of "social benefit" angle. I think that is why in part they come to Anacostia because lets be honest, with DC government funds being focused in the heart of the city I don't know if we could compete otherwise. Despite providing many valuable services and access we are on the outskirts of the city and dare I say on the outskirts of the consciousness (and frankly funding) of many of those in DMPED. Despite being open since 2010 we just got our first visit from Mayor Gray in February. Despite being located east of the river and providing support and services to an underserved community we did not receive dollar one (despite asking repeatedly) to fund our renovation of HIVE 2.0.

I know tech is really hot right now for the administration which may account for the flurry of activity (or press releases). I just kind of wish we saw more of a balance (and frankly support) for those non 1776 brands, particularly those located in less amenity rich neighborhoods that have high unemployment. I'm not sure how much of a subsidy is needed to attract startups to the Golden Triangle -- try attracting them east of the river.

FYI- Non technology focused businesses are those of of more of a social or creative impact are of value too. In many ways the current revitalization of the Anacostia neighborhood can be attributed in part to arts and culture - not technology firms which frankly are not trying to relocate or expand east of the river any time soon. Press releases to the contrary, your hot tech firms want to go where there is the most food (funds and access) and be nearby other such companies. So with every new dollar funded west of the river and every new perk offered it becomes less and less likely that they would want (or can) move outside of the zone.

Apologies in I sound in advance like I am griping I just wanted to present an alternative perspective.

BTW -- if you are a small business, nonprofit, creative, or social entrepreneur in need of co-working space feel free to come in for a tour. I suppose we are offering a "subsidy" all of our own -- a free month of rent when you join by April 15th. ;)

by Nikki Peele on Mar 31, 2014 8:47 am • linkreport

Please pardon the typos -- once again I find myself without my glasses. ;)

by Nikki Peele on Mar 31, 2014 8:50 am • linkreport

@Richard Layman who wrote: "The tech corridor that could have been would be between Union Station and up almost to Fort Totten, using the various industrial buildings along the railyard, although the area's place value for other characteristics (cool spaces for bars, restaurants, third places, etc.) are pretty low."

I really don't understand this. I would think that this would be an ideal location for some uses in a tech corridor, given industrial-type space, vacant land and other uses that are not in competition with Class A office and upscale housing developments.

Beyond that, the tech businesses that would consider Washington over the suburbs would seem primarily oriented toward the government. That's why it makes sense to direct others around the Navy Yard or Joint Base Bolling.

Other writers have left out two other ingredients that would help DC to compete with the suburbs: reducing red tape and tax rates on business (I'm thinking of DCRA) and improving local schools. Companies locate in the suburbs because they want to attract talent who care about school quality. Moreover, they have direct employment needs that are not just professional and, for DC to become truly an attractive place for companies, the perception of high school graduates has to change.

by Jasper2 on Mar 31, 2014 3:42 pm • linkreport

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