The Northern Virginia commercial real-estate market resembles nothing so much as an overweight, punch-drunk fighter. Reeling from the dot-com bust and the Sept. 11 marketplace, commercial rental space availability swelled as surviving Internet companies sublet space they had taken on as part of unrealistic expansion plans.
According to real-estate firm Cassidy & Pinkard's fourth quarter survey of office space, during the year, Northern Virginia vacancy rates more than tripled, going from 4.4 percent to 14.3 percent. Though the 14.3-percent vacancy rate is bad enough, the number blends less-affected areas like Arlington (with 9.2-percent vacancy) with areas like Tysons Corner (with 19-percent vacancy) that were hit harder.
The Costar real-estate listing-service vacancy numbers are slightly different because of the way in which the two firms measure vacancies. Costar puts Northern Virginia December 2001 vacancy rate at 13.5 percent. In the first two months, its statistics reveal a slight increase in vacancy, with current availability at 14.58 percent.
IT IS TEMPTING to place blame for Northern Virginia's commercial real-estate vacancy woes on the post Sept. 11 environment. The reality is the real-estate market's problem is a dot-com, dot-bomb phenomenon. Mary Petersen, Cassidy & Pinkard senior vice president, said that her firm “kept waiting for the other shoe to drop after the NASDAQ plunge (in November 2000). ... However, by the end of 2000 ... the vacancy rate was just 4.4 percent.” It was when the sublet space came on the market that the situation changed. Bob Howard of Wellborn Management said, "A couple years ago, if you had a space listed in the morning, you would get it (sold) in the afternoon.”
The abundance of rental space has created a renters' market. Tysons Corner in particular has been turned on its head. According to Cassidy & Pinkard’s report, some properties that had rental rates per square foot in the high $30s and mid-$40s at the end of 2000 could, in December 2001, be had for rental rates in the low $30s.
Howard went on to say that "the landlord community is not suffering yet and probably won't." Many tech firms had to "have two years of deposits in some cases secured by letters of credit." If the tenant business failed, Howard said "financial institutions had to ante up the funds."
THOUGH COSTAR’S EARLY NUMBERS show a slight worsening in vacancy rates, the numbers show a slowing in the commercial market vacancy slide. New building projects are constrained to build to suit as developers wait to see what will happen next.
Howard was hopeful as he felt defense- and security-associated businesses would eventually fill the rental spaces. As Howard put it, "People ... will have to come where the space is." Cassidy & Pinkard's fourth-quarter 2001 report predicts that security and defense increases "will not likely ripple through the market until mid-2002."
Jack O’Donohue at Stratford Associates said that when the market changes and the security and defense firms look to get rental space, the market "within NOVA would grow outward from D.C." O’Donohue said traditionally the market has followed this pattern, and he saw no reason to expect the market not to follow that trend.
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Cassidy & Pinkard showed vacancy rates in the Reston/Herndon area increased through the year from 5 percent to 19.3 percent.
Loudoun County’s vacancy rate began the year at 4.1 percent and finished the year at 16 percent.
In the area around Route 28 South, vacancy rates started the year at 9.4 percent and ended the year at 16.6 percent.
In the 50/66 corridor, which extends westward from Merrifield to Fairfax, the commercial vacancy ranged, at year's end, from 10.7 to 15.4 percent.
In Alexandria, according to Cassidy & Pinkard’s survey, through the year vacancy rates increased from 5.8 percent to 9.4 percent
Arlington’s vacancy rates, as reported by Cassidy & Pinkard’s survey, increased through the year from 3.4 percent to 9.2 percent.