As construction crews dig out patches of ground for new buildings, hundreds of other buildings sit empty or partially empty in eastern Loudoun, leaving 4.5 million square feet of commercial space available for sale, lease or rent.
"There are some huge blocks out there that are dead flat empty. Part of that was greed on the part of the landlords, and part of that was the market," said William Hunt, Commercial Counsel Investment Member (CCIM) for Dulles Commercial Real Estate, referring to the national recession and dotcom market shakeup.
Two-thirds of the vacant space, about 3.1 million square feet, is in big block buildings, which are considered to be at least 50,000 square feet in size, according to the Department of Economic Development. Eastern Loudoun has 35 big block buildings with available commercial space for office, industrial and flex, or multiple purpose, uses.
"There aren't big tenants out there ... looking for space," said Sandy Denham, communications and special projects coordinator for the department. "It's not a Loudoun phenomenon. It's a national phenomenon," she said about tenants unwilling to expand during an economic downturn.
As a result, smaller tenants are encountering less competition when they vie for large spaces or small sections of big block buildings, said Larry Rosenstrauch, director of the Department of Economic Development. "The little guys were often shut out of the market. The pressure's off the market a bit now," he said. "That's the good news for them. I don't think we'll have to do as much for them. The harder problem is to fill the big blocks when there aren't big tenants out there right now."
The department will focus on attracting tenants to move in to the big blocks. "Largely, we are going to concentrate on large block space right now because the small blocks will fill themselves up," Rosenstrauch said.
THE DEPARTMENT of Economic Development set as a goal for fiscal year 2003 to reduce commercial vacancy rates to less than 10 percent. The vacancy rate last month measured at 21.27 percent for the end of the third quarter, a four percent increase from 2001 during the same time period, according to the Department of Economic Development. The vacancy rate for the first three quarters of 2000 was 7.77 percent.
"The office and flex market are a little higher, while the industrial market has remained stable," said Susan VanEppf, database and market research coordinator.
The flex market's vacancy rate was 33 percent, compared to a nearly 20 percent rate for office space and 10.5 percent for industrial space.
Staff from the Department of Economic Development plans to meet with building owners and leasing companies about the vacancy situation and to assemble focus groups with members of the real estate business.
"What are they doing? What do they think is possible?" Rosenstrauch said, adding that staff will ask real estate members "what their thoughts are on the marketplace, what we can do and what to do to get ready when business turns."
For David Gunter, president of Commercial Group Reality, Inc. in Sterling, the economy has had different effects on the real estate markets. He attributed the increase of office vacancies in Loudoun and other Northern Virginia counties to the downsizing of several technology companies in the Washington metropolitan region. "It's all one big market in Northern Virginia," he said.
However, the industrial market did not take a hit, according to Gunter. "The industrial market has stayed relatively tight with some vacancy in large blocks, but little to no vacancy in smaller blocks," he said. "We didn't see the fallout of tenants in industrial as we did in office."
HUNT WORKS with small tenants to help them find office, industrial, flex and retail space, usually ranging from 1,500 to 10,000 square feet.
"Eighteen months ago, the space available was so tight, tenants were grabbing anything they could get, and they were making bad decisions," Hunt said. "We had an incredibly low vacancy rate. It was an overheated market. Now, at least in the smaller spaces, it's reached an equilibrium."
The equilibrium comes from a good selection for tenants and a profit margin for landlords, Hunt said. As for the larger buildings, Hunt expects the market to remain slow, especially for buildings not adaptable to multi-tenant uses. "We're certainly not in a situation where we were in the early '90s where we had incredible vacancies and landlords going bankrupt left and right," he said.