In the late 1990s, gleaming steel and glass office buildings mushroomed in Tysons Corner then marched up the Dulles Corridor, bringing jobs and tax income with them. Today, in more troubled times, those structures stand out, high-rise reminders of the high-tech industry that spawned them. And while the region's economy remains strong, office real estate has taken a hit. Up to 17 percent of office space is sitting vacant, up from single digit vacancy rates a few years ago; and for the first time in a decade, the Fairfax County Economic Development Authority is predicting no new offices for 2004.
"There's no new construction," said Gerald Gordon, president of the EDA. "There's no incremental increase to the tax."
As a result, he added, residential homeowners are being forced to take on more of the tax burden for the county. Since 2000, commercial real estate tax revenues have grown by 24.3 percent. Residential real estate tax revenues, however, have increased 42 percent.
"The residents are absorbing a greater proportion of the burden of public service costs," said Gordon.
"REAL ESTATE is a very cyclical business and always has been. It fluctuates with the economy," said Mary Petersen, a senior vice president at Cassidy and Pinkard, one of the region's largest commercial developers.
As the cycle heads downwards, rents are dropping and tenants are putting leased office space back on the market, she said.
"Most people had more space than they needed," she said.
In the past, state and local governments were able to benefit from low bids from commercial developers to build public facilities, she added. "The state is really strapped so they cannot be countercyclical elements."
Still, commercial developers are staying busy with renovation work and what roads and schools are being built.
"It's not much but the market won't disappear," said Stephen Fuller, a professor of public policy at George Mason University.
It also helps that bigger, more established companies such as SAIC or DynCorps, companies that Petersen calls "the Beltway bandits," are staying put.
BUT THIS COMMERCIAL slowdown could help alleviate the region's affordable housing crisis, said Fuller.
"There is some catching up going on," he said. "It helps put the system back into closer equilibrium."
"The problem isn't solved but I do think there will be a little less pressure and it does give us a chance to close the gap a little bit," he added.
When the economy picks up, Fuller said, Fairfax County will be poised to pick up new businesses and new jobs thanks to its "high quality office space at competitive rental rates." The federal contractors lining up for new Homeland Security work could very easily settle in the county, he added. As a result, he predicted, those newcomers could bring vacancy rates down to the single digits again in about three years.
In the meantime, "we may see some people sitting on commercial land go ahead and develop it residentially," he said. That has already happened in Tysons Corner where WestGroup rezoned a parcel to produce about 1,300 housing units on land that was supposed to become office space.
For Paul Hughes, the president of the Fairfax County Coalition for Smarter Growth, the downturn in office occupancy provides the county with an opportunity to refocus its economic priorities.
"We may have put too many eggs in the high tech basket," he said. "Maybe it's time for the Economic Development Authority and others to start thinking about how do they make the county palatable to small business. Even though it's not sexy, it brings about a more diverse economy."
But Gordon, the EDA president, vowed to aggressively pursue more high-tech companies to Fairfax County.
"I think it's still technology that's driving the economy," he said.
"We're actually in much better shape than others."