Fairfax County's commercial real estate market is improving, with rental rates increasing only slightly in the past year and plenty of large and small spaces available even as the vacancy rate decreases.
Statistics from the CoStar Group Inc., based in Bethesda, Md., show that Fairfax County is currently maintaining a 14 percent vacancy rate, compared with 18.7 percent in the third quarter of last year. Almost 86 percent of the county’s 1,407 office buildings is occupied, compared with just over 81 percent a year ago. More than 2 million square feet of space have been occupied in the past year.
The average price to rent office space is currently $23.38 per square foot, compared with $23.18 per square foot from last year.
“THE MARKET IS getting better particularly for smaller tenants that need smaller amounts of space,” said Bob Howard of Wellborn Management in Reston. “We’re seeing less space available for smaller offices, typically between 1,000 and 3,000 square feet, but I’ve sold many side by side units to provide larger space,” he said.
The county, as a whole, encompasses approximately 50 million square feet of commercial space, Howard said, almost evenly divided between Tysons Corner and the Reston/Herndon regions.
“It’s roughly half and half between those areas,” he said, “but there’s also a lot of space in the Dulles Corridor.”
“The market is well balanced right now in terms of demand versus supply,” said Paul Watson, owner and principal broker with HFI Real Estate in Springfield, who mostly works with “suburban office park” clients “as opposed to high-rise office condos.”
Many of his clients will also look into buying office space as opposed to renting property, “which differs from large space users who might decide to rent an entire floor of a building.”
“I don’t see a whole lot of new product on the market,” Watson said, referring to a lack of new buildings or office space becoming available in the county. “By nature, my clients are small users, looking for spaces of between 1,000 and 5,000 square feet, they don’t make a huge impact on the market.”
“This market has been stable for the past two years,” he said.
“I think there is still more space available than companies looking to fill it up,” said Brad Flickinger, managing director for Northern Virginia with C.B. Richard Ellis.
“The vacancy rate two years ago was around 18 percent and right now we’re looking at about 12.5 percent, which is a good trend,” he said.
The net absorption rate in Fairfax County for the past few years has been around 2.5 million square feet, which has already been surpassed this year, he said. “In terms of balance, there’s very little new construction so the supply is constrained, and many new constructions are being pre-leased so there’s not a lot of vacancies,” Flickinger said.
Much of the space that has been vacant is being absorbed by the defense industry, he said, which “tends to use big blocks of space.”
“YOU CAN’T DISCREDIT the impact of the government on the local economy,” said Chris Sowick of Trammel Crow. “They’re a stabilizing force in Northern Virginia.”
“We’re seeing an increase in defense spending and more defense companies in the area growing, which will ultimately drive the local economy,” he said.
Overall, he said there’s been “positive absorption” in all areas of Northern Virginia, especially Fairfax County, “which has a lot to do with the continued lack of supply of new space. The demand has continued at a moderate pace,” he said.
Sowick thinks the next big growth area will be in the Merrifield Area, near the intersection of Gallows Road and Lee Highway.
“There’s a Metro station there, and it’s a market where space is available, plus it’s one of the older areas that’s more industrially oriented,” he said of the area’s popularity. “Companies look at this area as a strong alternative.”
Those in the industry don’t foresee any large buildings or companies coming into the area, either providing or requiring large amounts of space, anytime in the near future.
“Every four years, people hold their breath in the real estate market to see if things are going to change, but we don’t expect anything huge,” Flickinger said of the commercial market during election time.
“I suspect there’ll be a continued upward trend into 2005 but not necessarily anything dramatic,” Sowick said. “We don’t want to see anything spike up, the market is better when it’s a little more sustainable.”