ARLINGTON ECONOMIC DEVELOPMENT VACANCY UPDATE

Transcription

1 ARLINGTON ECONOMIC DEVELOPMENT VACANCY UPDATE

2 THE NEW NORMAL From 1980 to 2010, the average yearly net absorption in the region was approximately 4.2 million square feet per year. From 2011, that absorption number dropped to (minus 85,000) square feet per year. Matt Klein, Akridge ULI Washington Advisory Board Summary #1 September 28, #7 SOURCE: CoStar; October 2

3 VACANCY BY JURISDICTION % 20.0% 17.1% 17.7% 15.0% 15.4% Vacancy 10.0% 9.5% 10.7% 12.4% 12.8% #7 #1 5.0% 0.0% ARLINGTON DC ALEXANDRIA MONTGOMERY FAIRFAX PR. GEORGE'S LOUDOUN SOURCE: CoStar; October 3

4 VACANCY BY JURISDICTION 25.0% 20.0% 19.8% 20.3% 17.1% 17.4% Vacancy 15.0% 11.0% 13.6% 14.9% 10.0% #1 #7 5.0% 0.0% DC LOUDOUN MONTGOMERY ALEXANDRIA FAIRFAX PR. GEORGE'S ARLINGTON SOURCE: CoStar; October 4

5 VACANCY PERSISTS DESPITE EMPLOYMENT GAINS YOY EMPLOYMENT GROWTH WASHINGTON ARLINGTON ALEXANDRIA METRO AREA 2Q Q 79.9 EMPLOYENT GROWTH (000s) SOURCE: Bureau of Labor Statistics 5

6 VACANCY IS A REGIONAL ISSUE 25.0% 20.0% 15.0% Vacancy 10.0% 5.0% ARLINGTON ALEXANDRIA FAIRFAX MONTGOMERY PR. GEORGE'S DC SOURCE: CoStar; October 6

7 OFFICE VACANCY TO DATE 25.00% 20.00% DRIVERS BRAC Sequestration GSA rent caps Space utilization rates Metro Silver Line Increased DC competition 21.3% 20.3% VACANCY 15.00% 10.00% 9.5% 5.00% VACANCY SOURCE: CoStar; September 7

8 RECENT OFFICE ACTIVITY VACANCY 22.00% 21.00% 20.00% 21.3% +LABOR + LIDL + Capital News Corp + Salem Media + LIDL + CTR Shared Services + Arch Properties Avg. Net Absorption 60,000 SF/Quarter + Sands Capital + Basket + GW Medical 20.3% + Eastern Foundry 500, , , , ,000 0 NET ABSORPTION (SF) 19.00% DIA 19.6% GSA Federal Supply ALION EPA 100, ,000 POSITIVE NET ABSORPTION NEGATIVE NET ABSORPTION VACANCY 8

9 PROJECTION CONTINUED TREND 25.0% 21.3% 20.3% 20.0% 19.3% VACANCY RATE 19.6% 15.0% 14.2% 10.0% VACANCY PROJECTION NOTE: Assumes recent quarterly net absorption of 60,000 SF and delivery of projects currently under or near construction. 9

10 PROJECTION W/ NSF LEASE EXPIRATION 25.00% 1, VACANCY 20.00% 15.00% 21.3% 19.6% HEADWINDS Sequestration 2.0 GSA rent caps continue Space utilization rates Reston & Tysons SW Waterfront & NOMA 20.3% An additional 2.6M SF of GSA leases have expirations dates in the next five years. 21.0% 19.3% MAJOR LEASE EXPIRATIONS (000s SF) % NSF 655K SF LEASE EXPIRATION VACANCY WITHOUT GSA LEASE EXP. NOTE: Assumes recent quarterly net absorption of 60,000 SF and delivery of projects currently under or near construction. 10

11 RENTS BY JURISDICTION 1Q 2011 $62.00 $57.00 DC $54.91 Average Class A Rent (Full Service) $52.00 $47.00 $42.00 $37.00 $32.00 ARLINGTON $45.43 ALEXANDRIA $40.02 MONTGOMERY $35.84 FAIRFAX $32.29 $27.00 PG $24.37 LOUDOUN $27.27 $ % 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Vacancy Rate SOURCE: CoStar; October NOTE: Sphere size depicts total RBA; Rents for buildings built after 2005 or renovated after

12 RENTS BY JURISDICTION 3Q $62.00 $57.00 DC $57.77 Average Class A Rent (Full Service) $52.00 $47.00 $42.00 $37.00 $32.00 MONTGOMERY $33.26 ALEXANDRIA $42.09 FAIRFAX $33.87 ARLINGTON $42.95 $27.00 LOUDOUN $28.02 PG $25.95 $ % 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Vacancy Rate SOURCE: CoStar; October NOTE: Sphere size depicts total RBA; Rents for buildings built after 2005 or renovated after

13 BUILDINGS WITH MORE THAN 10% VACANCY MAKE UP 95% OF VACANT SPACE Less than 10% Vacancy More than 10% Vacancy 18.7 M SF 22.0 M SF 18.3 M occupied 7.5 M vacant Occupied Vacant Occupied Vacant 13

14 SIGNIFICANT DIFFERENCES EXIST AMONG HIGH-VACANCY BUILDINGS Buildings w. More than 10% Vacancy 22.0 M SF 7.5 M SF Drilldown by Building Class and Age 7.5 M vacant M vacant 2.7 M vacant Occupied Vacant 0.0 Class A Class B/C Avg. Yr. Built: 1992 Avg. Yr. Built:

15 OFFICE CONVERSIONS IN THE U.S. Boardroom to bedroom trend driven by increased demand for urban living and pronounced change in the way companies use office space. In the past 10 years: 44 office buildings converted in Los Angeles; 27 office buildings converted in Philadelphia; and Continued activity in New York and Chicago. Baltimore and Dallas have used tax credit programs to encourage conversion. 15

16 COMPARABLE PROJECTS IN ARLINGTON th Street WeWork/WeLive 400 Army Navy Dr Crystal Dr.* Impediments to office conversions in the Washington DC office market: 1. Large floor plates resulting in more costly retrofitting 2. Low ceilings and unappealing building exterior compared to lofts or flats 3. Office use perceived best option on value per square foot Key conditions for office conversions to work: 1. Encouragement and partnership from the public sector 2. So called optimal obsolescence otherwise must tear down 3. Market demand for multifamily and co living arrangements 16

17 LOOKING AHEAD/ IMPLICATIONS If put to another use the 2.7 million square feet of antiquated space would equate to a 5% reduction in the office vacancy rate. Leaving 2 million square feet to make up through business development to reach a 10% office vacancy rate. 17