MARKET ANALYSIS OF SELECTED LAND USES IN POTOMAC COMMUNITIES NORTH WOODBRIDGE Prepared for: EDAW, Inc. & Prince William County May 31, 2005 1
Summary of Market Findings The following section outlines our key market findings and recommendations with regard to the market feasibility of selected land uses in the Potomac Communities redevelopment area. These findings will be key inputs into the master planning process. May 31, 2005 2
- Strengths is an infill location and a rapidly expanding region. will benefit from a strong regional economy, which will continue to drive demand for residential and nonresidential uses. The area offers access to Washington employment cores via I-95, Route 1, and the Virginia Railway Express commuter train. The site is a highly visible and accessible location, with frontage on two major roads (I-95 & Route 1) at the county s eastern border. The site has natural beauty provided by the Occoquan River and an existing marina, and the ability to leverage the historic charm of Occoquan. The site will be able to tie into an existing network of trails. The site is proximate to Fort Belvoir & Quantico, which support thousands of jobs, and are projected to add thousands more in the future. May 31, 2005 3
- Strengths Route 1 widening and Route 1/123 interchange will improve access to the site, which already sees impressive traffic counts (36,000 average daily trips). Subject area is close to luxury residential development at Belmont Bay, which is achieving high prices at increasingly high densities. is in the vicinity of an established regional shopping destination -- Potomac Mills. Increased residential development activity in virtually all directions will likely drive demand for new, higher-end retail space. Outside of smaller places such as Occoquan, there are few vibrant, urban places in southeastern Fairfax and eastern Prince William counties. May 31, 2005 4
- Challenges The redevelopment area is currently characterized by unattractive neighboring land uses, failed or failing retail space with vast, empty parking lots, and heavy traffic congestion during peak hours. The area has no defined sense of place, and the aesthetically unappealing nature of some of the area likely has led to a negative market perception of the area, especially for highvalue housing. There is a lack of high-quality, neighborhood serving retail in the area, which would be necessary to attract a significant number of higher-income households. Steep grade changes and wetlands make much of the site difficult or impossible to develop. The site is currently controlled by a large number of owners, many of whom have immediate, by-right development opportunities that may not fit into a master plan. May 31, 2005 5
- Challenges North Woodbridge is outside the Favored Quarter, that is, the area in which most of the region s high quality residential and commercial development is likely to take place. Limited direct connection to VRE, and VRE service is limited -- one directional, with service and schedules geared toward employees commuting to and from areas such as Crystal City, the Pentagon and Downtown DC. North Woodbridge is not considered a natural location for Class A office, especially given the enormous quantities of vacant space elsewhere in the region. Many sought-after retailers are already represented at Potomac Mills, and may be resistant to relocating or opening new locations in the redevelopment area. Other planned great places e.g., next to Potomac Mills and Harbor Station. How many great places can be supported? Prince William County has slightly higher tax rates and lower-prestige school system than neighboring Fairfax County; however, for higher-density product this may not be a significant factor for future residents. May 31, 2005 6
Location Analysis of the The location is favorable for high-quality development. Location Characteristic Grade Comments Regional Location Economy Demographics Access & Visibility Character and Aesthetics Development Opportunities TOTAL A- B B+ A- C+ B A- Although just recently this area was considered the suburban fringe, it is now an infill location in a rapidly growing region. Primarily local-serving, and not in the path of growth of Class A office development, although location between Ft. Belvoir and Quantico could drive more significant employment growth. Rapid residential development along Route 1 corridor adding households and increasing average income. Good traffic counts pass the site, with multiple transportation options I-95, Route 1, and VRE. Future plans need to better leverage the water, and redevelopment of older retail centers and surface lots will dramatically change the area s aesthetic appeal. Need to consolidate smaller parcels, but visioning exercise with create foundation for investment Challenges do exist, but in a regional growth will place strong growth pressures on the area, and the challenges can be mitigated by superior planning. May 31, 2005 7
Development Opportunities in the In particular, can be transformed into a vibrant, mixed-use gateway to eastern Prince William County. From In order to do create a vibrant place, must: Build off the strength of the residential market. Offer more attractive retail and entertainment. Capture local serving office demand and set the stage for regional space. Leverage river views and add recreational opportunities. To May 31, 2005 8
Market Opportunities Townhomes Eastern Prince William is a proven townhome market, with evidence of demand for high-end townhomes at Belmont Bay The product type is attractive to a variety of strong market segments, including young professional singles and couples, and empty nesters. Given strong regional housing market and acceptance of the product type, townhomes represent a strong overall opportunity for the subject site. Townhome development in initial stage may not create a strong enough physical change to overcome negative aspects of the redevelopment area overall. To be successful, townhomes should be part of a larger development that provides a mixed-use environment, and a critical mass of similarly attractive housing on neighboring streets. Live work townhomes have been successful, on a smaller scale, and help provide an active streetfront in a residentially-driven development. Density level is attractive to developers and builders, although THs may be too low of a density to maximize site usage and provide appropriate land values. May 31, 2005 9
Market Opportunities Condominiums Initial Condo Pricing: $220 per square foot for urban wrap, with opportunity to reach $450 per square foot for waterfront highrise Condo Target Market: Likely to be an older, move-down or empty nester buyer, though some capture or younger professionals in a mixed-use environment. The condominium market regionally and locally is red hot, with projects selling out in a matter of months despite rapidly increasing prices. The aging of the baby Boomer, pent-up demand for more urban living, housing supply constraints in farther-out suburban locations, and historically low interest rates have driven condominium demand. Waterfront sites, even in initial phases, can leverage views in order to push densities. Off-water condominiums should be part of a first phase win that creates an exciting mixed-use environment and builds momentum Higher-density product will be difficult to support in off-water location in the near term. Mid-rise, steel frame construction already taking place just off water in Belmont Bay, but this is now an established location; price support for 4-5 story urban wrap condominiums in off water locations in the redevelopment area. Need to tie condominiums either physically or logistically to the VRE (i.e. shuttle or pedestrian bridge). May 31, 2005 10
Market Opportunities Rental Apartments In the near term, for-sale condominium development will represent the strongest residential market opportunity. Class A apartment communities in the area are seeing low vacancies, but also relatively high effective rents compared to other suburban Washington submarkets. The only new Class A apartment community in the submarket, Riverside Station, has struggled somewhat with absorption at $1.33 rents. In the near term, it would be difficult to achieve effective rents capable of supporting construction of higher-density, structured parking product types. As new condominium development and conversions shift the supply-demand balance, luxury rental apartments could become more attractive in the mid and long terms. Rising interest rates would also tip the balance back in favor of rental product, but while we do expect interest rates to increase modestly from their historic lows, we do not expect dramatic rate increases over the near and mid terms. In the context of a vibrant, mixed use environment, there may be opportunities in later phases to serve the luxury-renter-bychoice niche and offer denser rental product. May 31, 2005 11
Market Opportunities Retail A key part of the mixed-use environment will be the creation of a vibrant retail experience, establishing this location as a unique destination in Prince William County. There is a strong opportunity to offer newer, high-quality neighborhood retail that can capture more than its fair share of demand. There appears to be strong incentive for a grocery store to upgrade into newer, more modern space. Initial retail development could take the form of more urban, pedestrianfriendly neighborhood center. Only a small amount of unanchored specialty retail and restaurants can be supported in the near term. Charming waterfront retail could build on awareness and success of historic Occoquan. Limited opportunity in the near term to develop larger lifestyle center, especially given difficulty of attracting medium and large big-box retailers that already have stores in the area. Opportunity for lifestyle center still limited in mid term given likely competitive lifestyle centers in more established retail locations e.g., adjacent to Potomac Mills. Retail and restaurants are critical in that they create street life and give people a reason to be in the in the evening and on the weekend. May 31, 2005 12
Market Opportunities Office There is a moderate opportunity over the life of the project to serve the high-end of local serving professional space, while setting the stage for potential large-scale Class A tenants, as well as a potential federal office tenant opportunity. In the short-term, new Class A and B office space represents a limited opportunity, given existing vacancies and planned supply, and the overall limited depth of this market in this location. Residential growth in the area will begin to generate demand for more service-oriented employment, and many of those businesses will seek out high-quality space in a mixed-use environment. Trends in the locating of federal space could result in higher demand for federal agency and private contractor space near military installations such as Quantico and Fort Belvoir, however there are many natural locations for development on or closer to those bases that the site would have to compete, and federal tenants require secure campuses that would be incongruous with a truly urban, mixed-use town center. Over time, as a unique sense of place is created at the site, there could be a lightning strike opportunity to attract a larger-scale, private Class A or build-to-suit tenant, and some portion of the site should be reserved for this possibility over the long term. Smaller office buildings that are supportable in the near term could be densified over time. Initial development opportunities will likely only support surface parking, but public parking subsidies could introduce structured parking in the near term. May 31, 2005 13
Market Opportunities Recreation Given its Occoquan River setting, the redevelopment area could provide many public and private recreation opportunities. There is a potential opportunity to include a health club or other private recreational facility in the retail component of the project (i.e. skate park, rock gym, ice rink), although the key to realizing this opportunity typically involves convincing a limited number of operators. The strongest opportunities area: Integrate the site into the regional trail system. Leverage and potentially expand marina facility, allowing for more public access. Create small, urban public spaces that can become the focal point of community interaction and gathering. Potential opportunity for larger-scale public space that can accommodate larger performances and events. May 31, 2005 14
Summary of Market Opportunities Projected New Development Potential Over a Twelve-Year Period Use Residential Retail Office Recreation Opportunity High Moderate - High Moderate - Low High Depth of Demand 5,000 to 6,000 units 350,000 to 400,000 SF 150,000 to 250,000 SF, plus potential large GSA tenant Leverage river/marina & regional trails Residential: Assumes multiple product types being introduced at the same time, many of which may not be end up being financially feasible given site constraints, and/or density constraints driven by land values and development costs. Retail: Assumes several retail concepts, including a waterfront retail experience, a grocery-anchored neighborhood town center, and unanchored retail Main Street. Office demand is for smaller, boutique space, but may include a large federal tenant 1.0 to 1.5 million SF, plus as much as a million square feet of office space serving private contractors, depending on the federal tenant. The large, federal tenant opportunity is no greater than 50%, given other competitive sites in the region May 31, 2005 15
Phasing of Private Development Opportunities The plan will be residentially driven, especially in the near term, but a mixture of uses is critical to creating the vibrant, urban place. The residential development will naturally want to step up in density over time, as the market proves itself. The exception is the waterfront residential, which can support higher-density development in the near term. The first phase must have a retail experience to create a vibrant place. The nearest term opportunity is an grocery-anchored neighborhood town center, that provides the anchored retail experience needed to make retail work in the near term, but also can be developed in a more urban, pedestrian-friendly concept. There is also a near-term opportunity for a small amount 15,000 to 20,000 SF -- of waterfront retail, with an additional phase of similarly-scaled retail in later phases. An unanchored retail Main Street 150,000 to 200,000 SF -- is supportable in later phases, as the sense of place and critical mass is created; however, it should still be viewed as an extension of the previous retail experience. The supportable office space will be smaller buildings or space above retail that will cater to smaller users who are attracted by the vibrant, mixed-use environment. Larger sites capable of handling a more significant office uses, in particular a large federal or private contractor user market, should be planned for on the fringes of the mixed-use town center, but certainly not envisioned as a central piece of the overall vision, in case that potential does not come to fruition. Further, there is a high likelihood that any federal or contractor office building would have strict regulations that make it difficult to fit into the center of a mixed-use environment. May 31, 2005 16
Phasing of Private Development Opportunities Land Use Phase I Phase II Phase III (1-3 years) (4-7 years) (8-12 years) Residential 1,000 to 1,100 units 1,650 to 1,700 units 1,800 to 1,900 units MR and HR waterfront condos, townhomes, urban wrap condos, garden apartments, livework units MR and HR waterfront condos, urban wrap condos, mid-rise condos, urban wrap apartments, live-work units HR waterfront condos, midrise and high-rise condos, mid-rise apartments, livework units Retail 175,000 to 200,000 SF Grocery-anchored neighborhood town center, waterfront retail 150,000 to 200,000 SF Main Street retail, waterfront retail Small amount of street front retail under residential and office buildings Office 30,000 to 50,000 SF 50,000 to 75,000 75,000 to 100,000 Small Class A/B Small Class A/B, Small Class A/B Potential GSA nice May 31, 2005 17
Critical Success Factors 1. Have a Plan: The master plan must present a vision for North Woodbridge that can shape further development opportunities and create a consistent development pattern that builds momentum over time. Seek public and developer input early on to gain consensus. 2. Quickly Change the Physical Realities: You need a sudden physical change in the site to create a first phase win. Encourage cooperation to develop larger, grander sections of the site, versus smaller, piecemeal developments. Leverage the site s strengths, such as the marina, and access to VRE in early phases. 3. Offer Something Unique: Retail is key to creating a vibrant, mixed use environment that will draw people to the site. Specialty retail will create a unique niche, and the site should be branded and marketed as a special place. Focus on appropriately sized and functional urban and recreational public spaces. 4. Think Long Term: The private market may not initially support the desired level of density or mix of uses, so the public sector must take a long-term view. Infrastructure support and development incentives may be required, along with land acquisition support. Allow for layering of densities over time, in accordance with market demand. May 31, 2005 18
Critical Success Factors 5. Make the Plan Flexible: The mixed-use vision of the site should drive the master plan, but regulations should be flexible and nimble, in order to respond to changes in the market and private sector needs. Create an environment of working with, instead of merely regulating developers. 6. Mitigate Site Control Issues: A catalytic first phase is more likely to be successful if a substantial part of the site is controlled by a single owner or group of owners working together. Encourage cooperation among landowners through incentives such as density bonuses, greentaping, or business relocation assistance 7. Link to VRE: Functional, multi-modal linkages to the Woodbridge VRE Station, Occoquan, and other destinations in the area should be made when possible. For instance, efficient, public shuttles to the train station, integration with regional trail systems, and traffic calming measures along Route 1 will make the site a more attractive place to live, work and shop. May 31, 2005 19