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Forecast: Tysons Won’t Trump Arlington

by ARLnow.com — February 27, 2013 at 12:05 pm 2,067 15 Comments

Arlington Economic Development real estate forecast 2013

(Updated at 12:15 p.m.) BRAC and federal cuts are a drag on Arlington’s real estate market, but Tysons Corner will not be as competitive as some in the county fear, according to Arlington Economic Development (AED).

The county agency gave its annual real estate market review and forecast to a group of developers, property owners and local leaders on Monday. This year’s presentation was titled “Silver Line-ings,” after the new Metro line that is expected to open within a year and bring increased economic development to Tysons.

“I’m not freaked by Tysons Corner,” said AED Director Terry Holzheimer, adopting a bit of youth lingo.

“I don’t think we’re going to see a big negative from Tysons,” he continued. “Arlington will continue to be a better place. Arlington will continue to have better product. Arlington will continue to be highly competitive to Tysons Corner.”

Holzheimer said Tysons will “never catch up” with the kind of walkable, high-density, high-amenity urban corridors Arlington enjoys, and will continue to suffer from traffic problems. Plus, Holzheimer pointed out that commercial property taxes in Tysons are higher than Arlington.  He said there’s “not a chance” of Tysons becoming the region’s “new downtown” — as proclaimed by some — in the next 20 years.

The reflection of a crane seen on a building in Arlington (photo by Wolfkann)“Rome wasn’t built in a day, and neither will Tysons be,” he said.

Still, Arlington is facing challenges.

Office vacancies are up as the federal government makes cuts, plays hardball with office rental rates, and as BRAC continues to pull military offices out of Arlington. While BRAC was supposed to end last year, Holzheimer said Department of Defense office moves are expected to continue for the next three years, on top of the 17,000 employees that have already moved out of Arlington due to BRAC.

“It’s not even close to being done,” he said. Another 65 office leases in 25 Arlington buildings are expected to be impacted by BRAC in the next few years.

As a result of BRAC and federal cuts — “this malaise we’re in” region-wide — Holzheimer said office vacancy in Arlington has increased to 16.1 percent. Whereas Arlington usually has a lower-than-average vacancy rate for large central business districts (we’re between Boston and Houston in terms of office square footage), he described the county’s current vacancy rate as “middle of the pack” for the first time in a long time.

Interestingly, office rent in Arlington has remained high. The average per-square-foot “asking rate” is $41.13 in Arlington, compared to $18.93 in Dallas, $26.10 in Philadelphia, $31.54 in Chicago and $48.52 in the District of Columbia.

Another factor that makes doing business in Arlington more expensive than some parts of the country is a tight labor market. With unemployement at 4.1 percent in Arlington, Holzheimer said there’s a “labor shortage” in the higher-end of the professional/business services job category. That has made hiring more expensive for local companies. Holzheimer suggested that the country’s current restrictive immigration policy is also “a challenge” for Arlington companies in terms of recruiting high-skill immigrants.

Despite the various challenges, developers continue to build new office projects in Arlington. The office development pipeline includes 1.6 million square feet that’s under construction, 2 million square feet expected to be built soon, 2.2 million square feet approved but on hold, and another 3.7 million square feet making its way through the zoning approval process.

Office buildings account for about half of the county’s $1 billion tax base, compared to 25 percent of the tax base in Fairfax County, according to AED. While some have voiced opposition to certain office projects, Holzheimer suggested that Arlington residents should be grateful for office development, which helps relieve some of the tax burden from homeowners.

“That’s a great position to be in,” he said. “Commercial taxes are very important to us. We must support our business community. We could not fund our high-quality school system on the residential base alone.”

Construction on 19Nineteen Clarendon in CourthouseOn the residential side, Arlington is “actually doing pretty well,” Holzheimer said.

Home prices continue to rise and homes are selling for higher than asking price.

“Right now there’s not enough homes on the market to meet demand,” Holzheimer said. “That’s not good news for affordability, but it is good news from a fiscal standpoint for the county.”

Residential development is continuing at a good clip. Currently, about 3,294 new residential units (mostly apartments) and 157,000 square feet of mixed-use retail space is under construction. Another 2,316 housing units and 62,000 square feet of retail has been approved but is not being built yet.

Holzheimer concluded by saying that while Arlington cannot control the overall real estate market, there are some factors within the county’s power.

“We can control taxes, we can control regulations, and we can control incentives,” he said.

Photo (middle) by Wolfkann

  • ph7

    “I’m not freaked by Tysons Corner,” said AED Director Terry Holzheimer, adopting a bit of youth lingo.

    Youth lingo from 40 years ago. Per 1966 Edition of OED:

    freak-out, n. This term for a bad LSD trip appears in 1966, although the verb to freak, meaning “to trip on LSD” dates to a year earlier, and appears as the phrasal to freak out by 1966 as well.

    • Josh S

      I think the point is that no one over the age of, say, 30 would actually use that term when making a public presentation of this nature. It’s probably kind to say he was using “youth lingo” as if he did it on purpose to be sort of ironic or funny.

  • Terry Holzheimer

    I ain’t tripping, yo! OMG, epic fail, Tysons! YOLO!

  • acg

    It’s funny since Terry Holzheimer actually LIVES in Tysons Corner…

  • Duncan

    He comes off as kind of a lonely voice amid the industry opinions. Everybody else acknowledges the Silver Line is going to put pressure on both Arlington’s commercial leasing situation and its shopping malls. The renovation plans for Ballston and Pentagon City that were just announced are not coincidental.

    But I guess if you’re paid to be a cheerleader, you need to cheer.

  • Arlington Chris

    There’s no question that Tyson’s will put pressure on Arlington’s office market.

    But in real estate, there are 3 things that matter: location, location, location.

    A big part of the businesses in Arlington are connected to the Federal government, in downtown DC. The pure geographical advantage of Arlington (in combination of it’s appeal as a walk-friendly community) will be a great help to Arlington over Tyson’s or other places down the Silver Line/66.

  • Igor

    “Interestingly, office rent in Arlington has remained high. The average
    per-square-foot “asking rate” is $41.13 in Arlington, compared to $18.93
    in Dallas, $26.10 in Philadelphia, $31.54 in Chicago and $48.52 in the
    District of Columbia.”

    Yeah, imagine that. Could be that the same developers setting rents in Arlington need to attract new tenants to the building they are developing out by the Silver Line. Keep Arlington’s rents up high to milk your remaining leases, while still being able to advertise lower rates in Tysons to attract pre-occupancy commitments for your new construction.

  • NPGMBR

    I
    think the Arlington County Board would be making a mistake if they ignore the
    limited amount of residential housing in the county. Currently, the vast
    number of housing units coming onto the market are apartments and thats
    problematic for those like myself who wish to buy in Arlington but find that
    prices are far too high. I’ll start looking to buy my first place around
    this time next year and Arlington is not in consideration. Oddly enough,
    the Silver Line has my attention and I’m eagerly waiting to see what new condo
    units might come onto the market in the coming year. If a significant
    number of other Arlington renters see Tyson’s as an alternative, Arlington will
    have to rethink it’s strategy.

    • confused

      Im not sure what you would have them do. Theres a limited amount of land available for development in the county, If they zoned it all for THs there still wouldnt be many new THs, and they would still be as pricey (if you are thinking SFHs the problem is even worse. Allowing multifamily generates the largest number of new residential units, by far.
      If you mean they should zone more residential in general, and less office, that sounds reasonable to me.

      • confused

        if you mean rentals vs Condos, given the number of condos that are being rented out, I am dubious that there are too few condos for the market.

        • NPGMBR

          In my neighborhood there are three new buildings; The Halstead, Penrose Square and Sienna Park. The Halstead and Penrose were originally slated to be condos but were reverted to rentals because there were coming online when the economy tanked. In addition another set of rentals along with town houses will soon replace the Rosenthal Dealership and another new building was recently completed at the Pike and Greenbrier with another set of rentals about to begin construction directly across the street.

          Not only that, there were also a number rentals that were renovated to become condos but were also reverted back to rentals because they came online when the economy was bad.

          All I’m saying is that there is plenty opportunity to bring more condos to market in Arlington and maybe the County should be doing more to convince developers to give us more condos vs. rents.

  • acdc hack

    Whole lot of people dressed as empty seats……

  • Mc

    Tyson’s competition will be cheaper office space. Arlington is not attracting enough business employers, leaving residents to cover too much of tax base.

  • Hi Riser

    I’d expect to see some federal leases going to Tysons due to the Silver line and lower prices. Then Booze and the other parasites will only have to go across the street to get their hands into taxpayers’ pockets.

  • Angry Baby(formerly Naked Man)

    I like Arlington way better than Tysons! People are more accepting here.

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