Autumn on Lake Audobon

Autumn on Lake Audobon
Autumn on Lake Audubon, Photo by Alison Kamat

Wednesday, March 18, 2015

When greed is years, if not a decade, ahead of reality . . .

From the Washington Post, March 18, 2015:

Why Northern Virginia’s tallest building is still empty and what it means for Arlington

In Rosslyn, 1812 North Moore Street, is 35 floors and 390 feet high but still empty more than a year after completion. (Photograph by Jeffrey MacMillan )
In Rosslyn, 1812 North Moore Street, is 35 floors and 390 feet high but still empty more than a year after completion. (Photograph by Jeffrey MacMillan )
Tim Helmig is feeling good about where Rosslyn is headed.
The Arlington neighborhood has added dozens of new shops, a half-dozen new restaurants are on the way and more than 500 apartments are going up nearby.
Helmig, chief operating officer of developer Monday Properties, could use some good news. It’s been about a year-and-a-half since Monday and Goldman Sachs completed the tallest office building inside the Capital Beltway, 1812 North Moore. The 580,000-square-foot Rosslyn office tower remade the skyline at 390 feet in the air, but it remains completely empty.
As Arlington and other companies grapple with increasingly difficult budget situations, solving problems like 1812 North Moore is becoming more of a priority.
What went wrong with Helmig’s building? For one, the leasing market dried up just as Monday was completing the building. For another, law firms — which Monday has been targeting as occupants for five years or so — have been using less and less space and have not been willing to jump the river from the District.
Helmig thinks things are improving on both points. . .
Aiding Helmig in his efforts to fill the building is Victor L. Hoskins, the new director of Arlington Economic Development. In all, Hoskins said about one-quarter of the county’s 40 million square feet of office space is empty.
“The next 24 months are going to be critical,” Hoskins said. “Really the next 12 to 24 months we need to develop some momentum on filling up space. That’s what I’ll be focused on. That’s what our business development group is focused on. And that’s not an easy to thing to do.”
If commercial real estate in Arlington loses too much value, it will create budget problems for the county. . . .
What are a developer and an economic development official to to say after laying a 390'  tall egg?  Click at the top for the full article.  

While the Rosslyn tower is the tallest regional example of a developer optimistically way over-estimating the potential for new office space development in the Washington area, it is certainly far from being the only one. 

The trends Helmig identifies began at least a half-dozen years ago and were almost immediately recognized by most independent parties, including many commercial real estate brokers, even as they were ignored by developers.  The leasing market shrinkage locally was driven by two major forces:  the Great Recession that began in 2008 and especially the reduction in federal spending locally that shrunk both federal employment and federal contracting that started by 2009 and continues.  The reduction in office space per worker, most broadly publicized by CoreNet in an early 2012 press release and in a major 2013 paper by Professor Norm Miller, a leading professor in commercial real estate at the University of San Diego anticipates the ongoing reduction in office space per worker by half or more by later this decade. 

With stagnant office employment growth and shrinking space per office worker in our area, it is unlikely that there will be a substantial improvement in the near-record office space vacancy rates before the end of the decade, especially as office building construction continues although the pace has clearly slowed in the face of recently recognized reality.

And local governments have been eager participants in this greed-driven growth in commercial office space.  Their eyes have been focused on the value these new office buildings will add to their tax rolls--and the desperately needed tax revenues they could generate.  Generally overlooked in this County quest for growth-for-taxes mentality is the related County requirement to vastly improve infrastructures to support them and the risk of a declining quality of life (and associated property valuations) for both commercial and residential properties nearby.  Moreover, as long as these office buildings are vacant, they generate little additional real estate tax revenues for County coffers, much less profits for developers. 

Virtually everyone in the region is suffering--financially, quality of life, transportation consequences, environmental impact, etc.--because developers and governments have been driven by the blind greed of overdeveloping office space market, untimely development that could have been avoided with a little more attention to the forces at work in the world in which we are living. 

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