SELLING IT: FCEDA goes off the deep end selling the County's office space growth.

An article in InsideNOVA.com by Brian Trompeter, who regularly reports on Fairfax County business matters, details a presentation by FCEDA's Director of Real Estate Services Curt Hoffman to the Tysons Regional Chamber of Commerce entitled, "Commercial real estate continues headlong growth in Fairfax."  The article begins:

New office and mixed-use projects are being built like gangbusters in Fairfax County and the county’s economy remains formidable, a local real estate expert said May 11.

More than 2.6 million square feet of office space now is under construction, 83 percent of which has been leased in advance.

“It’s kind of like going to the car dealer and buying your car off the assembly line,” said Curt Hoffman, director of real estate services for the county’s Economic Development Authority, who briefed Tysons Regional Chamber of Commerce members during a breakfast meeting at the agency’s Tysons office. . . .

Companies are flocking to Fairfax County . . . Hoffman said. . . .

Wow!  How could life get any better for a developer and the County's economy and property tax revenue flows?

Just a tad of perspective shows how bogus the growth in the County's office space is.  FCEDA's data shows that, since 2006, the County has added more than 11.5 million square feet of office space.  At the same time, the amount of vacant office space has increased by an almost identical amount:  11.1 millions SF.  In fact, the amount of occupied office space in Fairfax County has increased by a measly 319.5 thousand SF--enough space to house 1,065 new office workers--112 new office workers per year--using the County's office space per worker planning assumption (300 GSF/worker).

The fact of the matter is that businesses are merely moving their employees from older buildings to new ones as FCEDA's mid-2015 data shows.  (Although it is now mid-May 2016 , FCEDA has not yet published its year-end 2015 data update.  CRE brokers routinely publish this office data quarterly with a one-month delay.)  Over the same period, the office space "available for relet" has grown by 10.9 million SF.  Available new office space has grown by less than 200,000 SF.

Against that backdrop, Hoffman called the County's 16.2% office vacancy rate (and that is "direct"only; "indirect" vacancies--unoccupied but leased space--adds two percentage points to that rate) is "near" the "healthy" range of 10%-15% range.  We call bullshit!  From a developer's perspective, that rate should be under 10%; the lessee wouldn't want to see it below 7% as rents would skyrocket.  In fact, over the 35 years the County has tracked its office market, the average direct vacancy rate has been 9.8%.  There is nothing healthy about an office market where the vacancy rate exceeds 10%--and the County's overall vacancy rate now exceeds 18%.

And office vacancy is becoming a larger problem for the County.  The office vacancy rate has more than doubled since 2006 from 7.7% to 16.5%.  Worse, it has grown every year since 2010 (then at 13.3%) when the national economic recovery began.  If the office market can't strengthen during a period of national economic growth, its future as a driver of growth in the local economy is very much in doubt, even with the arrival of the Silver Line in the Dulles Corridor.

One point Hoffman makes is that 73% of the current office space is becoming obsolete, meaning only that it is more than 20 years old--and “that’s the next market (replacing office space) we see taking off,” Hoffman said.  We disagree for several reasons.

• Office job growth in the County has been and will continue to be slow, if not stagnant, thanks largely to Congress' inability or unwillingness to spend on larger government and government contracting.
• Office space size per worker will continue to shrink.  Although the County continues to insist on using 300 GSF/office worker as its office space planning metric, the fact of the matter is that office space per worker is shrinking dramatically.  Some estimates say as low as 100 SF/worker.  We believe 200 GSF/worker is a comfortable estimate of current and future space per worker for at least a decade.  
• Office-type jobs, especially business and technology work, are shifting to other markets for a variety of reasons, including the fact that the internet means that much of this business can be conducted from anywhere in the world.  

As a result, we anticipate that a significant share of the obsolete office building market, possibly a third or more, will be re-built (possibly years from now) as high-density residential as that market continues to show a relatively strong demand.

We appreciate that Hoffman's job is to sell the County's real estate, but he--and many others in County leadership positions--need to provide more credible presentations on the state and the direction of the County's economy, including its office market.  The continuing failure to provide credible information will itself lead corporations to move their businesses to other locations whose leadership is more candid about their business conditions and prospects.  

Here's the FCEDA data:

Countywide Office Space Trends: 1980–2015 (Square Feet) Year Standing Inventory 1 Vacancy Rate (%) Total Leased 2 New Leased Relet Leased Total Direct Available New Available Relet Available 1980 20,567,000 1.7 1,400,000 NA NA 343,086 279,539 63,547 1981 27,900,000 2.9 2,623,579 1,486,919 146,046 810,950 439,406 371,544 1982 30,750,000 4.5 2,639,313 1,193,946 451,186 1,374,534 866,906 507,628 1983 32,100,000 2.9 2,312,379 1,414,951 360,211 933,012 366,792 566,220 1984 35,100,000 7.3 3,318,178 1,706,050 562,293 2,558,566 2,018,716 539,850 1985 42,800,000 9.4 5,107,357 3,719,570 440,487 4,036,662 3,283,319 753,343 1986 48,700,000 9.4 5,889,741 3,908,799 339,682 4,555,065 3,119,637 1,435,428 1987 53,616,000 8.8 5,475,880 3,651,588 942,557 4,701,055 3,087,638 1,613,417 1988 58,073,000 10.8 5,014,401 3,046,598 1,004,913 6,263,547 3,818,738 2,444,809 1989 63,575,000 15.2 5,973,710 3,224,384 1,353,114 9,645,834 4,227,527 5,418,307 1990 67,139,000 18.3 5,006,377 2,202,932 2,424,145 12,255,516 5,118,433 7,137,083 1991 72,702,000 16.8 5,535,950 2,374,087 3,141,863 12,185,419 3,829,149 8,356,270 1992 73,056,000 14.8 4,854,778 1,433,064 3,421,714 10,788,508 2,652,612 8,135,896 1993 74,397,000 12.4 5,272,604 1,393,415 3,879,189 9,201,590 1,409,847 7,791,743 1994 75,562,432 9.9 6,306,117 1,290,152 5,015,965 7,490,605 651,098 6,839,507 1995 76,074,620 8.5 5,261,893 498,137 4,763,756 6,458,580 308,062 6,150,518 1996 78,265,573 6.2 7,040,085 1,316,827 5,723,258 4,908,932 77,775 4,831,157 1997 79,617,676 4.3 6,196,885 1,959,447 4,237,438 3,390,293 19,177 3,371,116 1998 82,088,287 4.1 6,991,158 3,810,783 3,180,375 3,392,909 531,855 2,861,054 1999 88,375,053 4.8 9,264,808 5,910,855 3,353,953 4,238,492 1,340,336 2,898,156 2000 93,563,753 3.5 12,750,968 6,918,762 5,832,206 3,236,371 1,007,213 2,229,158 2001 97,602,908 6.4 5,174,234 2,606,024 2,568,210 6,281,688 2,312,291 3,969,397 2002 100,912,347 12.1 7,648,790 1,022,910 2,631,385 12,176,938 3,291,394 8,885,544 2003 101,507,385 11.2 10,570,315 1,788,402 4,898,701 11,393,801 1,870,915 9,522,886 2004 102,117,697 8.6 10,969,819 1,762,757 6,028,830 8,764,801 919,191 7,845,610 2005 103,520,646 7.8 9,659,060 537,974 5,920,239 8,054,510 1,053,457 7,001,053 2006 105,054,801 7.7 10,805,683 2,249,866 7,569,360 8,115,057 1,155,235 6,959,822 2007 107,232,650 9.2 9,382,013 1,378,208 6,832,122 9,857,339 2,164,415 7,692,924 2008 111,189,301 12.1 9,976,277 1,808,055 7,146,620 13,422,946 3,419,220 10,003,726 2009 112,556,702 14 10,330,158 1,162,887 8,425,631 15,723,157 3,076,675 12,646,482 2010 113,191,835 13.3 13,586,158 1,317,120 11,590,346 15,091,196 1,926,139 13,165,057 2011 113,624,952 13.7 11,656,935 1,300,674 9,694,529 15,600,787 1,267,677 14,333,110 2012 114,056,515 14.4 10,717,111 1,251,127 8,833,486 16,454,250 1,039,607 15,414,643 2013 114,771,222 14.4 12,280,230 823,756 10,307,898 16,577,368 1,404,234 15,173,134 2014 116,238,615 16.3 9,833,053 521,971 8,711,025 18,897,111 1,498,179 17,398,932 2015 3 116,509,060 16.5 5,031,099 195,295 4,459,714 19,205,621 1,317,831 17,887,790 1.  Includes inventory outside submarket areas 1980-2000 only. 2.  ln some years, total leasing reflects the preleasing of buildings under construction and about to be constructed, as well as new and relet space. 3.  Through June 30, 2015.
								Relet Available
								63,547
								371,544
								507,628
								566,220
								539,850
								753,343
								1,435,428
								1,613,417
								2,444,809
								5,418,307
								7,137,083
								8,356,270
								8,135,896
								7,791,743
								6,839,507
								6,150,518
								4,831,157
								3,371,116
								2,861,054
								2,898,156
								2,229,158
								3,969,397
								8,885,544
								9,522,886
								7,845,610
								7,001,053
								6,959,822
								7,692,924
								10,003,726
								12,646,482
								13,165,057
								14,333,110
								15,414,643
								15,173,134
								17,398,932
								17,887,790