Reston Spring

Reston Spring
Reston Spring

Tuesday, April 22, 2014

Office Space & Jobs: Fairfax County Economic Indicators show 2013 was a bad year and this year isn't starting well.

The March 2014 Fairfax County Economic Indicators, the county's official monthly economy tracking update, shows that the county did not have a good year last year and that first indications for this year are also weak.  Here is some of the disappointing news:

Direct office space vacancy increased year-to-year and is at the highest rate in more than two decades.  Overall vacancy rates (including sub-lets) may be the worst ever recorded, but FCEDA doesn't acknowledge that:

The county's Economic Development Agency reinforces this picture with a graphic in its FY2015 budget submission showing office  vacancies have risen for several years:

A key reason for this growth in office vacancies is the loss of jobs in Northern Virginia as reported by the US BLS over the same timeframe.  Most important, the major losses were in the professional & business services sector as well as the federal government sector, which comprise the largest users of commercial office space.  (Note:  BLS does not track employment by sector for counties in this data series, but FC comprises about 600,000 of the total 1.4MM jobs in the NoVa area and nearly half FC's jobs are office jobs.) 


Here's how the Fairfax Connection newspaper reported on the situation as presented at an April 10, 2014, county economic summit:

David Versel of the George Mason Center for Regional Analysis said that in the wake of the recession, there has been a continuing decrease in federal jobs.
"Federal government cutbacks that began in 2010 with the end of the economic stimulus have continued,” Versel said.
The area is now facing 22,000 fewer federal jobs than existed three and a half years ago, Versel says. Since its peak in 2010, federal employment has dropped by five percent. However, this is not because of mass layoffs, but because of attrition.
“Jobs get vacated, people retire, and they aren’t being backfilled,” Versel said.
Federal procurement, which Versel described as the driver of the area’s economy, has decreased as well.
“We are now down about 11 billion dollars in federal contracting activity in 2013 from where we were in 2010,” Versel said. “14 percent of our federal procurement economy has evaporated in the last 3 years.”
According to Versel, the private side has not responded very well to the wake of the recession.
“As a February of this year, we’ve actually only added back 170,000 jobs from the end of the recession. We lost 178,000 jobs during the recession,” Versel said. “On a net basis, we are down 8,000 jobs from where we were six years ago in 2008 when the recession began. That is not good news.”
Some implications:

First, the weak state of the office market is a core reason that next year's county budget is so controversial, almost certainly requiring an increase in the tax rate as has already been proposed.  It is just a matter of how much higher.

Second, longer term, the picture for robust office space occupancy (& development) is questionable, at least through the rest of this decade.  As has been reported previously, a combination of sequestration, budget balancing, periodic federal government shutdowns, cuts in federal contracting, cuts in federal employment, and federal office space consolidation are all contributing directly to high office vacancy rates.  More broadly, the use of internet technology to enable work-from-anywhere and the compression of office space per worker to (a) ostensibly improve employee collaboration and (b) reduce office space expenses are other critical ingredients in the lack of growth in the office sector.  

Third, for more than a decade now, the Fairfax County Board of Supervisors has counted on the coming of the Silver Line to be the primary source of new high-rise office and residential development property tax revenues since the county has largely run out of space for new housing development.  Otherwise, the county would have to cut spending significantly or raise tax rates prohibitively.  We're now testing the Board's judgment of a decade ago, and there is much reason to doubt that the boon will arrive, certainly not sooner, maybe not later. 

It is about time for the County to bring out "Plan B."

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