Cloud of sequestration looms over D.C. region, Washington Post, August 23, 2015

Jonathan O'Connell, WaPo, wrote an excellent article this weekend on the Congressional federal budget axe that hangs over our region, including Fairfax County and Reston, in the name of "sequestration"--most of which will hit Defense Department spending, a major driver of local economic growth via federal employment and contracts for our county and community. 

Here are a couple of key passages from that article:

No state is more reliant on defense spending than Virginia, where it affects nearly 13 percent of the commonwealth’s economic output, tops nationwide, and provides the basis for 11 percent of jobs, third in the nation. . .

. . . office parks in Northern Virginia have emptied while defense contractors consolidated or closed locations, and developers of some new buildings have had trouble finding companies willing to sign deals.

According to the Defense Department research, things are likely to worsen over the next four years. From 2010 to 2012, Virginia experienced $9.8 billion in defense cuts, with the vast majority of losses in Northern Virginia. Direct defense spending in the state is projected to drop from $64 billion this year to under $62 billion in 2019.

Virginia’s elected leaders are sounding the alarm, with Senators Timothy M. Kaine (D) and Mark R. Warner (D) repeatedly calling for budget legislation to replace the sequester. . . .

Further sequestration is likely in the Republican-led Congress, although these Senators and Congressmen may also be looking at the 2016 election. 

Click here to read the full article.

TSA to shrink office space per employee to 173 GSF in move to Alexandria

The Washington Business Journal reported yesterday that the Transportation Security Administration (TSA) plans to move its headquarters from Pentagon City to a long vacant building in Alexandria beginning this year.  It goes on to state:

Under the agreement, the TSA will fully occupy the building by the spring of 2018 at a rental rate of $36 per square foot. That rate, per the GSA, is more than 25 percent below projected market rents. The agreement also provides the government with $50 million for tenant fit-out costs and other transition-related expenses. The utilization rate (square footage per employee) will be roughly 153 — 20 percent below the GSA's current rate.

We believe the "utilization rate" described here is what is known as "leasable space" or "RBA" in the commercial real estate market.  This is the space actually leased by a tenant.  It includes all the space occupied by employees plus a proportional share of common areas available in an office building.  So TSA has leased about 153 SF of space for each employee.  By our calculations, the actual space occupied by employees runs about 3/4s of leasable space.  That means, on average, each employee be about 116 SF.

For planning purposes, Fairfax County uses 300 gross square feet (GSF) per office employee.  Our calculation suggests that leasable space is about 88% of gross square footage.  This means that each TSA employee will occupy about 173 GSF in its new quarters, less than 58% of the County's planning value.  Other, generally private, leasees of office space have occupied even much smaller office space per worker on a GSF basis in our area in recent years as we have documented repeatedly on this blog (see index "office space"). 

Two key points arise from this analysis:

• It is likely that in the next decade leasing of Washington area office space will run about half of what the County expects (and that doesn't count adverse market conditions) as businesses and the federal government stick more employees in less space.

• More dangerously, over the longer term--3-4 decades--the number of office employees in key employment centers such as Tysons and Reston could be TWICE what the current County plans call for because of bad planning assumptions.  The infrastructure costs (primarily transportation) to support that level of employment will be huge and haven't been considered.

While we tire of repeating the same argument--that office space per employee is shrinking by at least half--we will continue to do so until Fairfax County at least understands and recognizes this phenomenon in its planning and zoning efforts.  

Surging City Center Job Growth, City Reports, February 2015

Following is the summary from the subject research report.  It shows that city centers have grown jobs at a much faster rate than surrounding suburban centers in the ongoing economic recovery; indeed, jobs on the periphery declined overall.  The findings demonstrate the critical fallacy in Fairfax County government's belief that if you allow millions of square feet of development in Tysons and Reston, it will result in high-density development, high real estate valuations, and tens of thousands of added jobs and residents.  Apparently not, but that won't stop the County leaders from closing their eyes, clapping their hands, and clicking their heels three times in an effort to make their self-delusions come true. 

For over half a century, American cities were decentralizing, with suburban areas surpassing city centers in both population and job growth. It appears that these economic and demographic tides are now changing. Over the past few years, urban populations in America’s cities have grown faster than outlying areas, and our research shows that jobs are coming with them.

Our analysis of census data shows that downtown employment centers of the nation’s largest metropolitan areas are recording faster job growth than areas located further from the city center. When we compared the aggregate economic  performance of urban cores to the surrounding metro periphery over the four years from 2007 to 2011, we found that city centers—which we define as the area within 3 miles of the center of each region’s central business district—grew jobs at a 0.5 percent annual rate. Over the same period, employment in the surrounding peripheral portion of metropolitan areas declined 0.1 percent per year. When it comes to job growth, city centers are out-performing the surrounding areas in 21 of the 41 metropolitan areas we examined. This “center-led” growth represents the reversal of a historic trend of job de-centralization that has persisted for the past half century.

As recently as 2002-2007, peripheral areas were growing much faster (1.2 percent annually) and aggregate job growth was stagnant in urban cores (0.1 percent). While the shift of metropolitan job growth toward services is aiding job centralization, the strong central growth of 2007-11 appears to be driven by the growing competitiveness of central cities relative to peripheral locations.

Our analysis shows that city centers had unusually strong job growth relative to peripheral locations in the wake of the Great Recession. Some of the impetus for central city growth comes from the relatively stronger performance of industries that tend to be more centralized, such as finance, entertainment, restaurants, and professional services.  The story is not just that job growth in central cities is improving when compared to outlying areas – city centers have also erased their competitive disadvantage relative to peripheral locations.

We undertook a shift-share analysis that allowed is to separate out the effects of changing industry mix from relative competitiveness. The data make it clear that city centers are more competitive in 2011 than they were in 2007. While city centers had a negative competitive effect in the 2002-07 period, their relative competitiveness for industry has been equal to peripheral locations from 2007-11.

The strength of city centers appears to be driven by a combination of the growing attractiveness of urban living, and the relatively stronger performance of urban-centered industries (business and professional services, software) relative to decentralized industries (construction, manufacturing) in this economic cycle. While it remains to be seen whether these same patterns continue to hold as the recovery progresses, (the latest LEHD data on city center job growth are for calendar year 2011), there are structural forces that suggest the trend of center-led growth will continue.

Click here to download the full report. 

Restonian: We're #10, Again! Yet Another List Places Reston Among Fastest-Growing Cities in Virginia

The Restonian continues to dig into data-driven details about the wonderfulness of Reston, and now comes up with this!

Look out Merrifield, Kingstown, Waynesboro, Short Pump, and Marumsco (wherever that is) -- Reston is on the move!  In yet another one of the listicles that are akin to catnip for "web loggers," some website ranked Reston as the tenth-fastest-growing city in Virginia. Despite all its awesome, Tysons only ranked 15th. Excelsior! . . .

Click here to read the rest of this.  We have nothing to add and, as Restonian would say:  The end.

Economist still somewhat downbeat about N.Va. jobs, housing pictures, InsideNOVA

by BRIAN TROMPETER, Staff Writer | Posted 1 month ago

The U.S. economy continues its recovery from the steep recession of several years ago, but Northern Virginia’s economic prospects are making only anemic progress because of reduced federal spending and replacement of high-paying jobs with ones of lesser earning power.

“There’s nothing driving growth,” lamented Stephen Fuller, director of George Mason University’s Center for Regional Analysis. “There’s nothing dynamic or dramatic. We have lagged.”

Fuller delivered his remarks Aug. 21 at Capital One headquarters in McLean.

The federal economic-stimulus package implemented early in President Obama’s first term strengthened the U.S. economy, Fuller said. Northern Virginia’s unemployment rate of 4.5 percent is well below the 6.1-percent national average, but all the signs are not rosy.

Increased federal spending spared Northern Virginia the full brunt of the recession, but now the U.S. government is cutting back and the local region is feeling the pinch, he said.

“It’s now an albatross,” Fuller said of Northern Virginia’s dependence on federal spending. “It’s not helping a bit.”

The private sector now will have to build upon the region’s unique assets and drive the economy, Fuller said.

“We need to expand our markets and become more competitive,” he said. “We need to know how to compete where we can.”

Four years ago, the Washington region had the nation’s best economic prospects; now it’s on the bottom of the list. The region has lost 21,000 federal jobs since the recession and likely will lose another 20,000 in the next several years, Fuller predicted. . . .

Click here for the rest of this article.  

Please note that this assessment comes from the same GMU center that prepared job and population growth assessments for the Dullles Corridor in the midst of the Great Recession (which it ignored) that guided the Tysons and Reston re-planning efforts.  Those forecasts presented off-the-charts demand-driven economic growth for the next 30 years along the corridor. Apparently, that's not going to happen after all. 

Credibility and consistency are not a strength at developer-funded GMU CRA, including the substantial financial backing of the developer consortium The 2030 Group.

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."