How Loudoun Can Compete With Reston, Tysons For Office Tenants
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Loudoun County does not have the same business hubs as neighboring Fairfax County, with Tysons and Reston Town Center attracting large office tenants, but landlords and brokers in the county say Loudoun can use that to its advantage.
Rental rates for office space in top Fairfax County submarkets have risen to levels that can price some companies out of the market, Lerner Enterprises Executive Vice President Art Fuccillo said, making Loudoun an attractive value play.
"You've got to compete on price," Fuccillo said. "Reston Town Center is a magnificent development, I think it's the finest town center in America. I don't think Tysons is very walkable, but certainly is a success in terms of what's been accomplished ... Ultimately to get somebody to come out here, you're going to have to build something that competes on price. "
Multiple brokers working in the county's office market agreed with Fuccillo, speaking Tuesday at Bisnow's State of Loudoun County event. The afternoon panels, followed by cocktails and networking, were held in the Cobb Theatres at Village at Leesburg.
The event also included discussion of the recent 445K SF Customs & Border Protection lease in Ashburn and the county's red-hot data center market. The data center boom has helped Loudoun County attract more than $6B in commercial real estate investment in Fiscal Year 2018.
Panelists also discussed challenges facing the retail sector. Fuccillo addressed last year's closing of the Nordstrom department store at Lerner's Dulles Town Center, saying the retailer thought it could serve the area from its Tysons store and wanted to trim its portfolio to appease investors.
Avison Young principal Bert Harrell, who is leasing office space at One Loudoun, said companies are viewing the Ashburn development as a smart value play and looking to move from more expensive submarkets to the east.
"We're seeing great activity from 30K SF to 40K SF tenants, we're seeing tenants from Reston Town Center that are saying 'we don't want to pay $55/SF anymore,'" Harrell said. "They'll come to pay $32 or $33/SF and they're happy."
To seize on this opportunity, he said Loudoun developers have to create mixed-use environments that will give office users easy access to restaurants and other amenities.
"What's interesting is I don't think you're going to find developers say, 'Go buy me 20 acres, I want to build spec office buildings,'" Harrell said. "It's not going to happen. With the data center phenomenon gobbling up land, you're going to have to find properties with land bays in environments that will allow tenants to have amenities."
There are opportunities for office developers to execute build-to-suit deals in Loudoun County, Newmark Knight Frank Executive Managing Director Andrew Klaff said. He said the county has the advantage of having more space to build surface parking lots around office buildings, rather than paying more to build parking garages.
"That will save up front and would allow us to undercut our neighbors that need to be in the mid-to-upper $40s/SF or 50s/SF because they have to put in structured parking," Klaff said. "So if we are to do a lease in traditional five-to-six story office, that’s where we’re likely to be."
Klaff said the surging development pipeline around Silver Line stations in Reston and Herndon could work to Loudoun County's benefit. He said the new developments will demolish millions of square feet of older, affordable office space in those submarkets, pushing price-conscious tenants out.
"We're seeing those tenants not being able to control their own destiny in those buildings that are slated for redevelopment, and they're going to be displaced," Klaff said. "We've already seen it. We've had tenants come through our buildings and continue to look because they have to get off the Toll Road for rent relief."
UPDATE, MAY 11, 4:50 P.M. ET: This story has been updated to include the total amount of commercial real estate investment Loudoun has received this fiscal year.