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Discovery's Exit A 'Punch In The Gut' As Silver Spring, County Look To Recover

Silver Spring's office market suffered a major loss Tuesday with Discovery Communications' decision to move its HQ to New York City, but despite the major vacancy, county officials, developers and brokers think the market remains well-positioned for future success. 

The former Discovery Communications' HQ building in Downtown Silver Spring

Discovery's decision followed its $14.6B deal last year to acquire Scripps Networks. The county then became aware it was considering leaving and, along with the state, offered Discovery a large incentive package to keep it in Silver Spring, Montgomery County Executive Ike Leggett said. But Discovery ultimately decided to move its 1,300 employees out of Silver Spring to offices in New York City and Knoxville, Tennessee. 

"It's a punch in the gut," Leggett told Bisnow. "It will take us a little bit of time to reorient and get all the things we want in place to make a complete recovery." 

The media company retained JLL's Bill Prutting and Steve Collins to sell its 540K SF office building, a JLL spokesperson said Wednesday. When it vacates in 2019, Discovery will leave a big hole in the Silver Spring office market. Its 10-story HQ occupies an entire block just north of the Metro station at Georgia Avenue and Colesville Road, one of Silver Spring's busiest intersections. 

Montgomery County Executive Ike Leggett at a Bisnow event in 2016

Silver Spring's office market, with a total inventory of 4.9M SF, had a vacancy rate of 12.6% in Q4, according to Cushman & Wakefield. Leggett said he is confident the county can absorb the vacancy left by Discovery but is still determining its strategy to move forward. 

“Our problem is not filling space,” Leggett said. “The problem is will you end up filling it in a piecemeal fashion over a period of time or do you hold out for one large corporation? To try to find one unified taker that would want all of that space is not an easy find, but that will be the objective.”  

Montgomery County Economic Development Corp. CEO David Petr said the county has been in talks with two technology companies that could each potentially bring 1,000 jobs to the county. He could not disclose the names of the companies, but he said Discovery's building coming available could improve the county's chances, given the property's size and location.  

"We're excited to go back to these two clients and say 'here's something that may be coming on the market soon,'" Petr said. "It's not often we have several thousand-person-sized projects in our pipeline." 

While it could be months or years before Discovery's space is filled, Jarvis Commercial Real Estate CEO Ernie Jarvis — who represented Radio One in its 100K SF renewal in Silver Spring in late 2016 — said the vacancy will have an immediate impact on the office market. 

"Dropping a vacant, 500K SF asset in the middle of a market that is just bouncing along is certainly going to shoot up vacancy rates and drive rents down," Jarvis said. "If you're in the market now for space in Silver Spring, once that building closes you'll have another 500K SF of Class-A space."

Downtown Silver Spring, Foulger-Pratt's 409K SF retail development at 900 Ellsworth Drive

Beyond the office market, losing 1,300 jobs could have an immediate effect on demand for other sectors such as hotel, retail and multifamily, and could hurt the county's bottom line, Leggett said. 

"Some of it may be seen with the nearby hotels that bring in visitors to Discovery," Leggett said. "You'll probably see it with restaurants and some of the smaller businesses that rely upon customers. Those are the kinds of things you'll see in the short term ... The long-term impact for the government would be the potential loss of taxpayers and the value of the property." 

Much of the success Silver Spring has experienced over the last two decades can be traced back to Discovery's 1998 decision to move its HQ there from Bethesda, Jarvis said.

"We should really thank Discovery for building here in the first place, because that spawned a huge economic development boom in Silver Spring," Jarvis said. "They served as the anchor for many years." 

One of the drivers of that development has been Foulger-Pratt. The developer in 1999 began developing its 409K SF Downtown Silver Spring retail complex across the street from Discovery's HQ. The development, which delivered in phases until 2004, boasts a Regal Cinemas and IMAX movie theater, a Whole Foods Market and dozens of dining and shopping options. The developer has also built three multifamily buildings in Downtown Silver Spring totaling over 700 units and over 1.3M SF of office space. 

"I don't think you can minimize the positive impact Discovery had on Silver Spring," Foulger-Pratt's Bryant Foulger said. "It has played an important role in Montgomery County for a long time." 

But given the growth Silver Spring has had over the last decade, Foulger does not believe Discovery's exit will prove as disastrous to the overall health of the market as it could have in the past. 

"When they came to Silver Spring they represented a much larger piece of the business community," Foulger said. "If this were to have happened seven or eight years ago, it would have had a bigger impact. I'm sure it will have an impact, but I don't think it will be devastating. I think we'll be OK." 

Foulger and Petr will discuss Silver Spring and the county Jan. 24 at Bisnow's Montgomery County State of the Market at Park Potomac.