High Vacancy Isn't Slowing Down Office Construction In NoVa, Execs Say
Even with 3M SF of office under construction and 20% vacancy, Cushman & Wakefield vice chairman Spencer Stouffer says he expects to see more Northern Virginia office buildings built on spec.
The reason, Spencer told a packed ballroom at NAIOP's Mid-Year Forecast Luncheon yesterday, is because tenants have young workers who want fresh, bright new office space they can't find in existing buildings.
The example he used was Opower, which in February signed a lease with Carr Properties to occupy about 63k SF of Carr's planned eight-story office building at 2311 Wilson Blvd in Arlington, delivering in 2018. Spencer said Opower had a dozen options in the R-B corridor and in DC with lower rents, but felt the new Carr building was the right fit.
"They're representative of the type of tenant that just wants really cool, nice, bright, light space," Spencer said. "They have a very cool culture that a lot of tenants feel can be enhanced through new construction."
The continued construction of spec office buildings is surprising considering Northern Virginia has an 18.2% office vacancy rate, according to CBRE's Q2 report.
JLL managing director Mark Levy said he recently spoke with one of Staples' real estate decision-makers who said the stores it's opening are now around 12k SF, down from their typical 18k to 20k SF locations. Mark expects this trend of shrinking footprints to continue in the retail market.
"Inventories are much less than they used to be, they’re converting a lot to online," Mark (above) said. "As a result, there’s less inventory at the store level and overall footprints are shrinking."
KLNB principal Dallon Cheney said while soft goods are increasingly being purchased online, he expects food and service retailers will continue to maintain strong brick-and-mortar presences.
"Retail will always be strong," Dallon, on the right with moderator David Bevirt of Brookfield, said. "You can’t get your hair cut on the internet and people want to go out to eat. While a stronger ratio will watch movies at home, they still want go out and have that experience at a movie theater."
On the multifamily side, the panelists agreed the market is strong, especially in the suburbs. Transwestern's Robin Williams, though, said he doesn't buy into the transit-oriented movement as much as others.
"We're still very car-centric in this region," Robin said. "As much as Metro has proliferated all of the press and everybody thinks Metro-centric is the only way to go, I still am of the opinion that people will be tied to driving and tied to their vehicles. They want to have walkability so it doesn’t necessarily need to be near a Metro, so long as they can walk to dining and shopping and retail."
The annual luncheon for NAIOP's Northern Virginia chapter was held at the Falls Church Marriott, with more than 350 people in attendance. After being served steak and salad, attendees listened to the industry executives discuss their market outlook for about 90 minutes.