September 29, 2013

Crystal City has experienced dramatic change throughout the years. Originally developed by Charles E. Smith Co. in the 1960s, the close-in suburban area found success as one of the first to offer large, inexpensive office space to government tenants. Since then, developers have built nearly 50 office buildings filled primarily by government agencies and contractors, providing steady growth for the area.

Fast forward to today, Crystal City has evolved into a dense mixed-use enclave with 11,000 residents, 30,000 employees and has grown to 11.5 million square feet of office space, ranking Crystal City as the 11th largest submarket in the Washington area.

Another appealing characteristic for large office users has been the large building sizes available here. Office buildings in Crystal City average more than 225,000 square feet, five times the size of the average office building size for the Washington market as a whole.

While Crystal City boasted some of the lowest office vacancy in times of government expansion, it has experienced rising vacancy in this age of sequestration and defense base realignments. Following the Defense Department’s latest round of Base Closure and Realignment Commission actions starting in 2011, Crystal City was by far the most-impacted office market in the D.C. region as large-block government tenants were mandated to move to nearby military bases, such as Fort Belvoir, Quantico and Andrews Air Force Base. The General Services Administration has already terminated 20 leases in BRAC-impacted buildings in Crystal City, with an additional 34 leases set to expire through 2019.

As a result, vacancy rates there have skyrocketed from 9.8 percent in 2011 to 24.2 percent year to date. In comparison, the District has only moved 70 basis points during the same time period, resting at 13.7 percent year to date.

However, the Crystal City office market has been through cycles of major market changes before and has shown tremendous resilience. Its close-in location, proximity to Metrorail, Virginia commuter rail and Reagan National Airport, and extensive retail and hotel space continues to attract replacement tenants, including several large private-sector firms that help reduce its exposure to government tenants. In 2005, when the Patent and Trademark Office relocated to Alexandria, its former buildings in Crystal City were backfilled by companies such as PBS, Lockheed Martin and the Smithsonian, to name a few.

And the area continues to attract new tenants. More recently, the area has achieved 73,000 square feet of positive net move-ins as companies such as Digital Management moved into 20,000 square feet at 2451 Crystal Dr. and DRS Technologies expanding to 93,000 square feet at 2345 Crystal Dr. beginning at the end of 2012.. In January of 2013, Aerospace Corp. moved into 21,000 square feet at 2011 Crystal Dr. and Management Systems International took another 50,000 square feet at 200 South 12th St. in July.

Meanwhile, the downturn has given some building owners the impetus to upgrade or redevelop their buildings. This past summer, Lowe Enterprises unveiled the new 1400 Crystal Dr., a 308,856-square-foot class A office building completely rebuilt, and Monument Realty is scheduled to finish work on a new headquarters complex for Boeing at 601 S. Clarke St.

While it may take some time for Crystal City’s office market to bounce back, its advantages as a close-in, inexpensive option with commuting and transportation options will undoubtedly support its ability to rebound and attract a new set of office tenants.

D.J. O’Brien is a CoStar Group research manager in Washington. Please go to www.costar.com for more information.

Continue reading
Comments
Show Comments

business

capitalbusiness

Success! Check your inbox for details.

See all newsletters

Most Read Business