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Will They Come?

By Dana Hedgpeth
Washington Post Staff Writer
Monday, November 14, 2005

Tommy Ellis, a principal in Carlyle Group, stands in a field of grass and brush at routes 28 and 50 in Chantilly, where the worldwide investment company plans to construct two five-story office buildings, with tenants as yet unsigned. The air is heavy with confidence.

District-based Carlyle is among a handful of developers preparing to build here at Westfields Corporate Center, and while each project has its own distinctions -- Carlyle is offering high security, for example -- they incorporate a new reality about the commercial real estate market in Northern Virginia: Building on speculation is back, thanks to the boom in government contracting.

For developers, that boom has been enhanced by new high-security requirements from the Pentagon and the federal government's desire, articulated in the recent base realignment and closure recommendations, to move some of its employees out of leased office space in areas such as Crystal City to more secure and distant buildings.

Developers expect more demand for office space in pockets of Northern Virginia, especially Westfields, as agencies and contractors hunt for sturdier walls, unbreakable glass and buildings set far enough back from the road to deter attacks. Westfields, an office park of about 1,000 acres, also houses the National Reconnaissance Office, the top-secret agency that designs, builds and operates the nation's reconnaissance satellites.

"It's the who's who of defense contractors out here," said Ellis, pointing to a building at Westfields that houses outposts of Computer Sciences Corp. and General Dynamics Corp.

A new CIA complex is being planned near Westfields, and developers expect the presence of the agency to attract even more contractors eager for office space nearby.

Westfields, which already has about 5 million square feet of office space, just less than the size of the Pentagon, could nearly triple in size. An additional 1.1 million square feet is either under construction or on the drawing board, more construction than most other sub-markets in Northern Virginia have seen in recent years, real estate researchers and brokers said. And much of it is going ahead without pre-leased tenants.

That construction on speculation comes as a dramatic counterpoint to recent history. The technology boom and bust of the 1990s left companies with millions of unleased square feet on their hands, causing vacancy rates to spike and rents to plummet. Caution has ruled since, at Westfields and elsewhere, with most developers signing up tenants before putting up buildings.

Wary voices are still being heard. Brokers point out that tenants have been leasing about 250,000 to 300,000 square feet of office space a year in Westfields, and the 1.1 million square feet that is being built over the next few years could lead to an oversupply.

Some developers and brokers remain reluctant to build "on spec" -- especially with rising construction costs -- until they can get a better fix on whether there is sufficient demand for the buildings under construction. Few can afford to have a building sit empty.

Mark Winkler Co. of Alexandria is selling its Westfields portfolio, which includes some 800,000 square feet of office space plus land that could permit construction of 1.7 million square feet more. It's a sign, some brokers say, that the market has reached its peak. Some say Winkler is getting out and cashing in instead of taking a risk in developing the rest of its land.

And a building that was once leased by the company now known as MCI Inc. still stands empty.

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