Northern Virginia has begun to dominate a regional market for new office buildings, and higher taxes in the District of Columbia threaten to spur the trend of activity to the suburbs, a real estate executive told the D.C. City Council yesterday.
John T. O'Neill, executive vice president of the Apartment and Office Building Association, estimated that Mayor Marion Barry's proposed rise in the tax rate, along with higher assessed valuations, will result in a 25.6 percent tax increase this year for office building owners, forcing a rise in already high rents.
O'Neill testified at a hearing of the Council's Finance and Revenue Committee against Barry's proposal to raise the real estate tax rate on commercial property from $1.83 to $2.13 for each $100 of assessed valuation. The single-family residential rate of $1.22 and the apartment building rate of $1.54 would not be changed.
However, virtually all tax bills in the city, with the first payment due in September, will be higher than last year's because assessments are higher -- 22.6 percent higher in the case of single-family homes and 9.2 percent on commercial properties.
In January 1977, O'Neill said, the District had 54 percent of the volume of private office space under construction in the region, compared with 24 percent in Northern Virginia and 22 percent in suburban Maryland, most of that in Montgomery County.
By January 1980, the volume of construction had increased 2 1/2 times with the District's share cut precisely in half, to 27 percent, O'Neill said. Virginia's share spurted to 48 percent with Maryland's remaining nearly stable at 25 percent.
The District still holds a commanding lead in the total amount of private office space already developed and occupied, with 50 million square feet compared with 12 million in Virginia and 7 million in Maryland, O'Neill said.
"With the current trend going the way it is, this is going to change, and for the District it doesn't look good," O'Neill said in an interview after he testified.
O'Neill told the committee that other increased taxes and highere costs in the District have pushed annual rents to a range between $18 and $20 a square foot, compared with $11 to $13 in the suburbs. The higher taxes alone would add 25 cents a square foot to the rents, he said, making the District less competitive in attracting new commercial tenants.
The D.C. Department of Finance and Revenue, which supports the Mayor's tax proposal, reported that the $2.13 rate proposed for commercial buildings is almost twice as high as the $1.12 rate charged in Arlington County, where most of the nearby Virginia office buildings are in Rosslyn and Crystal City.
In Fairfax County, site of the burgeoning Tysons Corner area, the rate for each $100 valuation is $1.54, while in Maryland the rate if $1.66 in Montgomery and $1.54 in Prince George's.
The only other witness yesterday, Leonard Hickman, executive vice president of the Washington Hotel Association, also opposed the higher tax rate, noting that the city would increase its sales tax on hotel bills from 8 percent to 10 percent on Aug. 1. Hotel occupancy has fallen 7 percent below last year, Hickman said, forcing hotels to lay off some employees.
The council committee will meet next Wednesday to decide whether to recommend the mayor's proposed rates to the full council at its July 29 meeting, the last before a summer recess.