While office vacancies at Tysons Corner continue to rise almost daily, land along the Route 7 corridor in the core of the Tysons area is selling at record-breaking prices.
Developers and investors are paying $2 million per acre and one site reportedly has a contract on it that works out to $3 million per acre.
Even though that price may be low when compared with commercial land prices in the District, the prices are the highest ever in the Tysons area.
The combination of almost-empty office buildings and high land costs is creating confusion in the development community, but the dramatic contrasts do not seem to be tarnishing the so-called magic of the Tysons office market.
The Fairfax County Economic Development Authority says vacancies at Tysons Corner are well above 8 percent. According to EDA statistics, there is 738,306 square feet of new office space available for lease at Tysons alone. The area has a base of 13 million square feet, which makes it the largest office area in the state, county officials say.
A spokesman for NV Cos., residential and commercial developers based in McLean, said his company paid $2 million an acre for a small parcel of land between Route 123 and Tysons Corner shopping center along Leesburg Pike. Another local developer said he was approached about a similar deal where the pricetag was close to $3 million an acre. Ironically, approximately two blocks away, several office buildings between the Dulles toll road and Route 123 are vacant, except for some first-floor retail tenants.
Tom Georgelas, of the John Georgelas and Sons development company, said, "Free rent packages of up to six months are commonplace in the Tysons market." But, he said, not all owners of buildings that are largely vacant are willing to cut those deals in order to get tenants. Other developers agreed that out-of-town owners are more likely to wait for what they see as "just the right tenant" rather than renting to someone with whom they have to make a deal.
The maximumfloor area ratio (FAR) currently allowed in the Tysons Corner area for construction is 1.65, a much lower density than is allowed in the District and many Arlington areas.
"The FAR foot is the real key," Georgelas said. "It doesn't matter what you pay an acre." Deals in the Tysons area in the $2 million-per-acre range would mean buyers are probably paying close to $30 to $40 per FAR square foot, several developers estimated.
Pat Hannum of the economic development authority said one of the reasons developers may be willing to pay such high rates is that "less land is available daily and the challenge is on to acquire what is left. The fact that the vacancy rate is high is not due to a softening in the tenant demand that is a result of developer aggression. They have acquired land and are using good financing that is currently available to build their buildings," Hannum said.
There is more building than ever going on in the Tysons area, county officials said. The demand for office space is expected to increase rather than decrease when the Tysons II development, with 12 office buildings, begins construction in the coming year, real estate professionals predict.
Why are people paying more than $2 million an acre for land in Tysons? Henry Long, head of the Henry A. Long Co., said: "Northern Virginia is capturing about 40 percent of the current total local market and Tysons is the premier segment of the Northern Virginia market. It's where it's at. Location, location, location."
Long is currently developing a nine-building, mixed-use complex known as Westwood. The complex is located south of Route 7, near the 23-story Sheraton Hotel under construction at the corner of Route 7 and the Dulles toll road.
Ironically, when Long bought the office complex site in 1976, it was so remote he considered building a warehouse on it.