ommercial real estate is big business in Northern Virginia. So big, in fact, that touring just development projects in Loudoun and Fairfax counties requires 10 charter buses, six hours and an escort of two dozen motorcycle cops to shut down every highway, street, road and plaza on the itinerary. The organizer of this year’s convoy, the Northern Virginia chapter of the National Association of Industrial and Office Properties, invited me along. On May 10 I joined more than 450 brokers, developers and other real estate types on a tour of the exurbs. Some take-aways:
Shortly after departure we drove through this Route 7 town center project, the likes of which have become so popular they are rendering shopping malls obsolete. I get that “urban” settings are in, particularly given the success of Reston Town Center, which attracts better rents and tenants than areas nearby. In the Village of Leesburg, features of city neighborhoods abound: brick facades, benches, sidewalk cafes and apartments above. It’s filled with new shops and restaurants, including Eggspectation, The Dandelion Patch and Pinkberry. The apartments, called “The Metropolitan,” are built and marketed identically to units in D.C. or Arlington.
But driving through, it felt like a Hollywood set — a place that resembles something familiar but doesn’t seem real. Maybe it’s that if you took a wrong turn walking out of your apartment, you could end up on a highway with no sidewalks.
One Loudoun is a mammoth 358-acre project of single-family homes, town homes and retail that became a symbol of the housing bust when it ran into foreclosure during the recession. This was my first chance to see it since Japan’s largest home builder, Sekisui House, took over the project and started selling homes with local partner Miller & Smith. There is a long way to go, and as we drove past future home lots, a One Loudoun promotional video playing on the bus television, one of our guides cracked, “Who of us is going to be alive when all of this is built out?”
Nevertheless, the developers have begun building a few models and have 33 homes under contract. They announced in January that the project would include an Alamo Drafthouse Cinema. One Loudoun is in heavy marketing mode: its team handed out branded tote bags, water bottles and granola bars reminding everyone on the bus that it would be “Loudoun County’s New Downtown.” For developers sitting on farms or fields in the outer suburbs, One Loudoun is the canary in the coal mine.
On Route 28 south of Dulles, we got a look at this building under construction from Zumot Real Estate Management, one of the only examples of speculative office construction (meaning it is being built without tenants lined up) in Northern Virginia and the farthest outside the Beltway.
Why are companies building on spec out here? After all, the vacancy rate in the area, according to CBRE, is 14.9 percent – well above what typically makes speculative construction make sense. And there are still new buildings sitting empty nearby.
The bet behind the Zumot project, called Penrose Center III, is that although the Chantilly-Centreville market still has a lot of vacancy, there are tenants who want to be near the Pentagon’s National Reconnaissance Office. At only 104,000 square feet, it might only take one lease to make the project a success, and Zumot plans a 180,000-square-foot building next door.
Regardless of when government officials agree to extend Metro west from Wiehle Avenue to Dulles Airport and beyond, HOT lanes and Metro are coming to Loudoun and Fairfax counties, and have been shaping development in advance of their opening. In Tysons, there are two aggressive speculative projects, the largest of which is Macerich’s Tysons Tower project. I remember the site as having a Circuit City, but with a Metro stop being built at the corner of Tysons Boulevard and HOT Lanes being built on the Beltway nearby, Macerich has begun site work on 524,000-square-foot Tysons Tower, a 400-unit apartment tower and a four-star hotel.
Macerich won’t be alone. Greystar is building its own apartment high-rise, and Lerner Enterprises is building its own speculative office building that will be ready by 2014.
It wasn’t difficult for our bus driver to maneuver his way in to see Reflections I, the 125,000-square-foot building on Sunrise Valley Drive in Reston, because the building is practically empty and, naturally, so is the parking lot.
Built in 2000, the building used to serve as the headquarters for the technical services division of Raytheon. But since Raytheon left in 2010, it hasn’t had any takers. Office vacancy in Reston, at 16.2 percent, is flat from two years ago and it is higher in areas outside of Reston Town Center, like this building. Will it be better or worse next time the NAIOP tour rolls through?