Montgomery County officials had a feeling all was not well with their office parks.
Some major employers, including government contractors and federal agencies, had departed such campuses in the suburban Maryland county in recent years. Marriott International said it planned to do the same. There were myriad news stories saying millennials and other workers didn’t want to work in carefully manicured locations far from public transit.
So the county planning department commissioned a report to see how bad things really are.
The answer in short: bad.
Completed last week, the report found that Montgomery County’s office market has been battered by economic factors big and small. It is home to a shrinking portion of Washington-area jobs. It is at risk of losing more federal agencies this year. There are a dozen buildings that are completely empty and some of them have such dour prospects that they may have to be turned into housing, schools or even churches.
“We knew there was a problem,” said Gwen Wright, county planning director. “We knew that there were issues and problems, and this study is helping us clearly define them…it begins to offer some ideas.”
Some of the problems identified by the report’s authors, with the D.C. consulting firm Partners for Economic Solutions, aren’t unique to Montgomery County. The findings are scheduled to be presented to the county planning board Thursday.
Office parks around the region — and the country — have been struggling in recent years as companies move to walkable locations near amenities and public transit. In Fairfax County, long considered the region’s economic darling, some properties in further out locations have lost more than half their value. One drew so little interest from companies looking to lease space that it was converted into an elementary school.
Employers in nearly every industry, led by the federal government, are also using less office space per employee, contributing to high vacancy even when the region adds jobs.
“A big factor is simply that people are working differently than they used to,” Wright said. “Fewer people are working in traditional nine-to-five offices and when they are going in they have much smaller spaces where they work. So we are not necessarily going to see the same kinds of office building construction and more traditional office parks being constructed.”
But there are other indicators in the report that do not paint a pretty picture of economic development efforts under Montgomery County Executive Isiah Leggett (D), who took office at the end of 2006.
A smaller portion of the region’s jobs are located in the county, for instance, dropping from 15.7 percent in 2004 to 14.7 percent in 2013.
There may be more tough news on the horizon as well, as the General Services Administration, which manages real estate for the federal government, has nearly 2.4 million square feet of space in the county under leases that expire this year.
Some of those deals have been extended but generally for 10 or 25 percent less space than the tenants previously occupied. Over the next few years, 1.6 million square feet of expiring GSA space is up in the air, according to the report.
“All told, GSA actions could reduce Montgomery County’s private office space occupancy by roughly 1.1 million square feet over the next five years,” the report states.
Like other regions, some of the hardest hit areas of Montgomery County are older office buildings best accessible by car and far from the bustling urban areas in downtown Bethesda and Silver Spring. Of the 10 buildings of 100,000 square feet or more that are completely empty, and nine others that are expected to empty because of planned departures, all 19 are located outside the beltway.
Four empty buildings are clustered along Rock Spring Drive and Executive Boulevard in North Bethesda. Another seven buildings that are either empty or expected to empty are in the Shady Grove Life Sciences Park.
The vacancies could create additional problems if the buildings aren’t properly maintained and begin to bring down surrounding property values. Some buildings could undergo “recycling,” the report suggests.
“Depending on the demand for other uses, well-located sites could then be used for highest and better purposes. Recycling buildings and sites may offer the opportunity to introduce other uses into single-use office districts and achieve a better mix,” the report said.
Wright said some of the properties could maybe be turned into housing, schools or churches but “that’s a small segment of the solution.”
“If we have 11 million square feet of vacant office space, we really don’t need 11 million square feet of schools and churches,” she said.
Leggett has been working to fight suggestions that the county has not been friendly to businesses, and recently proposed re-working of his economic development operation.
Doug Firstenberg, a principal at StonebridgeCarras, a developer active in Bethesda and Silver Spring, said the county needed to create incentives aimed at getting owners of office parks to try something new.
“One of biggest challenges is that 1980s, successful classic suburban development in Rock Spring and [Interstate-270] corridor may have insurmountable challenges to re-gear and meet current market demand for Metro, mixed-use environments, amenities and walkability,” Firstenberg said in an e-mail. “Repurposing these through incentives and flexibility for other uses will make a big difference to the office market.”
Follow Jonathan O’Connell on Twitter: @oconnellpostbiz