The Washington area’s office buildings are being abandoned in droves, with some vital business areas seeing up to one-quarter of their space empty, and experts are predicting it will be years before the market rebounds.
About 15 percent of office space is vacant across the Washington area, but some major business corridors are seeing vacancies as high as 25 percent, according to analysts at the commercial real estate firm Grubb & Ellis.
More than 26 percent of space in the biotech corridor in Gaithersburg and Germantown is empty, the Route 7 corridor from Alexandria to Loudoun is more than 25 percent vacant, and the information technology-heavy Herndon and Reston have 23 percent vacancy rates, Grubb & Ellis found in its most recent study of the area.
In Northern Virginia alone, some 60 buildings have no tenants at all.
The trouble is that, unlike the housing market, which at least shows signs of having bottomed out, commercial real estate continues to slide.
“It’s going to take five years to fix it,” said Greg Leisch, founder and chief executive of Delta Associates, a real estate consulting firm. “We’ve got slumping demand and too much product.”
Washington sat on a surplus of nearly 282,000 square feet in the third quarter alone, Grubb & Ellis reported. For the year, employers vacated 1 million square feet more than they filled up.
The blow has not landed on all areas with the same force, Leisch said. Bethesda, for instance, boasts a vacancy rate of less than 10 percent even though it had about 100,000 square feet emptied after Tysons credit card giant Capital One bought local employer Chevy Chase Bank. Even with the purchase, Bethesda is traditionally a strong market whose vacancy rate is expected to remain well below the regional average.
Downtown Washington, often called “The Golden Triangle,” has about 10 percent of its offices empty, and Leisch and others expect the area will continue to weather the storm.
Hardest hit, though, are offices on the fringe of the area, which are seeing vacancy percentages in the high 20s and low 30s.
Real estate consultant and Brookings Institution scholar Christopher Leinberger said that, as bad as the office market has become in Washington, it could be worse. D.C.’s market exploded in the early 2000s and rivaled only Manhattan in its dynamism; it was long overdue to “come down to Earth,” Leinberger said.
“Relative to the rest of the country, people couldn’t have conceived of rental rates in good times that D.C. gets today,” Leinberger said.
Thathasn’t been enough to stall collapse. In July, for instance, real estate giant GVA Advantis — one of the area’s largest real estate brokers — abruptly closed. Its failure has rippled through the Eastern Seaboard, as brokers from New Jersey to Florida found themselves short of work or out of work altogether.
“It’s tragic,” former Advantis executive Brian Ball said. “A lot of people were disappointed and a lot of people were hurt by this thing, not the least of which were employees of the company, agents of the company and third-party agents.”
Experts say there are only three factors in the success of commercial real estate: jobs, jobs and jobs.
“We’ve lost 37,000 jobs in the last months,” Leisch said. “The commercial real estate market depends on people working in offices.”
Box 1
Empty space adds up
Jurisdiction; Third-quarter vacancy rate
Alexandria; 16.2%
Gainesville/Haymarket; 28.1%
Gaithersburg/Germantown; 26.7%
Greenbelt/New Carrollton; 27.3%
Landover/Lanham/Largo; 26.6%
Herndon; 23.5%
Reston; 23.5%
Route 28 North; 34.1%
Route 7 corridor; 25.7%
Western Loudoun County; 24.7%
Source: Grubb & Ellis
