by James A. Bacon
While most commercial real estate markets across the United States are slowly recovering from the recession, office vacancies in the Washington metro area ticked higher over the past year, to 13.8% in the first quarter, according to the Wall Street Journal. Clearly a sequester-related decline in federal spending was partially responsible, particularly in Northern Virginia, home to the Pentagon and locus of the defense industry, where vacancies hit 15.8%.
But that’s not the whole story. Buried in the article was an anecdote that should send shivers down the backs of commercial property owners, real estate brokers and local government officials everywhere — not just NoVa, but everywhere — who depend upon commercial property tax revenue to balance their budgets.
Booz Allen Hamilton Holding Corp. signed up in 2011 to take one quarter of the space in MetroPark VI in southeast Fairfax County near a National Geospatial-Intelligence Agency base. But late last year, the WSJ reports, the firm reversed course. The company halted construction and put its entire space on the market for sub-lease. The reason for the move? Not just defense cutbacks.
James Fisher, a spokesman for Booz Allen, said the decision to sublease at least a portion of the space came as more employees have been working from home or at clients’ offices, and as the company has been looking to trim its real-estate footprint.
Companies everywhere are realizing that they have way too much office space. Given the increasingly mobile nature of work — cell phones, laptops, Wi-Fi, the Cloud — more and more people are conducting work at home, at Starbucks, on the road, or in client offices…. just as Fisher said. Mobile work has been around for a while. What’s different now is that building-automation systems have reached the point where it is possible to measure office utilization far more easily and less intrusively than before. Energy-efficiency systems installed to eek energy savings from HVAC and light bills keep track of when offices are occupied and when they’re not in order to adjust lighting and temperatures. What many companies are discovering is that offices are literally half empty most of the time.
Other than payroll, office buildings represent one of the largest cost centers for service-sector businesses. Increasingly, companies are realizing that they can save loads of money by utilizing their work space more efficiently. This shift in thinking is a secular trend arising from new technologies, having nothing to do with the level of federal spending, and will persist regardless of what happens to federal spending.
As an aside, the Journal noted that tax revenues from commercial properties in Fairfax County are coming in $33 million short of expectations this year. Revenues grew only 0.1%, far less than the 6% anticipated.
If I were a commercial property owner in the Washington area, I would be very afraid.
If I were a Northern Virginia government official dependent upon property tax revenues to balance my budget, I would be very afraid.
If I were anyone, anywhere, counting on metropolitan growth and development patterns to continue on the same trajectory as the past six decades, I would be very afraid.