When the Loudoun County business community, introspective after Volkswagen’s recent decision to move its U.S. headquarters to nearby Herndon, invited investors, developers and regional analysts to give them their unedited views about Loudoun’s commercial real estate market last week, two distinct pictures emerged.
One was of a county 10 years down the road where aggressive population and job growth has fueled an urban center competitive with neighboring Fairfax County. The other was of a Loudoun two years from now that has struggled with its inconsistent politics and with a surge in regional office vacancy rates.
Home to the Washington Dulles International Airport, national corporate offices, Loudoun County, has seen a surge in development on its eastern side while remaining mostly rural in its western half. Both are tied to its exploding population and abundance of available land next to near-fully developed Fairfax.
“The big employers that have come here have come because, at the time they were looking, they couldn’t get a campus-like environment in Fairfax County,” said Cathy Delcoco, executive vice president of CB Richard Ellis, a tenant representative firm that has worked with AOL.
But now that the economy appears to be slowing, firms are choosing to consolidate operations instead of expanding intonew real estate, analysts told the Loudoun County Chamber of Commerce Friday. Loudoun is also competing with counties with more amenities, closer to the district, that have a spate of new office space on the way.
“The markets that we compete against mostly are Herndon and the Dulles South market, and they alone will have 3.5 million square feet of just new office construction delivering between 2007 and 2008,” Delcoco said.
Loudoun County has 1 million square feet of new office space being completed in the same time frame.
Northern Virginia office vacancy rates, which have been hovering around a healthy 10 percent, will probably jump a few percentage points, said Stephen Fuller, head of George Mason University’s Center for Regional Analysis. Delcoco predicted that Loudoun County’s vacancy rate, which currently sits at about 15 percent, will jump to 20.
Loudoun will have to lower its lease prices even further to compete, Delcoco said, probably to the mid-20s per square foot. Volkswagen paid in the high 30s for its Herndon building.
Developers at the meeting said the county’s stop-and-start approach to development makes for an unfriendly business environment, a phenomenon that could intensify after November’s Board of Supervisor elections.
Fuller said Loudoun is projected to gain about as many jobs and people in the next 10 years as it did over the past 10, which bodes well for the county’s long-term commercial real estate market.
