Whether it is because of the prospect of federal budget cuts or general economic uncertainty, businesses seem to have a limited appetite for office space in Fairfax County.
Although there are bright spots, “overall, it is not a very healthy market,” said Dominic Orfitelli, senior vice president at the Tysons Corner offices of CBRE, an international commercial real estate services firm.
In the first six months of 2012, the county’s office market absorbed 4 million square feet of space, down from 6 million square feet in the prior six months, said Gerald Gordon, president and CEO of the Fairfax County Economic Development Authority. Orfitelli said the absorption rate is slightly negative, meaning there is more space coming on the market than companies are moving into.
“It is down a little bit,” Gordon said. “But 4 million is still a lot of square footage.”
The county’s overall office vacancy rate is in the neighborhood of 15 percent, Gordon said.
It is the county’s proximity to Washington, D.C., and the local job market’s reliance on federal spending — both direct and through contractors — that is holding the market back, Gordon and Orfitelli said.
“We’re not going to see a lot of growth in the near term,” Orfitelli said. “We’ve got to get through this election.”
In addition to the usual uncertainty that comes with presidential elections, the threat of massive federal spending cuts because of “sequestration” is paralyzing local contractors who rely heavily on federal spending, Orfitelli said. Sequestration refers to the automatic spending cuts that will take place Jan. 1 if Congress does not take action in the interim.
“Companies are being cautious because of sequestration,” Gordon said.
According to a new report by the George Mason University Center for Regional Analysis that was released this week, if sequestration does go into effect, Virginia could lose more than 200,000 jobs statewide and take an overall economic hit in the range of $20.9 billion.
This type of office market creates some interesting phenomena, such as companies taking advantage of lower lease rates to move into nicer offices, Orfitelli said.
Although in many parts of the county property owners are having to get creative with concessions and perks to land deals, locations with lots of amenities, such as Reston Town Center and some sites in Tysons Corner, are able to maintain higher rates.
“One dynamic we do see in these markets is a flight to quality,” he said.
Gordon also sees the Fort Belvoir area as a possible bright spot, as some defense contractors either want or need to be close to the agencies that were relocated to the post as part of the base realignment last fall.
“The bad news is that there is no office space in that corridor,” Gordon said, which is why there is new space coming on line despite the county’s high vacancy rate.