Federal contractor Harris Corp. has consolidated seven of its Northern Virginia offices into one central location in Herndon.
Last July, Harris signed an 11-year lease to be able to consolidate several of its divisions into the 161,000-square-foot Arboretum II office building at 2235 Monroe St. in Herndon.
The building is situated very near the planned future Herndon-Monroe Metro station, and was originally built for BAE Systems to meet the federal government’s Sensitive Compartmentalized Information Facility standards. BAE moved out of the facility in late 2012.
Harris is an international communications and information technology company serving government and commercial markets in more than 125 countries. Headquartered in Melbourne, Fla., the company has about $5 billion of annual revenue and about 14,000 employees — including 6,000 engineers and scientists. The company employs around 1,700 Virginia employees.
About 500 of those Virginia-based employees will now work in the new regional Herndon hub, having transferred there from offices in Chantilly, Dulles, Falls Church, Fairfax and Reston.
“We made a significant investment in renovating this location, somewhere to the tune of tens of millions of dollars, in order to accommodate this move,” said Harris CEO William M. Brown at Harris’ ribbon-cutting ceremony at the new facility on Wednesday.
Asked how much the consolidation of seven offices into one will save the company in commercial property leasing costs, Harris replied that financial considerations were not the impetus for the company’s regional consolidation. “Our driving factor in this endeavor was collaborative synergy and not cost savings,” he said.
But in Harris Corp’s 2013 annual report, Brown outlines how federal budget sequestration has adversely affected Harris’ bottom line — and specifically addresses facility consolidation as a stopgap measure.
The report shows that Harris’ revenue in 2013 was $5.11 billion — down about 6 percent from the prior fiscal year — due principally to U.S. government budget reductions.
“To address the budget headwinds, we acted quickly and took strategic steps to lower our cost structure. During the year, we implemented restructuring actions to adjust staffing levels and consolidate facilities to align resources with market demands,” Brown wrote in the report. “The reductions are expected to generate annualized cost savings of approximately $60 million beginning in fiscal 2014.”
Overall in Fairfax County, the commercial real estate market currently is suffering its largest office vacancy rate in 23 years, according to the FY 2015 Fairfax County Advertised Budget Plan.
“The direct office vacancy rate rose to 14.9 percent at the close of 2013 … this was the highest vacancy rate since 1991 when the direct office vacancy rate was 16.8 percent,” it states, adding that the overwhelming majority of leasing activity in 2013 involved renewals and consolidations.
In February, Fairfax County Executive Edward L. Long Jr. urged county officials to proceed with caution before allowing developers in certain areas of the county — such as Tysons Corner and Reston — to build more office buildings without first securing tenants.
According to county officials, Fairfax County is the second largest suburban office market in the U.S. and has 32 percent of all the commercial office space in Virginia.
“Lease rates for new space are adjusting to market conditions as many tenants are taking advantage of favorable rates, and others are looking to capitalize on market conditions by consolidating operations in newer spaces near Metro,” the FY20 15 Fairfax County Advertised Budget Plan states.