Subject: [NEXTEL-1] Maryland, Virginia Counties Maintain or Improve Vacancy Rates as Companies Search for New Space

From: [email-masked]
Date: Mon, 01 Sep 2003 19:00:50 -0400

Around the Region
Maryland, Virginia Counties Maintain or Improve Vacancy Rates as Companies Search
for New Space

Monday, September 1, 2003; Page E09

FAIRFAX Federal Contracts Push Up Office Demand

Vacancy rates are improving in Fairfax County as some companies reap the benefits
from federal contracts, according to
brokers and real estate experts. Rental rates, however, remain well below the
peaks of three years ago.

The vacancy rate is about 19 percent, according to CoStar Group Inc., a commercial
real estate information service. Rental
rates in the Tysons Corner area are from the high teens per square foot to the low
twenties per foot a year. Three years ago,
the rates in that area were in the high twenties per square foot to almost $30 per
foot.

"The vacancy rates in Fairfax have stabilized," said Paul S. Schweitzer, executive
vice president and suburban Washington
branch manager for Julien J. Studley Inc. "If anything, we have some indicators
that they're starting to move downward and
there is moderate activity in the marketplace."

Chris Dendtler, a market analyst at Washington real estate firm Cassidy & Pinkard,
said that nine out of the top 10 biggest
leasing deals, in terms of square feet, have been with firms that have recently
received government contracts and are now
expanding into empty buildings. Many of those companies are taking spaces in
Reston, a market with one of the highest
commercial vacancy rates in the region, about 23 percent.

"We see companies take Reston buildings that have been marked down from their
height," Dendtler said. Rents in Reston that
were in the mid- to high thirties per square foot are now in the mid- to low
twenties, he said.

Delta Associates, an Alexandria commercial real estate research firm, said it is
"finally seeing the ramp-up of the federal activity
work its way through the economy and through the real estate market" in Fairfax.

"Northern Virginia had negative office absorption until the second quarter, and
then we had over 1 million feet of positive
absorption," said Greg H. Leisch, chief executive of Delta Associates. Positive
absorption refers to space being rented faster
than space is coming on the market for rent.

"We see that as the cyclical turning point in the cycle. It's being driven largely
by GSA [the General Services Administration]
inside the Beltway and by federal contractors outside the Beltway."

Most real estate experts agreed that while the contractors are getting more
business and therefore expanding their office space,
there still needs to be market improvement in the telecommunications, software and
professional services areas.

Rates are low in the area, giving tenants more flexibility. Some tenants are using
their improvement allowance toward furniture,
equipment and fixtures instead of just reinvesting it in their physical space.

Schweitzer said news such as Nextel Communications Inc.'s hunt for more space in
Northern Virginia and tenants moving into a
460,000-square-foot building in McLean are "positive developments."

"We're not going to see vacancy rates drop in the double digits, but it will be a
slow and steady recovery," Schweitzer said.

-- Dana Hedgpeth

PRINCE GEORGE'S Small Changes Dominate Market

Prince George's County's office market remained middle-of-the-road in the second
quarter. The county's vacancy rates are
higher than the District's, less than overbuilt areas of Northern Virginia and
almost a mirror of Montgomery County's rates.

The most recent figures showed a 13.8 percent vacancy rate in Prince George's,
according to CoStar. That is down from last
quarter's 14.1 percent, and relatively good news for the county's small but stable
market.

"We are going to continue to look for small changes," said Stephen J. Paul,
executive director of the county's Revenue
Authority. "I'm encouraged that our numbers are still good."

County real estate brokers say a slightly higher vacancy rate than competitive
business corridors in the District, where the office
vacancy rate has been about 7 percent, is optimal. Prince George's has a far lower
vacancy rate than Fairfax County, where the
rate has shot up to more than 20 percent over the last two years.

Prince George's 18.7 million square feet of commercial space has not undergone the
erratic boom and bust that have crippled
former high-tech havens such as Fairfax. In the last three years, its vacancy rate
has flitted up or down only a percentage or two
each quarter. The office market in Prince George's, moreover, is much smaller than
that of Fairfax or Montgomery counties.

Construction has continued ticking along slowly as usual, primarily in and around
Bowie, which has also been a hot pocket for
retail and residential developers in the county. This quarter, 24,000 square feet
of commercial office space was under
construction in addition to the 875,035 square feet already in and around the
eastern city.

"The focus is over here now," said Les Sax, who represents a few retail developers
in Bowie, where in the last few years the
retail, commercial and residential markets have grown simultaneously. "The news in
Bowie has been strong."

The area near Largo, Greenbelt and Lanham, where most of the office space is
located, saw the most substantial uptick in the
vacancies. There the rate jumped from 12.5 percent to 14.7 percent. The increase
is almost exclusively due to one addition to
the market, said Jeff Ludwig, senior vice president for the Michael Cos. A few
months ago, insurance company Aetna Inc.
decided to sublease its 182,000 square foot building in Largo's Inglewood Business
Community. Because the county's office
market is relatively small, that addition alone caused the area's vacancy rate to
increase more than 1 percent.

"When you are a little market and you have 180,000 square feet go vacant, that
does make it look dark," said Ludwig, who
has represented tenants interested in subleasing the Aetna property. "I think the
market is really strong."

Ludwig predicted that the space in Largo would be leased quickly because of the
coming Largo Metro station and Boulevard
at Capital Center shopping mall, which are both under construction.

"It bodes well on a number of different levels," he said.

-- Krissah Williams

LOUDOUN Condos Popular Among Small Businesses

Loudoun County's commercial real estate vacancy rates continue at a high but
steady rate of about 21.1 percent.

The high rate, on office space of 9.1 million square feet total, has remained
about the same for almost the entire year, both a
good and bad sign, say county officials.

"We can hope that with the [vacancy] rates not increasing more, maybe we saw the
worst of it," said Susan VanEpps, market
research coordinator with the county's department of economic development.

She said that because the county had so much speculative office space when the
economy began to suffer, Loudoun County
will take a bit longer than other Washington area counties to recover.

What has saved some realtors and developers from a total loss, however, are the
smaller clients.

Smaller office space is being gobbled up by doctors' offices, small accounting
firms and other service-oriented businesses that
are in high demand because of the burst of new residents in the county. The office
condo, where small-business owners can buy
the space themselves, has been a popular item in the county this year.

"I think we've been buoyed by a sense that the [commercial] market has followed
residential rooftops," said Bob E. Buchanan,
a principal at Buchanan Properties LLC of Gaithersburg.

What the county does not have is a larger client, like Unisys Corp. in Reston,
pointed out Mary Petersen, senior vice president
at Washington real estate firm Cassidy & Pinkard.

"Large contracting tenants can get such good deals further in, in Reston and along
the Toll Road," she said. "Those large
defense-oriented tenants want to be closer to the [Capital] Beltway."

When large technology and telecom firms were in need of campuses rather than
simple office space, Loudoun County, with its
acres of open land, was the answer. But the number of firms who needed that much
space has dried up.

In general, there was some decrease in the vacancy rate in the second quarter,
something that had not happened since about
2000. Northern Virginia overall fell by one percentage point, Peterson said. But
most of that was due to leasing in the closer-in
suburbs.

The overload of office space has led to a drop in rental rates, which also can
affect Loudoun offices negatively. When the
technology boom was at its height, some space in Tysons and Reston was for lease
for as much as $45 per square foot,
according to Peterson.

Meanwhile, Loudoun's office rates never went much beyond the mid-twenties.

Today, rates in areas like Reston are back to the mid-twenties, while Loudoun
remains $18 to $22 per square foot, making the
county much less competitive to the closer-in suburbs.

Loudoun has several whole buildings available that have been on the market since
early 2001, Petersen said.

"There just has not been demand from large tenants in Loudoun County."

-- Amy Joyce

HOWARD Slump Eases as Construction Slows

Howard County's long office market slump continued to show signs of easing in the
second quarter as vacancies fell and fewer
buildings opened.

Howard's vacancy rate slipped to 15.3 percent, from about 17 percent in the prior
quarter, according to CoStar. About
153,000 square feet was under construction in the quarter with about 18 percent
already leased.

County realty experts previously forecast that the vacancy rate will not reach 10
percent until late 2004. Last year, too many
new buildings coupled with a downturn among local tech firms pushed Howard's rate
to 24 percent, its highest level in more
than a decade, according to a NAI KLNB Inc. report.

But some Howard brokers are reporting signs of a slow turnaround. Rich Cohen, vice
president and general counsel of Site
Realty Group, a real estate firm with offices in Lanham and Baltimore, said four
of the firm's five office buildings in Howard are
at least 95 percent leased. A fifth 22,000-square-foot building in Columbia Town
Center, the community's downtown, is 72
percent leased. The company recently signed a 6,000-square-foot lease to Lakeside
Title Co., which moved this year into the
Town Center building, Cohen said.

In the last few months, there has been more interest in the building from
companies and medical firms that want to move close
to Howard County General Hospital, Cohen said. His firm is still offering
incentives to prospective tenants but has become
more selective in choosing businesses. Credit checks are performed on tenants, for
example, he said.

Cohen said he has noticed more companies seeking space in Columbia's downtown
area.

"The office market has been slow for some time," he said. "Slowly, we're seeing an
increase."

During the first half of this year, Howard vacancies in Class A offices -- defined
by the industry as the newest buildings on the
market -- dropped from 24 percent to 17 percent, according to a report released
last week by Manekin LLC, a Columbia real
estate firm. By comparison, vacancies in Class B offices, defined as older
buildings, have risen during the last 18 months from 8
percent to 14 percent as landlords of Class A space have lured tenants to move
into higher quality buildings at a lower cost.

Manekin officials said they expected leasing activity to continue to increase this
year as fewer office complexes are built.

The only significant office construction planned is an 106,000-square-foot,
four-story office building at Route 100 and
Snowden River Parkway that is scheduled to be completed next year. Being built by
Merritt Properties LLC, the building has
no committed tenants.

"We're seeing a good pickup in the activity level, which we believe will translate
into more leasing activity in the Howard
County market," said E. Hayes Merkert, senior vice president at Manekin.

"The groups that deal with the defense community seem to be the most active."

-- Sabrina Jones

http://www.washingtonpost.com/wp-dyn/articles/A8807-2003Aug31.html

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