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How Many D.C. Suburban Office Parks Became Ghost Towns

FAIRFAX, Va.—Upon returning from living abroad in the summer of 2017, my family temporarily stayed in a hotel in Fair Lakes, Va., a town representative of much of the Washington, D.C. Metropolitan Area. [1] It was made up of predominantly middle- or upper-middle class suburban housing, with a mix of strip malls and town centers. While at the hotel, I noticed something that seemed unusual in the adjacent lot: an entirely abandoned five-floor commercial building with a large parking area. As I’ve driven around the area since then, I’ve noticed a significant number of similarly vacant or mostly empty commercial buildings.

This situation seems odd—Northern Virginia boasts five of the 13 richest counties in the country, and southern Maryland has two more of them. Why does one of the wealthiest areas of the United States possess such an abundance of vacant commercial real estate? It’s a complicated story, with perhaps one overarching theme: As a report of the Stephen S. Fuller Institute at George Mason University in Fairfax, Va., assesses [2], “the Washington region remains overly dependent on the federal government.” Many developers, realtors, and economists once thought that the region was impervious to recession—but current real estate trends suggest that is not the case.

In 2014, Northern Virginia had  [3]about 40 large buildings with at least 50,000 square feet “ready for use,” meaning with few or no current tenants. In the District alone [4], there was “more than 14 million square feet of unused commercial property downtown, about double the vacancy rate of a decade ago” in 2017. The numbers are comparable [5]in Maryland, and they are far higher in Virginia. This is a remarkable amount of unused property across the region, especially given that some lease contracts require entire buildings to continue utility payments.

This is the case even in booming Tysons, one of the wealthiest areas of Northern Virginia, with its marriage of extravagant wealth [6] and seemingly incoherent planning or design. Currently in Tysons, commercial buildings are between 18 and 22 percent vacant. Healthy vacancy rates are supposed to be at about 10 percent, a figure that allows for enough flexibility for current tenants to expand their office space as needed, and for property owners to have some flexibility with space for potential new clients when contracts with older tenants expire. Tysons, a prosperous commercial and real estate market, still somehow has vacancy rates twice the estimated “best practice” rate.

The history of the D.C. area real estate market can help make sense of how we got here. In the 1980s, the region experienced exceptional, unprecedented growth in commercial real estate. Much of this corresponded to the Reagan administration’s focus on national security. The I-270 corridor in Maryland was known as the “life sciences corridor” because of the significant expansion of bio-medical properties owned by the federal government or federal contractors. The National Institutes of Health, for example, is located in this area. At the same time, on the other side of the Potomac, Virginia’s large number of defense-related contractors in the Dulles Toll Road corridor in Virginia made it the “death sciences corridor.”

In the late 1980s, the region witnessed a large influx of speculative building plans funded by S&Ls, or savings and loan institutions, responding to a corresponding growth in federal spending. The motto at the time, largely fueled by these federal expenditures, was “get the money out.” When the federal purse was burgeoning, this system perpetuated itself. But when that purse contracted, the trouble started.

Commercial property developers typically maintain a three-to-five-year building plan. If there is a dip in the economy, or a reallocation of federal expenditures, these developers “get caught,” so to speak, and the properties they are building go into default. In the D.C. area, where approximately 30 percent of the economy [2] is the federal government [2], this means that government budget dips will have an outsized impact on the region. In 1989, the Resolution Trust Corporation [7], or RTC, was formed to address this problem, which had developed into what became known as the savings and loan crisis of the 1980s.

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The RTC, a U.S. government-owned asset management company was “charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations (S&Ls) declared insolvent by the Office of Thrift Supervision (OTS),” a consequence of the S&L crisis of the 1980s. With the RTC breathing down the necks of S&Ls, these institutions sought to get commercial properties off the books as quickly as possible. This created a hyper-artificial real estate market, where many properties in default were sold at “steal” rates—one building in Chantilly, Va., for example, sold for the absurdly low cost of $22 per square foot. (In more stable market circumstances, they usually sell for between $100-150 per square foot.) The buyers of these properties were real estate investment trusts [8] with sufficient capital.

There were other federal trends beginning in the 1980s that also affected the real estate game, nationally and in the D.C. area. The Base Realignment and Closure [9] program, or BRAC, was established in 1988. Since its inception, more than 350 military facilities have been closed nationally. Many Defense Department civilians and contractors working off-base in commercial spaces moved onto military compounds. One of the largest bases in the D.C. area, Fort Belvoir, now reportedly has a staff that is 80 percent civilian. Moreover, when bases close, commercial real estate being used by DOD contractors off-base is also affected.

DOD has also pursued public/private development, where private companies, such as hotels, are allowed to build on public (i.e. military) properties. This inevitably impacts the off-base economy. Other government contractors have meanwhile merged, often leaving behind unused spaces. The General Services Administration, or GSA, has cut the size of the average office cubicle in half [10], which also takes a toll on the demands for commercial real estate. Moreover, budget sequestrations can—and have—put government contractors [11] in deep water [12], with many analysts arguing that contractors are those hardest hit by tighter budgets.

Other non-federal trends can also impact commercial real estate. The ubiquity of mobile phones, as well as the growing embrace of telecommuting, have dramatically impacted a former reliance on commercial spaces. Alternatively, Millennial workers  [3]have less interest in working in car-centric office parks, preferring public transit access.

The final, but perhaps most important factor, was the subprime mortgage crisis of 2007-2010 [13]. The roots of this disaster can be found in the Carter administration, when the Community Reinvestment Act began encouraging riskier housing loans. This was furthered by the 1982 Alternative Mortgage Transactions Parity Act and the Housing and Community Development Act of 1992, the latter demanding that at least 30 percent of government-subsidized lenders Fannie Mae and Freddie Mac’s loans be for “affordable housing.” For decades, politicians created increased risk in the housing market. When the bubble burst beginning in 2007, the calamitous effects were felt in the commercial real estate market as well. Only in the last year or two has the market begun to return to the numbers seen right before the crisis [14], though that reemergence has been quite asymmetrical in different regions across the country.

This is certainly the case in the D.C. area, where commercial spaces languish in some areas (e.g. Chantilly, Fair Lakes, etc.), while others experience phenomenal prosperity. In the currently burgeoning Reston Town Center area, where such big players as Google, Microsoft, Oracle, and Bechtel rent space, vacancy rates in commercial buildings are at an astonishingly low 0.5 to 1 percent. Reston is a particularly interesting case, given its history as a planned community with origins in the 1960s. While Reston appears in many respects to represent the future of real estate—with its union of walkable residential and commercial spaces that will soon have access to D.C. Metrorail’s Silver Line—the older Reston is defined by suburban communities with adjacent strip malls separated from major thoroughfares, and is thus largely invisible to the passerby. Such invisible commercial properties, such as the Tall Oaks strip mall on North Shore Drive [15], now languish with vacancies.

One solution is the transformation of these buildings into mixed-use (also called multi-use) residential/commercial spaces that allow for more market flexibility. This requires changes to contracts and sometimes local codes, but it addresses the dramatically shifting moods and conditions that define our country’s digital-economy era. People can rent space in which to live and work, and if their business prospers, have the option of expanding their space in the very building in which they live. The Tysons and Reston areas mentioned earlier boast examples [16] of exactly this kind of economic development.

It’s likely this problem is not going away, and may even get worse—the Stephen J. Fuller Institute assesses that “the Washington region’s high cost of living and quality of life issues have made it less competitive with its peers.” Coupled with Fuller’s evaluation that “[another] recession is likely in the foreseeable future,” this likely means all those empty buildings won’t be filled any time soon. Moreover, this increasingly seems to be a problem not limited to the D.C. area: 14 to 22 percent of national suburban office inventory has been assessed to be obsolete [17], while businesses across the country are moving back into the cities.

No region is served by having so much unused commercial space, places that remain dependent on infrastructure but are not contributing to economic productivity. Some prominent developers in the D.C. area already seem to recognize this—a few years ago one developer reportedly acknowledged that the region didn’t have a development problem, but rather a “tear down problem.” TAC has already identified some areas in Northern Virginia defined by largely vacant, outdated strip malls [1] that could benefit from a “tear down” approach, if not a significant makeover. I still happen to take pride in the region, but [18] we need to change course in our development patterns before it’s too late.

Casey Chalk is a student at the Notre Dame Graduate School of Theology at Christendom College.

12 Comments (Open | Close)

12 Comments To "How Many D.C. Suburban Office Parks Became Ghost Towns"

#1 Comment By Dan Green On May 9, 2018 @ 9:44 am

Were so overwhelmed by such a large influence of employees, and projected number of government employees, developers will chase those trends. The government just keeps growing no matter which party is in office. If Bezos Amazon ends up choosing the DC area it may help absorb some non government employee numbers.

#2 Comment By mrscracker On May 9, 2018 @ 10:53 am

I get to No.VA very infrequently but there was at least one thriving Vietnamese strip mall up there a couple years ago. The Eden Center was completely amazing. I’d really recommend a visit if you’re ever near Falls Church.

#3 Comment By Addison Del Mastro On May 9, 2018 @ 11:12 am

The Eden Center is very cool! Some of those older strip malls have actually become very vibrant places for immigrant entrepreneurship. Getting rid of them would be a kind of commercial gentrification. I’ve read that many immigrants view strip malls as essentially town squares, which don’t exist much in America anymore. When people loiter outside the stores, they’re not trying to intimidate or be in the way. They’re viewing that space as a public space, whereas we view it as a private commerical one.

#4 Comment By Tyro On May 9, 2018 @ 11:29 am

This is no mystery. The suburban office park model was optimal for low-cost, single purpose use where auto travel was easy and preferred. It was also optimal for DC’s business model where both government and government contractors could expand, rent needed space, and then leave the space when funding and contracts expired.

Alternative models would have been derided as inefficient or impractical for auto-centric development patterns. The problem is that the model persisted for 50 years, beyond its useful life.

I used to live in DC and when I realized that my inevitable professional future was to be spend driving to various desolate office parks, I left for New York City.

This has little to do with conservative bugaboos like 1970s-era housiny policies they want to blame their problems on and everything on a dysfunctional professional culture and culture of commuting and development.

#5 Comment By mrscracker On May 9, 2018 @ 12:27 pm

Addison Del Mastro says:
“They’re viewing that space as a public space, whereas we view it as a private commerical one.”
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Absolutely. When I was there on a Saturday a couple years ago a Vietnamese Baptist choir was singing in the parking lot. All sorts of folks were outside visiting with each other. It was lovely & old fashioned. Sort of like when rural Americans used to go to town on a Saturday.It was as much a social event as doing business.

#6 Comment By Brendan On May 10, 2018 @ 12:17 pm

The issue is that there is a lot of subpar suburban office space in NoVa. Reston’s Town Center area has high occupancy rates because the office space there is new and desirable for tenants. The low-rise, 1970s/80s era office real estate less than a mile away in Herndon, however, languishes because it is simply out of date and undesirable for office tenants as compared with the newer stock in Reston and Tyson’s.

I don’t think it’s actually the case that a huge number of tenants are opting for downtown offices. As noted, the office real estate market in Reston is booming — Tyson’s is overbuilt, but still doing better than Chantilly or Herndon. The key is that office tenants want amenities around their office space that are walkable during the day. This is the attraction of the newer spaces in Reston. People still mostly drive to work there, but during the day they can walk out of their offices and have lunch, or take a walk in a populated streetscape made for pedestrians and so on, rather than being marooned in an office park. It’s still car commuting, but the experience during the day is different, and that is what is being sought after by more business tenants these days. More development like that would be welcome and would likely do well for new tenants.

#7 Comment By Walter On May 11, 2018 @ 4:43 pm

Casey, Although a good article, you’re wrong about Tysons Corner. In 2010 the County of Fairfax re-planned the area to make it a 24 hour mixed use environement. The goal is to have 100,000 residents and 200,000 jobs by 2050 in Tysons. So apartments and offices have already been completed and the plan is to build a grid of streets to help provide connectivity. Finally, all surface parking will virtually be eliminated.

#8 Comment By cka2nd On May 12, 2018 @ 5:03 am

“The General Services Administration, or GSA, has cut the size of the average office cubicle in half, which also takes a toll on the demands for commercial real estate.”

The bast***s.

“The roots of this disaster can be found in the Carter administration”

Ah, Jimmy Carter, the true Mr. Deregulation. Quite the record of economic woe can be traced to his administration’s deregulatory policies on the one hand, and his appointment of the viciously anti-worker Paul Volcker as chairman of the Federal Reserve on the other. I especially appreciate seeing the economic right celebrating Carter’s deregulatory record, from the Mises and Cato Institutes (!), to Joanne Butler (ex-GOP House Ways and Means staffer) and, most recently, Reason.com.

Maybe I will go back to that TAC post on Somaliland and note that Carter (and then Reagan!) maintained U.S. recognition of the Khmer Rouge as Cambodia’s legitimate government after the Vietnamese Stalinists drove those maniacs from power. You can’t go wrong bashing President Peanut for the right reasons.

#9 Comment By Michael Vaughn On May 14, 2018 @ 12:50 pm

Repetition of balderdash on cause of 2009 financial crisis. Cause was subprime and cdo frauds concocted by WallStreet not government and agency policies on Community reinvestment.

#10 Comment By Karl Kolchak On May 14, 2018 @ 9:32 pm

I’ve lived in Fairfax for 20 years, and I take ZERO pride in this region. The lack of any sort of traffic planning has hopelessly clogged the roadways, and very few developments were designed to fit in with what would otherwise be a very pretty landscape. And in recent years, even some of the older buildings with a little bit of character have been ripped down to build more sterile, dehumanizing condo and officer towers and hideous strip malls. In short, but for a few of the older downtown areas (Vienna, Fairfax City, Falls Church) this area is as architecturally ugly and depressing as it possibly could be given the amount of wealth that exists here.

#11 Comment By Casey Chalk On May 15, 2018 @ 12:17 pm

Hi Walter,

Thanks for the comment. I’m confused by how I’m wrong. Nothing in my article contradicts what you’ve written about Tysons in your comment. Indeed, I even say explicitly in my article that development in Tysons is moving towards more mixed-use.

#12 Comment By Chuckles in WA On June 22, 2018 @ 6:10 am

“The final, but perhaps most important factor, was the subprime mortgage crisis of 2007-2010. The roots of this disaster can be found in the Carter administration, when the Community Reinvestment Act began encouraging riskier housing loans.”

Laughable. Private lenders granted much more risky loans and much higher delinquency and failure rates.

“Another way to measure the relationship between the CRA and the subprime crisis is to examine foreclosure activity across neighborhoods that are classified by income. Data made available by RealtyTrac on foreclosure filings from January 2006 through August 2008 indicate that most foreclosure filings (e.g., about 70 percent in 2006) have taken place in middle- or higher-income neighborhoods. More important, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.9/ (See Table 7.)

Two basic points emerge from our analysis of the available data. First, only a small portion of subprime mortgage originations is related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together, the available evidence seems to run counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.”
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