Space Demands May Turn on Election Results

MCLEAN, VA-There are several changes underfoot in the Northern Virginia real estate markets that are affecting demand for space in office and industrial properties. Trends in the area’s infrastructure, land prices and even politics were discussed during yesterday’s Northern Virginia RealShare Conference held here in the McLean Hilton.

It all comes back to one thing: the market fundamentals. Panelists considered the fundamentals here rock solid as especially illustrated by both tenant and investor demand that continues to remain strong. “This is one of the strongest and longest real estate cycles I can ever remember,” said Jim Lee, COO and president of OPUS East. Even asset classes marginalized, like condo sales, are expected to come back once the bottom has been hit.

Last month’s national election is having an impact on space demands among some tenants, according to Spencer Stouffer, principal with Trammell Crow Co. “It is fueling caution among some firms as the administration exchanges hands,” he says. “There is a sense of inertia among some of these firms and they are not signing up for additional space.”

The Base Realignment and Closure 2005 is also having an effect, according to Jon Peterson, head of the Peterson Cos. The impact of BRAC will not diminish now that the Democrats are in control of Congress and a new Defense Secretary has been named. “That was a non-partisan decision and it is irrelevant at this point who heads the Pentagon or controls Congress,” Peterson said.

A handover in the Pentagon’s leadership, though, as well as the Democratic party’s control of Congress might have an impact on the defense industry in general, causing its growth in the region to slow at least until the next election. “We may see some pullback [in demand for space] by these firms,” Lee said. By the same token, Maryland’s biotech industry could grab a larger share of the regional economy, also causing shrinkage in Northern Virginia’s tenant base, Stouffer says. “I do think biotech is set to grow and they will take some market share. But defense will continue to lead.”

Most of the speakers at the conference agreed that the region’s ever worsening traffic was having an impact on development as well as tenant demand for both office and living space. “It’s a quality of life issue everybody has learned to ask of themselves,” Petersonsaid. Infrastructure though, cut both ways and another subject of debate was which submarkets were positioned to grow the fastest. Jeff Neal, principal with Monument Realty, is placing bets on, among other areas, the upgrades being made to Route 28, which he said have the potential to move as many people as the Beltway currently does. Development and demand for space is sure to follow suit when that happens, he said.

RealShare Conference Series is produced by Real Estate Media, publishers of GlobeSt.com and Real Estate Forum.