(Updated at 2 p.m.) The newest trend in office leasing may be painful for Arlington County’s office vacancy rate in the short term — but it could be beneficial in the long run.
As companies try to coax employees enjoying remote work back to the office at least part of the time, some are trading spacious leases for smaller agreements with more amenities. Landlords are responding with more investments in renovations.
“We are right-sizing from the pandemic,” said Chaise Schmidt, a senior vice president of and broker with real estate company Colliers. “It’s truly a transition period.”
Arlington County’s office vacancy rate is continuing to climb, reaching 23.7% in the first quarter of 2023. That is up from 20.8% in the summer of 2022, up from 16.6% at the beginning of 2020 and 18.7% at the beginning of 2021.
Meanwhile, a Washington Post poll published on Friday found that “two-thirds of D.C. area remote-capable workers want to work from home ‘most’ or ‘all’ of the time.” Only 3% wanted to work from home “rarely” or “never.”
Much of Arlington’s local tax base comes from commercial property with tenants in it, so a high vacancy rate can mean more pressure on residential property owners to make up the difference in their taxes — if they want the forthcoming budget to pay for the level of services currently offered.
But the news is not all bad. Organizations are still seeking to lease — they are just reducing the size of their office floor plans by 20-50% and, instead, paying more for higher-quality amenities, Colliers found. Schmidt said this has been christened the “flight-to-quality trend.”
“Business leaders are realizing you cannot build a company culture and innovation in an old, dark office space,” she said. “You need a beautiful, comfortable space, with lots of natural light, outfitted with a variety of meeting rooms of all different sizes.”
That will mean a higher vacancy in the short term but, she predicts, that rate will even out.
Some companies are moving out of older, less technologically equipped offices in lower-demand areas, dubbed “Class B and C buildings,” into more marquee “Class A and trophy class” buildings in Arlington, particularly in Rosslyn and Ballston.
“People want to be in Arlington,” Schmidt said. “Ballston and Rosslyn are getting a lot of attention.”
Two buildings in Ballston are set to come online soon: 3901 N. Fairfax Drive at the end of this year and George Mason’s FUSE at Mason Square next year.
Above-grade construction started in the fourth quarter of 2022 on 3901 Fairfax Drive, consisting of 178,131 square feet of office space, 16,185 square feet of retail and 7,311 square feet of “other space,” per a development tracking report from the Arlington County Dept. of Community Planning, Housing and Development.
The FUSE building, meanwhile, consists of 345,000 square feet for laboratories, classrooms, offices, startup incubators, co-working facilities and other uses.
“They are both true speculative buildings,” she said. “That’s showing us the confidence landlords have. They’re doubling down on Ballston.”
As for existing buildings, landlords are upgrading their leasable spaces and sweetening the deal with allowances for moving costs and for making improvements.
Common upgrades for business include establishing a tenant lounge and creating conference centers. But there are more distinctive changes.
“We’re seeing really fun amenities as well, like golf simulators,” she said. “It’s business but it’s fun, too. You want to pull people to your building.”
