- The Washington Times - Monday, January 20, 2003

The Northern Virginia office market, hit hard by the collapse of the technology sector, is showing signs of life again.
More office space is being filled in Northern Virginia, landlords are putting less sublease space on the market and some companies are looking to expand.
Northern Virginia's office vacancy rate, at 15.6 percent, remains at its highest point in a decade, largely because of space vacated by troubled technology firms in 1999 and 2000. But activity toward the end of last year shows that many Northern Virginia areas could see improvement this year, Delta Associates, a real estate research firm, said in its year-end office market report released last week.
Between January and September last year, about 556,000 square feet of empty office space went onto the Northern Virginia market. But in the last three months of the year, about 815,000 square feet was filled.
Several companies in Northern Virginia sought and leased hefty amounts of new office space in the last three months of the year, signaling that the regional economy may be improving enough to boost the office market, Delta Associates said. Big leases included 90,000 square feet by Meristar Hospitality, 83,000 square feet by Cambridge Associates and 40,000 square feet by MCG Credit Corp.
Meanwhile, many companies decided to use space they had been trying to sublease. AOL Time Warner took 183,000 square feet in Loudoun County off the sublease market, while Capital One Financial took 560,000 square feet in Tysons Corner. Freddie Mac also took 400,000 square feet of space in Tysons Corner.
"Although vacancy in the Dulles Corridor remains high, overall market conditions are improving elsewhere, as sublet space is gradually being absorbed," Delta Associates reported.
Delta Associates said it expects vacancy rates to decline gradually this year and fall to about 14 percent in two years.
Most analysts agree that an improvement in Northern Virginia's office market is needed.
The Northern Virginia office market was hard-hit after the collapse of the technology sector in 1999 and 2000 as many companies pared down operations.
To make matters worse, office construction was at a feverish pitch at that point, and some buildings have been sitting half-empty ever since.
The situation was particularly bad outside the Beltway, where office vacancy rates surged to more than 30 percent in towns such as Reston and Herndon.
Two main factors that will help Northern Virginia's office market in 2003 are the slowing of construction in the region and the leasing of space by groups supporting the war against terrorism, analysts said.
Delta Associates said no ground was broken for buildings in Northern Virginia in the last three months of 2002. This is a good sign, the group said, because it means excess space in the next few years will be minimal.
There are 4.5 million square feet under construction, down from 6.4 million square feet in September. The new U.S. Patent and Trademark Office headquarters being built in Alexandria accounts for about 2.5 million square feet.
Meanwhile, analysts expect more government and defense contractors to lease space in Northern Virginia to help support military activities related to the war against terrorism.
"Private sector activity likely will begin to bounce back in 2003, as government contractors begin to benefit from the long-awaited procurement dollars to flow to fight the war on terrorism," Delta Associates reported.
Also, the Homeland Security Department headquarters is likely to end up in Northern Virginia, filling an additional 250,000 to 500,000 square feet.
That is likely to be followed by supporting contractors, which also will need space.

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