High-Tech Tightens Real Estate Market

Northern Virginia's high-tech boom is behind the demand for office space

P> The high-technology community in Northern Virginia will continue to attract the lion's share of real estate dollars in the Netplex, according to market projections by Grubb & Ellis.

During the last 12 months, employment in Northern Virginia grew by 3.6 percent, according to a 1996 real estate forecast by Grubb & Ellis. That's 3 percent higher than the rest of the Washington metropolitan area, and 1.8 percent higher than the national average, said the Washington-based real estate broker.

Virginia's knowledge industries - on-line services, telecommunications and systems integration - are the driving force behind the growth, said Michael Horwatt, vice chairman of the Fairfax County Economic Development Commission. Northern Virginia is home to firms such as UUNET Technologies Inc., Fairfax, Va.; PSINet Inc., Herndon, Va.; and America Online, Vienna, Va. Success breeds success, Horwatt said. Companies want to locate near similar businesses because one day they may be competitors, but the next day they may be collaborators, and proximity helps that effort, he said.

Increased consumer demand for on-line services has led to an increase in the number of employees. But problems arise when the companies try to find a place to seat their employees.

Last fall, the Netplex grapevine indicated that America Online, which is based in Fairfax County, had instituted a hiring freeze partly because it ran out of office space. In 1995, the office vacancy rate in Fairfax County dropped to 8.5 percent, the lowest since 1984. The rate peaked at 18.3 percent in 1990 and has been dropping ever since.

At the end of 1995, no office building in the area offered 50,000 or more contiguous square feet of new space. However, that doesn't seem to worry economic development officials because small, start-up companies are responsible for most of the growth in the region, and they don't need that much space.

Still, there probably will be some speculative office building soon, said Jerry Gordon, executive director of the Fairfax County Economic Development Authority. The Fairfax County Economic Development Commission oversees the Fairfax County Economic Development Authority. If rentals continue at the present rate, there will be about a 15-month supply of space in Fairfax County.

Outlying areas, such as Loudoun County, are benefiting the most from their proximity to Dulles International Airport and from low land costs. "Dulles is the single most important economic factor, outside of the area's proximity to the District [of Columbia]," said Horwatt. For Northern Virginia to remain competitive, it's vital that the airport have a rail link to Tysons Corner and other parts of the metro area, he said.

Dulles is an advantage that Maryland cannot supply along the Interstate 270 corridor, said Bruce Gamble, a partner with Arthur Andersen Real Estate Advisory Services in Washington.

Currently, more businesses are choosing to locate in Virginia, but that has not always been the case, and it could change again. While Gamble won't predict whether Virginia will continue to attract more businesses than Maryland, he said Virginia traditionally has attracted more software and electronics businesses than Maryland.

Competition for those businesses is fierce, and it's now a worldwide effort, so Dulles' link to the rest of the world is a definite benefit for Virginia. Horwatt believes Fairfax County's large immigrant population and cultural diversity also give it a tremendous strength when competing on a worldwide scale.

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