RealShare EXCLUSIVE: Questions Remain in Northern Virginia Market

Most speakers at RealShare Northern Virginia noted the area's real estate market has recovered from the tech sector fallout of 2001, and is now flush with capital and continues to hold strong. The big question, the panelists agreed, is how much longer the good times can last. "It's just a matter of time before the roller coaster goes down the other side," said W. Michael Ellis, divisional director, leasing & management for Jones Lang LaSalle.

Panelists pinpointed employment figures as a major factor in real estate's continued success. Northern Virginia boasts the best job growth rate in the state and the DC Metro area is expected to add some 80,000 new jobs in 2006, according to estimates by the speakers. "As long as job growth continues, everything's going to be fine," predicted David Webb, executive director of Cushman & Wakefield's Capital Markets Group.

The market experts agreed there are now more questions than answers in the office sector. Regarding the Department of Defense's Base Realignment and Closure plan, panelists took a "wait-and-see" stance as to how it would affect office space in the area, although they seemed to agree that an expected slow phase-in of the plan would not jolt the market. Jim Smale, realty specialist for the US General Services Administration, confirmed that five million sf of space and 22,000 federal employees would migrate from Northern Virginia between 2008 and 2011, but did not offer further specifics.

Vacancies are in the low single digits, but predictions loomed that select submarkets could experience spikes by 2007. "Vacancies are tightening down considerably," agreed Scott Brody, vice president and general manager of Opus East LLC. "Rent spikes are going to happen soon."Turning to the multifamily sector, panelists predicted a steady expansion, particularly as job growth fuels demand, investors keep snapping up properties and converters continue to convert rental to condos at a steady clip. William Revers, director of acquisitions for Fairfield Residential LLC, said, "Overall, there's so much institutional capital in the [multifamily] market, I think the whole Washington area is bulletproof."

Art Fuccillo, vice president of development for Lerner Enterprises LLC, acknowledged the sector's strength, but pointed to a slight flattening of growth since its heyday five years ago. "We still have the best demand factor in the country for residential. It's just not where it was."

A repeated concern across all property types among the RealShare speakers was construction costs, which Webb estimated have risen as much as 35% year to date. "There's so much capital that wants to get into the market that now it's happy to go into spec office. But if construction prices continue the way they did this past year, it's going to stop a lot of deals."