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WASHINGTON, DC-A recent report by Grubb & Ellis about telecom real estate paints a bleak picture but points to a brighter future. The second quarter telecom real estate report, put out through the firm’s headquarters in Northbrook, IL, stated that telecom vacancy levels dropped nationwide to 38.9% in the second quarter from 44.6% in the first.

Moreover, an additional 5.4 million sf of telecom space is under construction, with only 18.5% of it pre-leased. And substantial amounts of sublease space were returned to market as many companies declared bankruptcy and others downsized and tried to sublease their space to conserve cash.

The Washington market, particularly Northern Virginia, has felt the pain of the telecom downturn acutely. Local Grubb & Ellis research manager Keith Lavey reported that in Loudoun County alone, one of the biggest suburban tech submarkets, there is a vacancy rate of 34.5%. There is 2.2 million sf of space in that county, but 740,195 sf is vacant.

In Northern Virginia, which for Lavey consists of Loudoun and Fairfax Counties, there is nearly 1.6 million sf of vacant telecom space.

But Northern Virginia is not alone in its pain. In the District, Colorado-based Level 3 Communications abandoned plans to build a 600,000-sf data center in Northeast, citing that its two data centers was sufficient to meet demand in the region. But the pullout came around the same time the company announced it would cut 1,400 jobs.

The data center market directly affects vacancy and rental rates for the entire Northern Virginia submarket. Along with data centers, office space for those technologies companies is back on the market, and rental rates for office space have fallen into the $30s per sf.

But not only are there many vacant buildings, construction for telecom real estate has been scrapped as well. One firm, DPR Construction, which moved into this market a few years ago from California to serve tech clients, recently told GlobeSt.com that $50 million of planned data center construction “evaporated” in the first quarter of 2001.

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