SOUTHEAST SNAPSHOT, DECEMBER 2008

Tysons Corner Office Market

Tysons Corner, the de facto downtown of Washington, D.C.’s Northern Virginia suburbs, has evolved from a rural crossroads in the 1950s to become one of the most successful suburban business and retail centers in the United States today. With three major improvement initiatives planned, the area is on the verge of profound changes beginning in next year.

Tysons Corner has a total office inventory of 28 million square feet and a direct vacancy rate of 10.83 percent. There is also 40 million square feet of surface lots in Tysons Corner. As in every downturn, the area has experienced the traditional flight to quality to Class A office space on the part of tenants and  investors. These properties currently have a direct vacancy rate of only 6.25 percent and asking rates averaging $33.75 per square foot. Currently, Tysons Corner boasts 128,000 jobs, 6,000 businesses and 17,000 residents. 

Three office projects are now under construction in the area. Park Place II, a 324,000-square-foot property, should deliver this year. The building, located at 1850 Towers Crescent Dr., is a 295,000-square-foot mixed-used structure. It is scheduled to deliver next October. The third project, located on Farm Credit Drive, is a 250,000-square-foot build-to-suit for the General Service Administration. While there are many additional projects planned, other developers are holding off because of the current economic environment. Most development properties are in the hands of institutional or financially secure ownerships, so it is very rare for development sites to trade in Tysons Corner. Because of these challenges, a premium price is generally required for entry into the market.

The retail component of Tysons Corner is the largest on the East Coast, outside of Manhattan. Tysons Corner Center is the sixth largest regional mall in the United States. It contains more than 300 stores and services including Nordstrom, Bloomingdale’s and Lord & Taylor. Tysons II Galleria — anchored by Neiman Marcus, Saks Fifth Avenue and Macy’s — adds another 100 stores. Hospitality-wise, the area is home to 14 hotels, totaling 3,880 rooms.

In 2009, Tysons Corner will begin a radical transformation. This revitalization will be spurred on by the confluence of three major infrastructure initiatives.

The Tysons Corner Comprehensive Plan is slated for approval by mid-2009, setting the stage for the city’s development into a major high-density, transit-oriented urban center. The next generation of development will be that of a mixed-use community. Residential will emerge as a primary focus of construction activity due to the desirability of a transit-served urban/suburban community. These types of communities are the future and represent the potential for energy-related savings as well as offer a solution to workforce housing.

Planners envision Tysons Corner becoming the next Ballston — the area of Arlington, Va., that attracts younger workers with a live, work and play environment. With the change in dynamics set to occur once the comprehensive plan is put into place, it is anticipated that the residential component of the city will grow dramatically. Stephen Fuller, a George Mason University professor and director of the Center for Regional Analysis, estimates that the city’s population will grow to approximately 80,000 by 2040.   

The Dulles Corridor Metrorail Project, a 23-mile Metrorail extension to Dulles International Airport, which will include four stations in Tysons Corner, is awaiting final approval. The federal government will most likely approve the project sometime next February, with construction starting in March.

The Metrorail project will dramatically transform the area into an urban environment. The city needs to address pedestrian friendly solutions in the future. Important improvements will include moving utilities underground and adding sidewalks and pedestrian walkways across or under key arteries.

Construction has commenced on relocating utilities to make way for the elevated track. Metrorail service is slated to begin in 2013. There is also a recommendation that sites within 0.5 miles of new Metro stations be granted increased density and re-zoning opportunities. This will obviously increase development potential.

The High Occupancy Toll will have a major impact on Capital Beltway traffic, and construction is currently underway on the Northern Virginia lanes. Greater ingress and egress into Tysons Corner will be created with the construction of new exit ramps. 

Simply put, Tysons Corner is clearly positioned on the right side of energy, public-transit, residential commercial and lifestyle trends.

— Martin J. “Chip” Ryan, III, is managing director of investment services at the Bethesda, Md., office of NorthMarq Capital.

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