There is some scary data hidden in Fairfax County’s budget numbers. Back in 1990, commercial/ industrial property comprised 26.7% of the county’s total real estate property tax base. Revenues from high office valuations gave the county leeway to keep the tax rate low — great for homeowners. But the commercial/ industrial share has declined since then to 19.12%, which puts Virginia’s largest political jurisdiction in a bind as county officials prepare the Fiscal 2018 budget.
That commercial/industrial crucial ratio has been known to jump around, depending upon market conditions. The 26.7% number, the highest rate recorded, came only seven years after the lowest rate recorded, 16.12% in 1983, according to a County Executive Budget Presentation published in February. So, things can change. But there is reason to think that the ratio will stay low for several years more.
The office vacancy rate in Fairfax County runs around 20 million square feet out of 116.4 million square feet. Meanwhile the Metro Silver Line is spurring new construction as employers seek Class A office space with mass transit access. Almost 2 million square feet are under construction in Virginia’s largest office center, Tysons, and nine major applications with 9 million square feet are under review.
While the new construction is good news for the Fairfax tax base, here’s what’s not: The executive presentation quotes the Fairfax County Economic Development Authority as saying that 73% of the county’s office space is obsolete.
I’m not sure how the EDA defines “obsolete,” but it sounds ominous. I’m guessing that it means the buildings are aging physically, need re-wiring for state-of-the-art telecommunications, and/or have antiquated layouts incompatible with collaborative work styles. Furthermore, I’d hazard a guess, the office parks reflect a ’70s- and ’80s-era autocentric design, which means they lack the walkable ambience that Millennial employees are looking for these days.
It’s one thing to invest millions in modernizing an office building in a desirable location; it’s another investing millions to update a building in an office park where no one wants to work anymore. I would hypothesize that a large percentage of the county’s commercial/industrial office buildings will continue to get older and more out-of-date. Rents will decline, property values will decline, and the county tax base will continue to erode.
Let this be a warning to other suburban counties across Virginia. Unless they can figure out how to reinvent their old office parks as walkable, mixed-use districts where people these days prefer to work, they, too, will find themselves heirs to obsolete office parks that leech value and undermine their tax base. The difference is that Fairfax County could see a revival if President Trump succeeds in ramping up defense spending. Henrico, Chesterfield, Virginia Beach and other jurisdictions will have no such luck.
(Hat tip: Andrew Roesell.)
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