Skip to content
Our Picks Popular Subscribe
logo
  • Topics     >>    
  • Development
  • Concepts
  • Construction Update
  • Urban Planning
  • Business
  • Events
  • Community
  • Arts
  • Transportation
  • Dining
Facebook
Twitter
RSS
Popular
Our Picks
Search
Contact
Privacy
SUBSCRIBE
Jones Branch Drive looking towards Tysons Metro Station (not seen)

Cost Comparison On Office Construction Demonstrates Lease Rate Disparity

Navid Roshan-Afshar
@thetysonscorner
April 29, 2013
Jones Branch Drive looking towards Tysons Metro Station (not seen)

Over the past year the District and Tysons (Fairfax) have been a bit contentious towards each other. Several companies have decided to relocate to Tysons or otherwise expand in Fairfax, and even more are rumored to be considering the move. This competition has been fueled by rhetoric from both sides, with Fairfax officials declaring the county the new downtown, and DC officials dismissive of any competition between the jurisdictions. After all, DC’s competition is with cities like New York, San Francisco, and Chicago… not Fairfax.

Unfortunately, for officials in D.C. at least, Fairfax and Arlington have continued to siphon away corporations, development, and new start ups from the District… everyone except for Living Social of course. Many have blamed tax rates, calling Virginia a tax haven for corporations, but this view is shallow and not indicative of the actual cost of business between the two jurisdictions.

In our previous post we wrote that lease rates, not tax rates, are to blame for DCs competitive lack of edge with Fairfax. What is a prideful statistic for DC officials, lease rates over $100 per square foot per year, is actually the final deciding factor for many companies to head out. Many District officials see Tysons and Arlington lease rates of $35-45 per square foot per year as proof that Northern Virginia only represents spill over space for corporations, and that the area remains the suburbs.

So why are the lease rates so varying? Is Northern Virginia simply not as desirable for corporations and therefore management companies charge less? It’s actually a bit of chicken and egg. Of course part of the lease disparity is and will always be due to the District being the true city center, but that view is far too macro to fully understand what is occurring.

Akridge's 1200 17th Street Office Project, rendering by Akridge

On an individual basis these costs are in many ways being created by the cost to attain construction loans. Anticipated lease rates are a major measure for  financial backers who determine the solvency of a project. If construction costs are high, the financier will expect higher lease rates to lower the return on investment period. If the project can’t sustain those rates in the mind of the financier, they will pull the plug.

In Tysons, MRP is constructing their brand new 11-story office building, with 300,000 square feet of finished space with a loan of $120 million. That equates to a $400 per square foot final cost, a hefty price tag for commercial construction, and on the high end of most projects in Virginia. On the other hand Akridge is currently constructing a 170,000 square foot office on 17th street with a loan of $110 million. That equates to nearly $650 per square foot final cost.

A lot of that cost difference comes from land value, however there is also a scale of construction problem in DC. A significant portion of Akridge’s costs come from the “build to the edges” model DC demands due to their low height limit. No one is saying this isn’t beneficial for urbanity, but there are ways to build taller and more condensed for core function, and build on lessened foundations for ground floor retail etc around the edges. This is done a lot in New York City, but because the “core building” in DC would only be a few stories higher than the to the edge retail, it wouldn’t equate to enough square footage to make the project a go.

1812 North Moore, rendering by Monday Properties

In case you think the Tysons office by MRP is just an example of office park sprawl, perhaps 1812 North Moore, the prestigious highrise project in Arlington may surprise you. The 35-story premier office and retail possesses 581,000 square feet of river front development and cost a total construction cost of $230 million which comes out to $396 per square foot final cost.

By all measures it meets the measurements of a great and sustainable building. It is LEED platinum, it is one block from a subway station, ground level retail, incorporates new pedestrian improvements, etc. Yet this project is less expensive than a similar “to the lot boundary” project in DC per square foot.

The problem is, DC limits the design and economics of new developments with an arbitrary number for height. If the limit was raised 8 stories it would not change any aesthetic elements in core commercial zones, but it would have a huge impact on the cost of doing business in DC. There is a middle ground between good design and kowtowing to the “can’t see the sky” crowd. The one’s being hurt aren’t the developers or managers who as Mayor Gray has pointed out, can get top dollar on leases. It’s the entrepreneurs with a unique idea who wants to start a business in the city but can’t possibly afford a doubling in lease cost.




Share This
  • Facebook
  • Twitter
  • Google+
  • LinkedIn