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Office Space Vacancy Rate Drop — A Positive Economic Indicator

Like the lumbering coal trains reversing themselves at the Mirant power plant at the north end of Old Town, Alexandria's economy seems to be picking up speed and heading in a positive direction.

That's the analysis of the Alexandria Economic Development Partnership (AEDP) Inc. based on a decrease in the office space vacancy rate. For the first time in nine quarters the trend reversed, according to Marc N. Brambrut, AEDP economic specialist and marketing specialist.

"Reflective of the city's improving business atmosphere, Alexandria's office market experienced positive absorption for the first time in three quarters, due to significant second quarter move-ins," he noted in a recent report.

To highlight the point, Brambrut cited the acquisition of 30,000 square feet by EarthTech at 675 Washington St. and space consumed by Wisnewski Blair & Associates at Canal Center coupled with Research America's move into 1101 King St.

The vacancy rate has been steadily creeping up from 5.1 percent in the first quarter of 2000, to a high of 12.1 percent in the same period of 2002, according to AEDP. The second quarter of 2002, saw a decline to 11 percent but this was counteracted by the overall Northern Virginia rate rising nearly a half percent to 15.9 percent in the same period.

AEDP NOTES THAT the unemployment figures also point to an improving economy. "Alexandria's unemployment rate continued to decline from a high of 3.9 percent to 3.6 percent in the fourth quarter," Brambrut's report stated.

The number of unemployment claims dropped six percent in the first quarter, and a significant 32 percent from its high point in the fourth quarter of 2001. This was in stark contrast to the state unemployment rate which rose during the same period from 4.1 percent to 4.3 percent, AEDP pointed out.

Construction began on two of the five U.S. Patent & Trademark Office buildings as well as on one of the two parking garages at that site. Upon completion this will add just over 1.3 million square feet of new commercial development to the city's inventory.

On the flip side of this picture is some of the older commercial space along King Street from the river to the 1500 block. This was the subject of a proposal at the September meeting of the Alexandria Planning Commission to change the zoning allowing for conversion from commercial to residential.

The argument put forth at the Commission meeting was that there are examples of such space remaining vacant for as long as 15 years. The docket item cited five properties in particular, located in the 600 to 800 blocks of King Street.

WHEN ASKED IF this contradicted the AEDP report, Eric N. Dobson, AEDP deputy director, explained, "The real problem with most of those buildings is two-fold. One is there is little or no parking available and the other is that many of the property owners have done nothing to make them appealing to potential tenants."

He further noted, "The older space on King Street is pretty much outside our model. It doesn't reflect the total market. As for the parking problem in the core area, we want to encourage shared parking — commercial during the day and residential in the evening and on weekends."

The one segment of real estate that continues to boom is residential, AEDP verified. "The relatively low prime interest rate of 4.75 percent through the first half of this year ensured the spring's typically high volume of investment in residential housing," Brambrut emphasized.

"In fact, housing continues to be one of the strongest sectors of the local economy. The average price of a home in Northern Virginia is at a record high of nearly $337,000, up 19 percent from last year's top of $284,335," he pointed out in the report.

This has been verified by realtors who claim that homes are selling extremely quickly and at ever increasing prices. One realtor recently noted that at the conclusion of an open house in Old Town the sellers received three contract proposals within two hours after the open house concluded.

UNFORTUNATELY, retail income remains in the negative territory. Sales were down from $535 last year to $515 million this year.

AEDP's quarterly analysis is part of the Local Economic Indicators Report. It is prepared as a service to the business community to provide information on the status of the city's economy for new, relocating, and expanding businesses. Copies of the complete report are available by contacting AEDP at 703-739-3820.