Best & Worst States: How An Office Megacenter Is Adjusting To New Realities

If the chickens unleashed by the pandemic and remote-work revolution are finally coming home to roost in the U.S. commercial real-estate market, Arlington County, Virginia, keeps trying to chase them out of the nest.

Across the Potomac River from Washington, D.C., the county is an epicenter of federal-government employees, lobbyists, military contractors and related knowledge and tech workers. Arlington County scored a big coup, of course, when Amazon pledged in 2018 to build a campus that would employ 25,000 tech workers there. The county beat out literally hundreds of other locales across America that were battling for what seemed at the time to be the juiciest economic-development plum in history.

But the pandemic pullback in working in person and the diaspora of tech work prompted Amazon to shelve the second phase of its project, adding to Arlington’s challenge in cutting its elevated, 22 percent office-vacancy rate. The area has been pivoting into a strategy that continues to seek—and win—new office tenants but that also reimagines and repurposes what commercial occupancy will look like in the years ahead.

“The market overall is more challenging as companies take longer to make real estate decisions, and when they do, their parameters for what they need in a building are different than in the past,” says Ryan Touhill, Arlington’s director of economic development.

Here are the prongs of Arlington’s approach:

New tenants. They’re still out there: Arlington County recently signed CoStar Group to move its global headquarters to Rosslyn, Virginia, from Washington, D.C., committing to occupy 150,000 square feet of commercial office space and employ 650 workers, after state government chipped in nearly $5 million in incentives to lure the operator of an online real-estate marketplace.

“This is the biggest deal we’ve had since Amazon, and CoStar is going into a trophy building in Rosslyn,” Touhill says. “Its significance is not just building on Arlington’s reputation as a headquarters location but also their in-person, four-day-a-week office culture and that we’re going to have a huge influx of employees, visitors and people who do business with CoStar at a time when it is undergoing a multi-year transition from an office neighborhood to 18-hour mixed-use.”

Enhancing that mixed use is the fact that CoStar also agreed to pay the county $14 million to release easements on the observation deck on the building—money that Arlington will put into the neighborhood’s Gateway Park. “Coming out of the pandemic,” Touhill says, “we need to have those spaces outdoors for people to enjoy.”

Working with Amazon. The ecommerce giant still has no plan for Phase 2 of its complex in Arlington, but the employee population of the Phase 1 towers is up to about 8,000, Touhill says, on its way to a projected 14,000 to 15,000. “They’re slowly moving in and back to three days a week.”

Meanwhile, “most of the ground-floor retail space is filled or has tenants on the way,” he says. And Amazon is still working with the county on providing a permanent site for Arlington Community High School, whose student body largely consists of working adults.

Flexing the footprint. Arlington County is working to “take buildings off line that won’t be leased as office spaces, because they don’t meet today’s tenant demands,” Touhill says. This means accelerating redevelopment, conversion or repositioning of some office buildings into hotels, residential spaces, higher education or other uses—including data centers, which are exploding in number these days.

“We’ve been adding to our allowable uses for the types of businesses that can locate in office buildings,” he says. “We’re open to any suggestion the market brings forward. We’re letting the market drive those decisions, because that’s where we’re seeing interest right now.”

Reimagining office buildings. When it comes to Class A office space, Touhill says, there remains “continued interest,” but the smaller tenant list is becoming more selective—and demanding.

“They want buildings that have more modern amenities, larger floor plates, better natural lighting,” Touhill says. “That’s been a trend for years. But what’s new coming out of Covid is that owners and developers want more prearranged space, including furniture and fixtures. They want it more turnkey. They want conference facilities and space on site so that if they want to bring everyone in for a team meeting, they’ve got the space.”