Alexandria Developers See City's Urban-Suburban Nature As 'Perfect Storm' For Pandemic-Related Shifts

The coronavirus pandemic has hurt the downtown office and apartment markets in cities such as D.C., but close-in suburban areas like Alexandria appear poised to benefit from shifts in the market.

Developers with multifamily, office and retail projects in Alexandria said Tuesday on Bisnow's Future of Alexandria webinar they see the city as sitting in the ideal position to capture new demand from people who want a walkable environment without being downtown.

Carr Cos. President Austin Flajser said he has already begun to capture this demand at one of his company's condo projects.

The developer began sales in June on a project with 190 condos and 41 townhouses at 901 North Fairfax St. in Old Town North. The project, branded as Venue, has sold roughly a half-unit per day since June, a faster pace than Carr had projected in its pro forma, he said.

"What we found is a tremendous amount of interest in Old Town, in Old Town North, and people wanting to purchase and have permanent homes there," Flajser said. "Our sales pace at that project has been outstanding."

Flajser attributes this strong sales pace in part to the pandemic, which is leading people to prioritize the space and outdoor amenities available in the suburbs, while still wanting the walkability of a city. Seeing this demand, Carr Cos. in July broke ground on another Old Town North condo project with 73 units at 1201 North Royal St. 

"Given the changing dynamics of the way people live and work, at least temporarily as a result of COVID but also perhaps the long-term trends, we are big believers in urban-suburban markets," Flajser said. "It has urban-esque amenities, great restaurants and shops you can walk to ... but people can space out and feel like they can live a little differently than in the true downtown."

Weingarten Realty Senior Vice President Richard Carson, whose firm owns shopping centers in Alexandria and other suburban areas, said he has seen these retail properties outperform their downtown counterparts during the pandemic. 

"During the COVID scenario, some of our more suburban shopping centers are doing very well because people aren't commuting to downtown offices, they're staying home, supporting local businesses and local restaurants," Carson said. 

Weingarten owns Alexandria's Wegmans-anchored Hilltop Village shopping center and the Harris Teeter-anchored West Alex mixed-use development. Carson said he sees a trend of people moving out of cities but wanting suburban areas that offer walkability and mixed-use environments like Alexandria. 

"Alexandria, because of its urban nature — but also because of its suburban nature and its demographic criteria — really it's the perfect storm," Carson said. 

Scott Shaw, a partner at Alexandria Restaurant Partners and a co-founder of coworking space ALX Community, said the suburban coworking business has benefited from people not wanting to commute downtown. 

"There's opportunities as people leave the CBD in D.C., they're saying, 'I'd rather have a small office or suite of offices here in Old Town. I live here anyway,'" Shaw said. "It's the acceleration of trends. There was already a trend away from big offices into smaller satellite offices and coworking."

While this shift has helped ALX Community fill the individual offices in its 25K SF coworking space, Shaw said it has still suffered from a lack of demand for its 6K SF conference center. He said the company's revenue is still down about 35% from its pre-pandemic projections. 

The restaurant industry has been among the hardest-hit sectors during the pandemic, but businesses in more suburban areas like Alexandria appear to be doing better than downtown restaurants. ARP partner Dave Nicholas told Bisnow last month the group's five Alexandria restaurants have done about 70% of their typical sales this year, while D.C. restaurant owners said they were around 20% to 30%. 

Shaw said on the webinar that ARP's Alexandria waterfront restaurants, including Mia's Italian Kitchen and Vola's Dockside Grill, have performed on par with their 2019 sales, but their restaurants farther away from the water, like Theismann's, haven't been doing as well.  

He said the success ARP's restaurants achieved during the summer has allowed it to save some money to get through the winter, when he said restaurants will be focused on minimizing the amount of money they lose. 

"It's going to be a tough winter, and we've been fortunate that most of the restaurants did well enough over the summer that we're like squirrels putting away acorns for the winter," Shaw said. 

The hotel industry has also been devastated by the pandemic. Carr Cos. owns the 120-room Hotel Indigo and the 269-room Embassy Suites in Old Town Alexandria, plus multiple hotels in D.C. 

Flajser said occupancy across Carr's portfolio dropped to as low as 5% during the early part of the pandemic but has risen to about 30% now. He said leisure travel has driven the recovery, while corporate and group business has yet to return. 

He said the full recovery of the hotel industry depends on the timing of a vaccine rollout, and the announcement from Pfizer this week could help accelerate that trajectory. 

"There's great news from Pfizer about the efficacy of their vaccine time and the time in which they think they can roll it out, if that holds the timeline can change, and it can change materially," Carr said. "But regardless of what happens there, it'll be a few years before the hotel industry is back to pre-COVID levels." 

The coronavirus has also worsened the affordable housing crisis in Alexandria, Asland Capital Partners CEO James Simmons said. 

Asland is going through the approval process for its 777-unit Heritage at Old Town development, which includes 190 affordable units. The developer is seeking additional density in exchange for affordable housing, but isn't planning to use a direct subsidy from the city. 

"In the current COVID environment, everyone understands that tax revenues are depressed, and that individuals are going to be more pressed for the existing affordable housing stock, which has shrunk precipitously," Simmons said. "COVID has exacerbated the need for it, in that as people found earning a living more difficult, the rent remains the same, and people are finding it more difficult to make ends meet." 

While the pandemic has presented challenges for Alexandria, the city could experience a bump in multifamily and office demand as a result of the election, Alexandria Economic Development Partnership CEO Stephanie Landrum said. 

"A change in administration is really good news," Landrum said. "The most important reason for Alexandria is the churn that will happen with the administration change. You think about new people coming in and buying houses, renting apartments, discovering restaurants and staying in hotels. Also, the vendors and contractors bidding for new business. There's so much change that happens when the administration changes that Alexandria always benefits."