Marriott CEO Arne Sorenson Reflects On Staying In Bethesda As Landlords Want New Corporate Blood
Montgomery County got a big win in October when Marriott announced it would keep its HQ in Bethesda, but local office landlords say that retention is not enough, and the county needs to focus more on attracting new companies.
Marriott International has been in its suburban Bethesda HQ for 70 years, but will soon move to a newly developed building in downtown Bethesda, a decision CEO Arne Sorenson said Monday morning was easy to make.
“The building we're in is inaccessible by public transit,” Sorenson said at Bisnow’s Montgomery County State of the Market. “There’s no place to walk to from that building to lunch or anything. Faced with an expiring lease and with a recognition that, to bring that building up to current standards would be almost as expensive as building a new building. We put all that together, and it was obvious we had to move.”
Even though Marriott will be adding employees at the new HQ following its merger with Starwood, it will reduce its footprint from 900K SF to 700K SF.
“We’re using space more efficiently and a little differently,” Sorenson said. “A lot of us are gone on the road a lot. We don’t need all of that dedicated square footage … We see our folks wanting to work in shared space.”
Sorenson said Marriott was strongly courted by Virginia and the District. Virginia Gov. Terry McAuliffe even called Sorenson while on a trade mission to India after the Starwood merger was announced in November 2015 to congratulate him and reiterate that “the future is in Virginia,” Sorenson said, showing the governor's deserved reputation for dedication to the deal.
Had Marriott been coming from outside the region and not already been planted in Montgomery County, Sorenson said Virginia would have been a “very formidable competitor” because of its more favorable tax code. But ultimately, he chose to stay in Montgomery County to minimize the disruption to employees’ lives. Upon meeting with County Executive Ike Leggett, Sorenson said he got the sense the county wanted Marriott to stay in its current location because of the difficulty of finding a new company to move into the suburban park it will vacate.
“He doesn’t want to lose the contribution of that office park,” Sorenson said. “But I think, in many respects, that's a losing proposition. People are going to want these urban, pedestrian-friendly, public transit-accessible places.”
Addressing the roughly 500 real estate professionals in attendance, Maryland Secretary of Commerce Mike Gill emphasized the importance of retaining companies and benefiting from their growth within the county.
"We all want to have a Fortune 1000 company show up in Maryland that wasn’t here before," Gill said. "But your real success is going to be through retention. Keep all the customers you have, some of them will grow incrementally, and that’s how you win."
But Montgomery County office landlords were not satisfied with the focus on retention, and the biggest concern they voiced was the lack of new companies moving to the county.
"One of the challenges we're tending to find is that retention is cannibalizing other office tenants and other office buildings in [the] market," Tower Cos. chief operating officer Sri Velmati said. "We frankly don’t just want to go through and say there are winners and losers, we really want to go through and get a lot more people coming in."
Carr Properties CEO Oliver Carr III agreed he would like to see the county focus more on bringing in new companies, but he also blamed the lack of new office product for the difficulty in attracting new companies.
"There really have been no new developments of scale to help create a place for companies to move into the market," Carr said, previewing his upcoming Apex Building development. "By delivering quality space in scale, the county will attract tenants to move in."
The JBG Cos. executive vice president Kristi Smith, who is also planning a Bethesda office development, had similar ideas about why the county has struggled to attract new companies.
"There has been a trend of a lot of ... people that have approvals that are swapping their office density for residential," Smith said. "There hasn’t been that new trophy product to attract the tenants, hopefully that’s one piece of it."
