Redevelopments Could Help Bring Down Rosslyn-Ballston Corridor's 24% Office Vacancy

The Rosslyn-Ballston corridor continues to face stubbornly high office vacancy, buoyed in part by its millions of square feet of older buildings that have trouble competing in today’s market. 

But the county is beginning to see owners consider redeveloping those assets into multifamily, a trend that could help the market by removing obsolete office supply. And the continued growth of mixed-use projects and big-name relocations to the county could help spur new office demand, trends that experts say could bring down the vacancy rate over the long term. 

The corridor’s overall vacancy rate stood at 24.3% at the end of Q2, nearly 3 percentage points above its pre-pandemic level but still below its peak in 2017, according to data from Newmark.

"There was steady, precipitous demand for the submarket eroding the high vacancy," said Matt Kruczlnicki, associate director of mid-Atlantic research at Newmark. "The challenge is the pandemic eroded that vacancy right back up."

In the second quarter, every submarket within the corridor saw a higher rate than the Northern Virginia average, according to Newmark: Rosslyn's vacancy rate stood at 21.3%, Ballston's at 25.9% and Clarendon/Courthouse at 26.9%.

Kruczlnicki said vacancy across the corridor has remained stable for the past nine months, which he sees as a good sign, but much of the vacant space is too old to compete for today's office tenants.

"One of the challenges that we see in the R-B corridor is partly the pockets of pretty aged structural vacancy, buildings that are old enough that they're really struggling to be competitive," he said. 

He said owners of older office stock are actively pursuing renovations or even a reposition to multifamily to adapt to the market. If this trend picks up steam, he said it could help bring down the vacancy rate. 

"When those buildings are taken offline and they are slated for redevelopment, construction, removing those buildings from the inventory will start to make a pretty significant dent," Kruczlnicki said. 

Increasingly, property owners are seeing redevelopment as an attractive option, Arlington County Planning Director Anthony Fusarelli said. Jefferson Apartment Group is planning to replace Rosslyn's RCA building at 1901 North Moore St. with a 26-story multifamily tower. 

Fusarelli said the county is hearing from owners of older office buildings that see redeveloping into multifamily as a better option for their site than trying to fill vacant office space. 

"What we're starting to see, and we're starting to observe and hear from some various property owners and prospective applicants, is perhaps not slowing down on development, per se, but rethinking the program," Fusarelli said.

He said the county has spent time thinking about office-to-residential conversions, and it has watched the strategy become a growing trend across the river in D.C. 

"It's raising a number of questions in terms of, is redevelopment of smaller-scale office buildings or older office buildings part of the solution to addressing not just the office vacancy rates and the shift we're seeing in terms of the future of the office market but also, actually, through that redevelopment, exploring ways to address the significant housing shortage that we're facing here as a region?" he said. 

As it looks to draw new office tenants, the corridor benefits from a large supply of Class-A office space relative to its nearby competitors. The corridor’s office inventory is about 63% Class-A, compared to 33% in National Landing and 50% countywide, per Colliers data. The Rosslyn-Ballston corridor has around 15.7M SF of Class-A space and nearly 9.3M SF of Class-B and C space. 

Fusarelli and private Northern Virginia market watchers are still bullish on the future growth of the Rosslyn-Ballston corridor, in part thanks to the possibilities of attracting workers to new live-work-play communities.

Most recently, a proposed Clark Realty project at 2636 Wilson Blvd., dubbed Courthouse West, would add a mixed-use residential project on the site of a current parking lot with more than six stories.

The project would require a zoning change approved by the county, which the planning commission and county board voted to advance on Saturday. In a statement provided to Bisnow, Clark Realty said it would collaborate with the county to provide community benefits at the project, like affordable housing, in order to achieve maximum density.

Other projects, like Greystar's The Commodore apartment complex adjacent to the Courthouse Metro station, will also bring in new workers that Kruczlnicki said were integral to the overall health of the corridor.

"A lot of those employees are coming back into the urban cores and urban centers that they left two years ago," Kruczlnicki said. "I think what tenants, what employees demanded of their work environment, that live-work-play environment prior to the pandemic is going to settle in as the trend that they want after the pandemic."

There are other tailwinds working in the corridor's favor. The recently announced headquarters relocations of Raytheon and Boeing were more moral victories than leasing victories for the county, as the companies already have large offices in Arlington and don't appear to be adding significant space. 

"My understanding of some of those recently announced headquarters moves aren't necessarily going to bring with them or translate into a significant net gain in jobs locally," Fusarelli said. 

But the relocations are a helpful sign of a critical mass of companies putting faith in the labor pool and long-term health of Arlington County, Kruczlnicki said. Combine those with Amazon’s HQ2, and Kruczlnicki said the Rosslyn-Ballston corridor could be poised to take advantage of future demand for office leasing.

"Those three mega-firms relocating their headquarters into Arlington is going to be a draw for Arlington and keep R-B in the conversation for a lot of tenants,” Kruczlnicki said.