Loudoun County offers everything from data centers to wineriesSeptember 28, 2010 6:00 AM
by M.J. McAteer
Loudoun County is two-faced, and that’s a good thing for its commercial real estate market. On the eastern side, the county shows the world a forward-looking face, having transformed itself into a first-class center for technology and online data management.
“Half of the world’s Internet traffic now funnels through the county,” says Buddy Rizer, Loudoun’s business development manager. “If you check your Facebook status, use a major credit card, buy a book online, or watch ‘Animal Planet,’ you use Loudoun County infrastructure.”
But on the western front, Loudoun continues to look to the past, taking pains to ensure that development doesn’t spoil the bucolic beauty that’s long been a draw for visitors. Instead, the county has encouraged the growth of agribusinesses, particularly wineries. With the summer opening of 8 Chains North Winery in Waterford, Loudoun can now claim 25 wineries — more than any other county in the commonwealth.
These boutique businesses not only complement the western landscape of picturesque horse farms, rolling hills and verdant fields, they boost Loudoun’s tourism industry.
Together, the ying and yang of these east-west markets have given Loudoun an edge at a time when real estate brokers are wringing their hands over higher-than-average office and retail vacancies. In some parts of the county, the latest statistics look about as attractive as a half-developed lot. Yet people who have extensive dealings in the market believe the situation is temporary and that business will pick up when the economy becomes more robust.
Take the stats on office space. According to CoStar, a firm that specializes in commercial real estate intelligence, the office vacancy rate in the D.C.-area market at the end of the second quarter was a less-than-outstanding 13.3 percent. In Loudoun, the figures were even worse — 17.4 percent along the Dulles corridor — where some buildings stand empty. That’s a result of overbuilding based on expected growth in tech and defense contracting, an area where the federal government is cutting back. Along the Leesburg/Route 7 corridor, vacancy hit 19 percent.
Last month’s announcement by VeriSign Inc. was another blow. The public company decided to terminate a lease in the Lakeside @Loudoun Tech complex, because it plans to move about 500 employees there to Reston Town Center. The new lease for 221,326 square feet of space in Fairfax County is part of VeriSign’s decision to move its headquarters from Mountain View, Calif., to Northern Virginia over the next year.
Rizer doesn’t worry too much about the vacancies. Loudoun is building on its strengths, he says, with data centers, both leased and company-owned. Such businesses require highly secured and specialized buildings. “You’re not going to see data center people signing short leases on this high-value real estate,” he says. Therefore, those deals don’t show up in quarterly market reports.
Furthermore, if the vacancy rate is high now, the creation of the space was “demand-driven,” with the county simply getting somewhat ahead of the market, he says. Rizer expects Loudoun to nearly double its 3 million square feet of data center space within five years.
Jeff Porter was regional manager of Digital Realty Trust, a San Francisco-based data center company, when it made the top capital investment in the commonwealth in 2009 — a $350 million expansion of its Loudoun campus. Porter says Digital Realty chose Loudoun because of its high-speed networks, relatively inexpensive electricity and proximity to federal customers.
Tom Kiblin of Ashburn-based Virtacore, which specializes in cloud computing, concurs about the “fiber connectivity” of the county and its ready access to clients such as Visa, which last year moved some of its data center operations from Tysons Corner to Ashburn.
Another California-based company, Equinix, invested $100 million in a data center in Loudoun in 2009. In July, it opened an additional $80 million data center in Ashburn, one of the county’s strongest commercial submarkets.
Still another data center company, Chicago-based Latisys, purchased a 123,000-square-foot building in Ashburn this year.
The Sterling Park submarket continues to draw interest, too. First Potomac Realty Trust of Maryland broke ground on its seventh building there in August. The REIT already had a tenant — MSI Worldwide Mail — that agreed to lease half of the 495,000 square feet of space.
David Colvin, a leasing representative for First Potomac, says his company was undeterred by the current vacancy rates. “Loudoun continues to grow,” he says “with lots of interest from tech-related companies.” In addition, “newer product is generating more interest than the older product.”
Another massive project near the crossroads of Routes 7 and 28 also shows confidence in the county’s commercial prospects. Kincora, a $2 billion mixed-use development that just received the county’s go-ahead in July, will include 2 million square feet of office space, retail space, housing and a minor league baseball stadium.
Patty I. Brown, owner of Marathon Realty Group, believes the stadium will “be a big driver” for the Route 28/Route 7 sector. Meanwhile, she expects medical facilities to provide another boost. The 124 acute-care-bed StoneSpring Medical Center is considered a plus for the Route 50 corridor. The hospital, slated to open in 2015 in a location west of Sterling, will join an urgent-care facility operating at Avonlea, and a 50,000-square-foot rehab facility at Stone Ridge, which opened in June.
However, one major commercial project planned for eastern Loudoun hasn’t fared so well. One Loudoun, a mixed-use development planned for 358 acres at the intersection of Route 7 and Loudoun County Parkway, went into foreclosure proceedings last month.
Like CoStar’s figures on office space, the county’s retail numbers don’t look particularly good on the surface. In the Washington region, the vacancy rate averaged 5.6 percent during the second quarter of 2010, an uptick from the 5.4 percent rate of the first quarter. Along Loudoun’s Leesburg/Route 7 corridor, the rate hit 9.2 percent.
Yet Rizer takes hopes from developments such as the The Village. The 1.2 million-square-foot, upscale development located just east of Leesburg includes 490,000 square feet of retail, 208,000 square feet of office space, and 335 apartments. Its anchor is a massive Wegman’s supermarket, which judging by its parking lot, has been a hit with county residents.
Brown says such a mega-project is usually delivered in phases, but The Village was built all at once. Therefore, reaching full occupancy is taking a little time. Thus far, retail tenants include LA Fitness, Coldwater Creek, Verizon Wireless and Wachovia/Wells Fargo Bank, with move-ins, such as a deluxe bowling alley and a Thai restaurant, happening weekly. “Lots of retail tenants want to be near Wegman’s,” Brown says. “Nothing else compares to it.”
But is the market really strong at this time, Brown asks rhetorically. “No,” she says. “It’s going to take some time. But, definitely, activity has picked up.”
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