2019 | Business

County Executive Laments Office Space Vacancies

Council members say Elrich has struck the right tone on economic development, but want to see action

County Executive Marc Elrich

File photo

Montgomery County Executive Marc Elrich, during a Tuesday discussion with the County Council on economic development, said to attract more entrepreneurs, officials will have to solve the county’s declining demand for commercial office space.

“There’s been a real loss of entrepreneurism, and we’ve got to figure out how to reinvigorate that,” he said.

According to a January report from the county planning department, Montgomery’s vacancy rate for commercial office space jumped from just above 8% in 2006 to more than 13% in 2017, based on data from CoStar Analytics.

Factors behind the increased vacancy rate were the need for less workspace due to the increasing use of technology, an increase in more compact mixed-use development, a lack of access to public transit and a shift away from office jobs to ones based in the restaurant, retail and medical professions, according to the report.

The planning department report also noted that net absorption, the percentage of space leased in a building, grew consistently from 1993 to 2017 in Class A buildings — newer, more upscale spaces typically located in central business districts and near transit. Class B and C buildings, which tend to be older and in more secluded locations, experienced declines.

Elrich, who has promised to help the county’s business image, said entrepreneurs are a “vibrant part of the economy” but aren’t generating the demand necessary for office space. He said one factor has been the increasing popularity of coworking spaces such as WeWork, which has 17 locations in the District of Columbia and Virginia, and will soon open in downtown Bethesda.

“Part of it, and this is the bad news, is that every time a WeWork opens up or any of the new work spaces, those are the folks who used to go into small office spaces and maybe had a secretary out front. They’re not doing that anymore,” he said.

Jeanette Chapman, deputy director and senior research associate at the Arlington, Virginia-based Stephen S. Fuller Institute, an economic think tank, said Tuesday that coworking spaces in some markets have led to a decline in leasing in older commercial spaces.

“One of the things that sometimes happen is that companies will use them as swing, or temporary spaces, instead of signing a multi-year lease for temporary workers or changes in their workforce,” she said.

Chapman said Class B and C spaces are increasingly falling by the wayside as tenants “move from the older product to the newer product.”

Elrich on Tuesday also reiterated his pledges to create a Bus Rapid Transit system in the county and encourage more high schools to push students to learn trades and real-life job training. The county, he said, must put more emphasis on the private sector.

“You’ve got everybody focused on the feds [federal government] and there’s real need to turn focus elsewhere,” he said.

Council members said they were pleased with Elrich’s commitment to economic development, but council member Hans Riemer said it still “feels like we’re rowing upstream.”

“How do we move from the idea level to the action level?  What will the next three to six months look like?” he said.

Elrich replied that a couple projects were “in the works” but he didn’t want to elaborate, for fear of jeopardizing the deals.

Council member Craig Rice, whose district includes the upcounty agricultural reserve, reminded Elrich that he should discuss methods of creating jobs in the natural preserve as well as forming partnerships with community colleges.

“These are statements about things I know you care about, but I want you to say them. Words matter,” he said.

Council member Andrew Friedson said Elrich’s ideas were positive, and that governments must “walk and chew gum at the same time,” but there also must be “triage and prioritization.”

“By prioritizing everything you’re prioritizing nothing,” he said.

Dan Schere can be reached at Daniel.schere@bethesdamagazine.com