Posted on 08/01/16 by Christina Winn
It’s been about 18 months since Victor Hoskins joined Arlington Economic Development as Director and created "The Way Forward" strategy to combat the rising commercial vacancy rates. His plan included an increased marketing budget, additional staff resources, an incentive toolbox and a national and international marketing branding strategy leveraging regional partners.
Here in Arlington, we were facing vacancy rates up to 21%. With over 40 million square feet of office space, that translates to roughly one out of five office buildings empty due to BRAC, companies right-sizing and a more mobile workforce that doesn’t demand traditional office space. Pair this with the decrease in demand for large federal tenants and major corporate campuses, and the task to fill the vacant spaces seems let’s say…. daunting? Yes, daunting indeed.
We chose, however, to look at our problem as an opportunity. Arlington County has worked and planned strategically over the past 50 years to build infrastructure and amenities, such as public transportation, parks and trails, highly rated schools, safe environments and excellent community services. We have everything we need to form a thriving economic base and bustling community. So instead of chasing after new large GSA deals, we looked another way. We refocused our attention on emerging technology companies in order to create a thriving entrepreneurial ecosystem. What other community has the opportunity to backfill their offices with a diverse technology base and create a new brand for itself?
With The Way Forward strategy, AED has a goal to reduce vacancy rates to 10% by 2021. That’s 4 million square feet in five years, if you are doing the math. We just completed the first fiscal year and have made great strides and created positive momentum for the Arlington market. When I joined AED two-and-a-half years ago, I asked a broker what people were saying about Arlington. His reply, “They are only talking about who is moving out”…Gulp. That was the reality; BRAC had hit us hard with the equivalent of four military bases moving out of Crystal City and Rosslyn in 2011 and taking all of their government contractors with them. Today, we have company executives, entrepreneurs and real estate agents calling us wanting to know more about Arlington. That is an accomplishment. People know there is something special going on in our community and they want to be part of that movement.
But have we moved the needle? The answer is YES! It doesn't happen over night, but we're moving in the right direction. In FY16 we recruited and retained more than 1.9 million square feet of office tenants — that’s 51% above our goal for the year. Our vacancy rate is now hovering around 20.2%
Here is the really good news: Our strategy is working. We set out to maintain our key federal tenants, non-profits, professional services, defense and aerospace industries. Of the 1.9 million square feet, 1.3 million is made up of our base industries. An example of this was the Department of Defense renewing their lease for 912,000 square feet in Crystal City, retaining more than 5,500 jobs in FY16.
Arlington is home to the highest concentration of national science research agencies — no other community has the Pentagon, DARPA, ONR, AFOSR and, for a little while longer, NSF. These are critical industries for Arlington because this is where innovation begins — the Internet, GPS, Siri - all originated from these agencies. DARPA and NSF alone provide $3.7 billion in undiluted capital to companies researching and creating new technologies. If you go out to Silicon Valley to get seed capital, the Venture Capitalists take a piece of your business in exchange for funding, but here in Arlington they just want to help you succeed. Lucky for us, this funding format appeals to new, emerging technology companies and fast-growing entrepreneurs who we want to recruit.
The next piece of The Way Forward strategy was to recruit new companies focusing on cybersecurity, education technology, healthcare IT, big data and clean & green industries. Of that 1.9 million square feet, 22% of our closed deals were within our targeted tech industries and consisted of more than 50% of the new tenants recruited to Arlington. Great brand name companies like Lyft and Amazon Innovation Center moved into Crystal City and Ballston, while Opower, Sands Capital Management, snagajob and Threatconnect all expanded along the Rosslyn-Ballston corridor. Additionally, technology catalysts like Eastern Foundry, Sinewave/Venture Hub and MakeOffices, who invest in, incubate and accelerate entrepreneurs in shared offices spaces, have expanded and taken additional square footage in Rosslyn, Clarendon and Crystal City this past year.
At the same time we are actively working with prospects in the market, we began a national and international marketing strategy. Arlington is fortunate with its geographic proximity to Washington, DC, but a real challenge is many companies still don’t know a lot about Arlington because we have always been a sleepy little government town. In fact, many people think of Arlington, Texas instead of Arlington, Virginia. Nationally we identified SXSW in Austin, Texas and the Consumer Electronics Show (CES) in Las Vegas to strategically market to fast growing tech companies.
In January 2016, the AED team partnered with the Consumer Technology Association (CTA); it's the entity responsible for organizing CES and is located here in Arlington. CES attracts more than 250,000 people and exhibitors showcasing the new technologies in consumer products, cyber-security, sports & entertainment, and healthcare. We focused our marketing efforts in Eureka Park at CES — this is where the fast growing technology companies exhibit. We hosted at business lounge and had literally thousands of techies come through our space. Additionally, we hosted a VIP Entrepreneurs reception with CTA for 250 exclusive companies.
That March, we then took a team to Austin for SXSW Interactive, where entrepreneurs and tech companies flock to learn about new opportunities in the technology space. We applied and got accepted to put on two SXSW panels: Be the Next Tony Stark and BFD (Big Fat Data) Revolution. Of the 8,000 applications that SXSW receives, only 700 are accepted — both of ours were part of the lucky few! During this five day period we successfully had packed rooms of people coming to hear our speakers like Aneesh Chopra, Alex Laskey, and General Reginald Brothers. We hosted a tech pool tournament, Fireside Chat and a VIP Business Roundtable. Additionally, we partnered with our neighbors in Alexandria for a few of these efforts, bringing more bang for our buck and highlighting the importance of regionalism.
Internationally, we began to dip into the China market this year. We sponsored the International DongSheng Competition and were the lead US city hosting the event. A small AED team accompanied the U.S. winner to China to compete with finalists from around the globe. While there, our team met with Chinese technology companies, investors and government delegations to build relationships for opportunities of international trade, foreign direct investment and business recruitment. The team went back to China to attend CES Asia and evaluate regional opportunities for a larger marketing effort next year. On the home front, AED had a presence at Select USA, the largest international business recruitment event in the nation, and hosted a VIP Welcome reception to more than 200 Chinese tech companies and investors.
What does all this mean? We've started to get some momentum and marketing attention. Backfilling 10m square feet of office space will not be an easy task, especially as large tenants are scheduled to vacate an additional 1.2m SF in 2018. We have made a great start and will continue to build on our national and international efforts to generate more business leads. It will take time, but Arlington is a great community that benefits from an abundance infrastructure that appeals to emerging technology markets and has demonstrated that our community resilient.Topic: BIG Update