City trying to tip the scales toward offices

City trying to tip the scales toward offices

By Erich Wagner (File photo)

Mayor Bill Euille remembers the good old days, when the Port City was close to balancing its tax revenues from commercial and residential property at a 50-50 ratio.

“It’s been a goal since I have been on council — since 1994 — to have a 50-50 ratio between commercial and residential [tax revenue],” he said. “At some point we had almost gotten it to 60-40, but then we started getting an imbalance in the early to mid-2000s … [and] then the economy slowed down again.”

While property values increased by nearly 3.6 percent from last year to a total taxable value of $1.2 billion, city assessors said most of that boost came from the residential market. Residential property taxes, including rental apartments, represent 74.1 percent of the tax base, compared with 25.9 percent for non-apartment commercial properties.

“Existing commercial property is really a mixed story, increasing by 1.93 percent, and office buildings are the area where we’re really a bit concerned,” said Jeff Bandy, division chief at the city’s real estate department. “Vacancies are around 13 [percent] to 17 percent, so rents aren’t going up and we don’t see any drivers for demand at the moment.”

But officials pointed out that much of the increase in revenues from residential property is coming from newly opened apartment complexes, and there are several commercial projects — from the National Science Foundation to the Landmark Mall redevelopment — in the pipeline.

“Our goal over the last four to five years has been to attract less residential and more commercial and more office,” Euille said. “One big outcome of that was the successful competition for [the National Science Foundation]. That’s a start — a move in the right direction — but we have a long ways to go to fill the backlog.”

The mayor said one upside to the city’s situation is its strong infrastructure: Alexandria has a swelling housing stock and easy access to Washington and public transportation. The key to turning the commercial market around is marketing the city nationwide, not just looking for relocation targets already in the region.

“Because of sequestration and funding issues, you’d be crazy to continue to rely on the federal government, so we have got to look at the private sector,” he said. “[But] it’s not going to be the business next door; we have to look far, far away, in the Midwest and the West Coast, in the Silicon Valley area.”

City Councilor Tim Lovain said efforts like attracting the National Science Foundation and laying the groundwork for the planned Potomac Yard Metro station will eventually pay dividends in the form of new commercial tenants.

“The collateral development that will happen because of those — for example, we’ll take up the Carlyle East property that’s going to be converted to a hotel — it will help a lot with regard to bringing the commercial numbers up,” he said.

Val Hawkins, CEO of the Alexandria Economic Development Partnership, said his organization is constantly working with city partners to attract potential commercial tenants. While much of the growth in office space leasing will come from the private sector, he said the city must continue pursuing government agencies, provided they pay taxes.

“The General Services Administration has 31 million square feet of leases in this region that are rolling over in the next three years,” Hawkins said. “So there’s still an opportunity to tap into the federal market, and we will pursue that aggressively with all of the leases expiring.”

Hawkins added that not every major deal — public sector or otherwise — requires big tax breaks like the incentives approved for the National Science Foundation.

“That is the exception, a historic one, not the rule,” he said. “The [U.S. Patent and Trademark Office], which came online in 2005, was the largest GSA lease ever done and that was done without tax incentives.”