An office complex in Fairfax County recently changed hands, and taxpayers across rural Virginia ought to be alarmed.
Why should we care who owns Tysons International Plaza? We don’t. We should, though, care about what the new owners paid for it: 60% less than the previous owners had bought it for just eight years ago.
This isn’t the only office building in Fairfax County that’s been sold at a deep discount recently, either. A parade of headlines in the Washington Business Journal reads like this:
“Another distressed Tysons office just sold at a bargain.”
“Empty office tower in Tysons changes hands.”
“Arlington office trades for a fraction of last sale price.”
“The Boro developer sells Tysons office at a steep discount.”
“Brookfield sells Ballston office at a loss.”
Why should we care if some developers in Northern Virginia lose a bunch of money? Here’s why: The rest of Virginia, particularly its rural areas, depend on tax revenue from Northern Virginia to fund the state government — 42% of the state’s general fund comes from Northern Virginia. To really bring things home, consider this: Rural school systems (and not just rural ones) get most of their funding from the state. In Scott County, 66% of the school funding comes from Richmond, but it doesn’t originally come from Richmond — close to half of it comes from Northern Virginia and just gets circulated through the state capital. If Northern Virginia’s economy stalls, that’s less money to Richmond and less going out to rural localities, which means if those places want better schools, they’d have to raise their local taxes. People in red-voting rural Virginia may not like Northern Virginia’s bright blue politics, but it’s still very much in our interest for Northern Virginia to do well economically — and right now the state’s economic engine is sputtering.
These headlines are not the first sign of this, merely the latest.
Over the past few years, we’ve seen a major shift in population trends in Northern Virginia: Fairfax County has started losing population. (Alexandria and Fairfax city have been losing population, too.) There is some dispute between the most recent population estimates from the Weldon Cooper Center for Public Service at the University of Virginia and the Census Bureau over whether those trends for Fairfax County are still continuing or have reversed; I addressed those differences in a previous column.
Whether the state’s largest county (and largest metro area) is growing or shrinking, it’s clear that it’s not growing the way it once was. It’s also clear why that is: More people are moving out than moving in. Since 2020, net out-migration from Fairfax County has been higher than any other place in Virginia. Weldon Cooper says that 29,772 more people have moved out of Fairfax than moved in — that’s almost the equivalent of losing all of Mecklenburg County. Or Goochland County. Or Winchester. Take your pick.
The point is the region is no longer the population growth engine for the state it once was — which suggests there is something malfunctioning in the region’s economy. People vote with their feet, as Ronald Reagan was fond of saying, and for some reason, more people are voting against Northern Virginia than are voting for it. The most frequently cited reason is high housing prices. It’s increasingly harder to afford to move into Fairfax, or anywhere else in Northern Virginia.
That’s where these discount sales of office buildings fit into the picture. Senate Majority Leader Scott Surovell, D-Fairfax County, says the economic model in Fairfax County is broken. Starting in the 1970s, the county encouraged building office complexes over housing developments. Office complexes generated lots of tax revenue, required few services and certainly didn’t have kids who would have to be educated in local schools. Surovell says that had the effect of pushing more residential development out to Loudoun and Prince William counties and beyond.
The model worked fine, he says, until it didn’t. The pandemic accelerated the growth of remote work. Remote work has been great for remote workers (of whom I am one) but not so great for owners of office buildings. Northern Virginia now has one of the highest concentrations of remote workers in the country; according to figures that are about a year old, about one-quarter of the workforce was working remotely. Those numbers may have changed some as companies institute return-to-work orders but they may not have changed much; it’s clear that a certain amount of remote work is here to stay.
The consequence: “Fairfax is full of all these white elephant buildings because they’re not near Metro,” Surovell says, referring to the region’s subway system. The chairman of the Fairfax County Board of Supervisors announced earlier this year that office property values in the county had declined 7.2% over the past year. That’s put more pressure on homeowners for tax revenue. Because Fairfax is mostly built out, there’s little room for the data centers that now account for more than one-third of the tax revenue in neighboring Loudoun County. Fairfax’s real estate taxes are $1.12 per $100 of assessed value; in Loudoun, they’re 80 cents per $100. That’s made Fairfax less competitive with its neighbors, say Surovell and Sen. Dave Marsden, another Democratic state senator who represents part of Fairfax, and remote work has made it less competitive with other metro areas. “Do you know what the real estate rate is in Charlotte?” Marsden asks. “It’s 56 cents.” If a remote worker wanted a big city environment, why not live there? “Fairfax has no back up industry other than office buildings,” he says, “and the people who work in them.” Now it’s losing both.
There’s been a push to convert some of those offices to housing, but some are too expensive to retrofit as residential properties, Marsden says. Some developers face a hard choice, he says: “They can either sell for pennies on the dollar or turn it back to the bank.” He cited one building that was valued at $135 million but couldn’t be converted to residential; it was sold at auction at $30 million. That has a ripple effect on the economy: “When someone says hey, my company will work remotely, all the little lunchrooms in these buildings close down. And the strip malls aren’t getting the customers they used to get, so when they renegotiate, they want a lower price. We’re in a bit of a spiral.”
Now comes more bad news: A report by a California nonprofit that tracks the technology sector globally has issued its annual ranking of global tech companies — and the Washington metro has fallen. It’s not simply fallen; it’s fallen more than any other city in the Top 20 and more than all but one other city in the Top 40 (Vancouver).
Terry Clower, who heads a regional economic center at George Mason University, is skeptical of that report by StartUp Genome because he thinks it’s too heavily weighted toward metrics that aren’t particularly useful, such as company founders cashing out. Nonetheless, it’s not exactly an encouraging sign. Also notice that all of these developments have either come before President Donald Trump’s downsizing of the federal government, or are separate from it. We simply don’t know yet what impact that will have on the region’s economy — or the state’s.
And that’s where we tie all this together and bring it home for those of us who aren’t in Northern Virginia.
We’ve already seen the economic shifts in Northern Virginia show up in one issue in the General Assembly — some (including Surovell and Marsden) have pushed for a casino in Fairfax County as a quick-and-easy way to generate more tax revenue for the county. That’s also been controversial (the Northern Virginia delegation was divided) and the measure failed in the past session. It will likely come back, though; when it does, that’s not really driven by a desire to play blackjack but a desire to offset the falling commercial tax base.
Casinos are flashy issues, whether you’re for them or against them. Here’s a less flashy one, though, that’s more important: As the economy changes, Fairfax County’s score on the state funding formula has been edging downward — the lower the score, the more state funding a community is entitled to. Given the size of Fairfax, every time it drops a little more in the Local Composite Index (the name of the dreaded scorecard), that’s more money for Fairfax — and less for everywhere else.
In 2014, Fairfax County’s score was 0.6807 out of a possible 0.7000. At present, it’s down to 0.6579. That may not seem like much of a drop, but when you’re dealing with a county as big as Fairfax, even a small change can set bigger things in motion. According to the state’s funding formula, Fairfax is now less able to pay for its own schools than rural Charles City County.
Last week, CNBC released its annual rankings of “best states for business.” The headline was that Virginia had lost its No. 1 spot, sliding to fourth place. There were lots of reasons for this (which I addressed in detail in a column last week) but CNBC drew particular attention to how Virginia is overly dependent on federal jobs, and so Trump’s downsizing of the federal government hurts the state’s economy. Regardless of your views on Trump, that calls attention to something that’s already been a topic of conversation in business and government circles in Virginia in recent years: the need to diversify the state’s economy, in particular the Northern Virginia economy.
On July 21, the Northern Virginia Chamber holds an event to release what it calls “a bold vision to diversify and strengthen the region’s economy.” One of the chamber’s partners on that project is the consulting company Accenture, whose spokesman said: “Northern Virginia stands at a critical crossroads.”
The press release announcing the event mentions how the plan will leverage “the region’s strengths in innovation, including artificial intelligence” and “drive inclusive, technology-driven growth.” Anything involving AI means more and bigger data centers, which also means more energy demand, which likely means more pressure to develop solar energy across parts of rural Virginia — another way that our economies are tied together.
This is by no means a comprehensive account of the economic challenges facing Fairfax County, or Northern Virginia, in general. I’m sure there’s plenty there for the county’s residents to debate on their own. However, anyone who lives in rural Virginia needs to be aware of what’s going on because we may wind up paying the price, directly or indirectly.
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