Businesses are making moves toward neighborhoods that are accessible by transit and easy to walk around in. For cities, it’s a smart financial move to view the change in preference as one that’s here to stay.
A recent story in the Washington Post covered a move by Merrill Lynch from a Montgomery County office park you can only get to by driving to the Metro-accessible Pike & Rose development on Rockville Pike. Though commercial lease terms are typically confidential, experts say Merrill Lynch chose to pay 40% higher rent for the new location, which is a five- to ten-minute walk to the White Flint Metro station.
This isn’t an aberration. Just a few miles south of Merrill Lynch’s office, Marriott is considering move its headquarters from a conventional office park in Bethesda to somewhere else in the region. The CEO told the Washington Post, “I think it’s essential we be accessible to Metro and that limits the options.”
This preference isn’t just limited to two companies. A report in late 2013 found that 83% of the new office space under construction in the region is within a quarter-mile (a five-minute walk) of a Metro station. That is no coincidence.
Local tax bases will shift
These trends are telling, and local leaders concerned about future budgets should take notice. Buildings like the one Merrill Lynch is moving into command higher rents and are more valuable to investors. And because cities and counties raise much of their revenue from real estate taxes levied ad valorem, meaning the tax is a percentage of the assessed value of the property, they mean more tax money.
Also, local governments often prefer office development to housing development since offices tend to pay more in local taxes than they use in services.
In Loudoun, for instance, the county claims that each new home costs the county $1.62 in added county services— schools, roads, sewers, etc.— for every extra dollar collected in taxes. Homebuilders say the cost is more like $1.20, but either way, each new house is a net cost to the county under its current tax structure. Communities with a healthy mix of commercial and residential development can provide excellent public services at manageable tax rates.
The moves of Merrill Lynch and Marriott as well as the Metro-proximity of new office space show the direction the office market is moving. If state and local governments want to attract and retain the offices of large Fortune 500 companies like Marriott and Merrill Lynch (a subsidiary of Bank of America), they need to plan for and support the types of mixed-use, walkable, transit-rich development companies seek and are willing to pay a premium for.
The future is already here
Fortunately, much of the infrastructure is already in place. The Washington region still has plenty of Metro stations that have not met their full development potential. Furthermore, the new development Metro spurs doesn’t necessarily burden the existing infrastructure. In fact we found that car traffic in Arlington’s Rosslyn-Ballston corridor declined while development boomed.
It’s too early to tell whether leaders are fully aware of what it’s going to take to attract commercial development. In good news, the Silver Line’s expansion into Virginia has already sparked office construction in Tyson’s Corner and the Wiehle-Reston East station, allowing the commonwealth and Fairfax County to expand and capture more economic activity.
Likewise, Maryland Gov. Larry Hogan chose to continue the Purple Line, an investment that will improve mobility and will create more places in Maryland that attract taxpaying office tenants. Montgomery County Executive Ike Leggett successfully pressured the state to reconfigure Old Georgetown Road near White Flint as a narrower complete street, not the wide auto-sewer the state had suggested.
But the region has made its share of mistakes, too. The cancellation of the Columbia Pike streetcar with no credible plan for any transit improvements ensures that new economic development will largely bypass that section of Arlington.
Creating neighborhoods that give residents and workers practical options to walk, bike, ride transit, or drive will improve the quality of life and also helps the jurisdiction’s bottom line. Leaders who want to continue providing high-quality public services to residents without raising tax rates need to attract commercial tenants who are willing to pay higher rents and thus generate more tax revenue.
Leaders have a choice with limited funds: they can use public money to build new arterial roads and fail to spur economic growth or they can invest in the harder, but rewarding, transformation of places like Tysons and White Flint into the nodes that spur the economic development patterns of the future.