City officials in one of the most populated areas on the outskirts of Washington, D.C., are eager to fill the region's vacant office space — and are willing to pay to get tenants through the door.
Montgomery County, a densely populated region in Maryland, is offering grants to lure companies looking to lease office space through a program aimed at tackling the area's record-high availability rate. Through a bill introduced this week, lawmakers are looking to make permanent the county's Make Office Vacancy Extinct program, an initiative aimed at helping offset office tenants’ rental costs.
While it still needs to be formally approved by the full council — a vote that could happen as soon as July — the program is the latest example of government officials across the United States pulling whatever lever they can to combat empty downtowns and struggling businesses reliant upon steady foot traffic.
Leaders in Pennsylvania, California, Colorado, Nebraska, Massachusetts and Washington, D.C., are responding to record-high office vacancy rates that have decimated central business districts, triggering a string of local business closings and that have resulted in a drain on city coffers, leading to multimillion-dollar deficits that officials in cities such as San Francisco are struggling to address.
In Montgomery County, which includes large cities such as Germantown and Rockville, the office vacancy rate has soared to upward of 20%, according to CoStar data, a figure that has worsened in recent years as corporate tenants such have offloaded space and leasing demand — like elsewhere across the country — remains at just a fraction of what it was prior to the pandemic.
'Facing Headwinds'
Those issues extend far beyond the D.C. suburbs, and there has been a growing acknowledgment among local legislators that, without some form of aid or financial incentives, the problems won't be going away anytime soon.
Office attendance across the 10 largest U.S. markets is still about half of what it was prior to the pandemic, according to key-swipe data collected by Kastle Systems. It is even lower in some areas, with rates in Philadelphia, San Francisco, Los Angeles, and California's Silicon Valley hovering at about 45%.
The national office vacancy rate, fueled by companies offloading record amounts of sublease space and responding to the effects of remote work, has climbed to nearly 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 180 million square feet of move-outs since the start of 2020.
“To say the office market is facing headwinds is an understatement,” Stephen Evans, a senior vice president at private equity firm Rubenstein Partners, said in a statement about the grant program. "The biggest headwind is cost. We wake up every day thinking about how we're going to fill our vacancies, which have never been this high.”
If approved, nearly $11 million will be allocated for the county's Economic Development Fund for fiscal 2025, about $750,000 of which would be for the grant program. The latest proposal would also ramp up the amount of money companies could get by raising the grant ceiling up from its current $80,000 level. Prospective tenants could be eligible for up to $150,000 if they sign a lease for a term of at lease three years in a Class A or Class B property.
The program, while introduced in 2014, has been funded on an as-needed basis over the past decade, but the recently introduced proposal means it would be a stable line item under the county’s Economic Development Fund.
“We know that businesses like certainty,” Councilmember Evan Glass, one of the bill’s lead sponsors, said in a statement. “Rather than having these funds be determined by the budget and the whims of the political system, we want to make sure that current tenants and future tenants know that it is codified in law and that funding will be there.”
In the decade since the program was initially established, the county has issued about $5.6 million in grants, a figure that has helped roughly 125 companies collectively lease more than 470,000 square feet of office space, according to the county's Economic Development department.