After years of anticipation and negotiations, construction on Maryland’s Purple Line light rail project is officially underway. The delivery of the Line is meant to provide commuters with a more direct connection between two of Metropolitan DC’s most populous areas, Montgomery and Prince George’s counties.
Public transportation has been notably lacking within Suburban Maryland, as current train routes force passengers to travel through the District of Columbia’s (DC) downtown core just to connect between the two counties. A trip just within southern Montgomery County, from the Bethesda station to the Silver Spring station via metro rail, takes almost two hours even during the high train frequency of rush hour. This forces residents that work in these areas to either drive, or try their luck on one of the available Metrobus routes, which have infrequent travel times and limited passenger capacity.
The Purple Line seeks to reedy this issue, promising fast and effective transit options for commuters who travel within Suburban Maryland. Service on the line is estimated to begin in 2022, with a planned route from the Bethesda Metrorail station to the New Carrollton Metrorail station in Prince George’s County. The line will connect transportation hubs along the Red, Green, and Orange Metro Lines within these DC-centric Maryland suburbs eliminating the need for intra and inter-county travelers to trek through the District of Columbia’s downtown core.
But what does this increase in transportation options mean for commercial real estate along the new corridor?
According to a 2017 Vox Media report on the H Street Corridor DC Streetcar, economic development moves in tandem with new transportation options. New public transportation projects in an underdeveloped or suburban area, signals to developers that an investment opportunity exists in the region. Soon after the new transit development is announced there is a surge in new construction and renovation of multi-family, office, and retail options. This phenomenon is also evident in the surrounding NoMa submarket, and along Metro’s Silver Line extension in Tysons Corner.
In NoMA for example, the submarket has added over 4 million square feet of office space and the vacancy rate has plummeted from a peak of nearly 26% in 2010 to sub-16% today. NoMA has attracted both public and private sector organizations such as the United States Department of Justice, the Federal Communications Commission, the Federal Election Commission, and the National Association of Cities and Counties and as these tenants move in the vacancy rate will fall even farther. On the multifamily side, NoMA has grown by over 5,000 units and occupancy is hovering near 95% even in the face of this record supply coming to market.
Along the Silver Line in Tysons Corner, office rents proximate to transit have growth between 10 and 50% since the metro stations delivered and vacancy rates within a quarter mile of metro are currently 7.5% vs 21.6% for the market overall. Tysons has also seen the majority of new development in Northern Virginia with nearly 70% of the total office deliveries in Northern Virginia since 2014. Transit oriented locations continue to attract tenants from other submarkets not served by metro such as Noblis, CSC, MCDean, Reed Smith and others. Multifamily construction has boomed in Tysons and its vicinity with over 3,700 units delivered since metro came online.
The development of additional transit options attract new people to areas that were previously difficult to travel to via public transportation. Growth in retail and housing development then follows the surge in population growth and developers and businesses look to fulfill consumer demand.
In today’s climate where mixed-use, transit-oriented design is in high demand to provide a live-work-play setting, and the development of the Purple Line will only help to meet those demands. Companies with a more suburban-centric workforce are increasingly more incentive to seek out locations near their employees to help with both retention and recruitment.
From an office-perspective, submarkets within Montgomery County that are already serviced by Metro’s Red Line (Bethesda/Chevy Chase, Pike Corridor, and Silver Spring) are either at or below the overall vacancy average for Montgomery county, whereas submarkets within the same county that have no existing Metrorail service, are all above the overall vacancy average of 18.1% at the close of the second quarter of 2017.
For landlords, the increased demand as companies look to cater to their employees and lower than average vacancy rates near Metrorail stations can afford them to increase asking rents based the availability and quality of public transportation. According to research from Cushman & Wakefield, second quarter 2017 overall asking rents for all classes for Metro-proximate submarkets are above Montgomery County’s average of $31.84 per square foot on a full service basis.
With the Purple Line connecting major Suburban Maryland hubs, tenants who are already leasing office space in Montgomery and Prince George’s Counties will be able leverage this new transportation option to attract and retain talent. By the same token, tenants seeking office space have new areas of consideration that were once untenable due to previously limited transportation choices. The effect will also extend to retail and dining tenants, whether introducing new customers to their businesses or presenting opportunities for locating to a new transit-oriented development.