Yes, the suburban office developers in Northern Virginia have unleashed a tsunami of office construction that has resulted in a glut of office space. And the office developers will continue to develop as long as lenders continue to fund their developments.
As of December 2018, Northern Virginia office vacancy rate has hit 20.3% compared to the national office vacancy rate of 16.7%. It is interesting to note that the national office vacancy rate has remained above 16% since 2009 while northern Virginia’s office vacancy rate has over-DOUBLED since 2007.
The glut of office space begat Virginia Governor Northam’s (in conjunction with the US Department of Treasury) “Opportunity Zones.” This allows companies like Amazon to build its east coast headquarters in Crystal City (just outside of Reagan National Airport). Amazon will create thousand of jobs in Northern Virginia, and a boondoggle for office developers. Of course, home builders will benefit as well.
The recently passed Tax Reform Act included a potential tax break for investors. Through this program, an investor may defer capital gains taxes on the sale of any asset by investing those gains through a Qualified Opportunity Fund. These original taxes can potentially be deferred until 2026, or upon the sale of the new investment (whichever is earlier). Alongside the deferral, this original capital gains tax is reduced by up to 15% over time. In addition to those benefits, when held long enough, appreciation from the new investment can be realized tax free.