office market northern virginia - cresa virginia q3 2017... · 2008 2009 2010 2011 2012 2013 2014...
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Executive Summary
Absorption was positive 164,273 SF in Q3 bringing the total to
negative 149,610 SF on the year. The bulk of the positive absorption
(720K SF) gained from the completion of the National Science
Foundation’s new HQ facility in Alexandria was muted by the space
they left behind in Ballston (620K SF). As a result of the move, as well
as nearly 400K SF of vacancy delivered in new construction, Northern
Virginia’s vacancy rate increased 40 basis points from year ago levels
to 20.1%.
In what is the largest new lease of 2017, the GSA awarded Boston
Properties the contract to build the TSA a new 625K SF HQ that will
relocate the agency from its current HQ in Pentagon City in 2020. The
TSA finalized the new 15 year lease valued at $316M nearly two years
after a federal judge blocked their initial plans to move to Alexandria.
In the private sector, General Dynamics leased 216K SF formerly
occupied by Noblis at 3150 Fairview Park in Falls Church. The lease
is a major win for the Merrifield submarket that has lost 266K SF of
1 | Northern Virginia | Offiice Market | Q3 2017
Office Market NORTHERN VIRGINIAQ3 2017
Build-to-Suit Federal Agency Projects Leave Behind Large Blocks of Vacancy
Net Absorption
Average Vacancy Rate
Average Asking Rent
Class A
Class A
Class B
Class B
Overall
Overall
Q3
Overall
Q3 Key Market Indicators
Total Vacancy
Net Absorption
Rental Rate
New Deliveries (YTD)
20.3%
(61,947) SF
$32.00/SF
0 SF
2008 2009 2010 2011 2012 2013 2014 2015 2016 20178%
10%
12%
14%
16%
18%
20%
22%
-2.5 M
-2.0 M
-1.5 M
-1.0 M
-0.5 M
0.0 M
0.5 M
1.0 M
1.5 M
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$20.00
$22.00
$24.00
$26.00
$28.00
$30.00
$32.00
$34.00
$36.00
$38.00
$40.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2 | Northern Virginia | Offiice Market | Q3 2017
Corridor commands the highest rents in the market averaging $41.99/
SF, followed by Eisenhower Avenue and Crystal City at $39.77/SF
and $36.78/SF, respectively. Concession packages remain generous,
averaging between $80.00-$100.00/SF in TI and one month of free rent
per year of term.
Supply and Demand
There are 40.4M SF of space available for lease (down 457K SF YoY)
across Northern Virginia with 28.5M SF of Class A space available
(down 336K SF YoY) and 11.9M SF located in Class B product (down
120K SF YoY). Although available space for lease has decreased, the
vacancy rate has increased due to the amount if new construction
in the pipeline. As new owner occupied and build-to-suit projects
deliver, tenants will relocate from existing buildings, increasing the
amount of vacancy in the market.
Three new office buildings totaling 1.25M SF delivered in Q3 that
are 67% preleased. The largest building is the National Science
Foundation’s 720K Sf headquarters at 2415 Eisenhower Avenue in
Alexandria. The agency vacated their longtime home in Ballston and
expanded their footprint by roughly 100K SF. In Reston, Comstock
Partners completed the first office building in their Reston Station
mixed use development. The 366K SF spec building delivered 100%
vacant which caused the vacancy rate in Reston to jump 160 bps
from the previous quarter to 13.8%. The third project to deliver is
Marymount University’s 167K SF office building at 1000 N Glebe St
in Ballston. The school will occupy the first six floors and is currently
seeking a tenant for the top three.
Employment Growth by Month
Net Absorption by County
occupancy so far in 2017.
Vacancy and Rental Rates
The vacancy rate in Northern Virginia increased by 40 basis points
(bps) in Q3 2017, coming in at 20.1%. Overall vacancy should remain
elevated as tenants vacate existing space in favor of new deliveries.
Class A vacancy increased 40 bps year-over-year to 21.4%, while Class
B vacancy fell 20 bps to17.5%. Among the major office submarkets
with the lowest vacancy are Old Town Alexandria at 13.7%, Reston at
13.8%, and Fairfax City at 14.0%. Outside of these markets however,
high levels of vacancy persist as nine of the fourteen office submarkets
with inventory greater than 5 million square feet have vacancy rates
above 20%.
Asking rental rates accelerated in Q3 2017, increasing $0.55/SF
year-over-year to $32.25/SF largely due to rent appreciation in Class
A product. Class A asking rents increased $0.65/SF to $34.54/SF
while Class B rents rose $0.41/SF to $28.52/SF. The Rosslyn-Ballston
Total Job Growth
Q3 2017
Office-Using Job Growth
YTD
Building Submarket Size Sale Price Price (PSF) Buyer
1919 Gallows Road Tysons Corner 454,000 $136,000,000 $299.56 Rockpoint
Group
Worldgate Metro Plaza Herndon 325,072 $53,500,000 $164.58 Harbert
Management
12930 Worldgate Dr Herndon 195,193 $40,000,000 $204.93 The Pinkard
Group
13900 Lincoln Park Dr Herndon 201,376 $29,750,000 $147.73 Goldman Sachs
22970 Indian Creek Dr Route 28 North 128,477 $29,375,000 $228.64 EPIC, LLC
Tenant Address Submarket Size Type
TSA6595 Springfield
Center DriveSpringfield/Newington
622,812 Prelease
Department of State
1701 Fort Meyer Drive
Rosslyn 280,259 Renewal
General Dynamics 3150 Fairview Park Merrifield 215,500 New Lease
Department of State
1200 Wilson Boulevard
Rosslyn 55,793 New Lease
Hogan Lovells LLP8350 Broad
StreetTysons Corner 44,500 New Lease
Q3 Top Signed Leases Q3 Top Sales
Market Outlook
The GSA has signed several large leases, both new and renewals, in 2017 and appears to be actively working through its sizable backlog. Although the leasing activity looks good on paper, many of the deals are for build-to-suit developments in tertiary submarkets, leaving large blocks of vacancy in core submarkets such as Ballston, Pentagon City, and Crystal City. Furthermore, large firms such as Capital One and MITRE are choosing to purchase and build new HQs rather than lease space. With record vacancy across much of Northern Virginia, large block relocations and consolidations into new construction will continue to weaken long term fundamentals.
-800 K
-600 K
-400 K
-200 K
0 K
200 K
400 K
600 K
800 K
Alexandria County Arlington County Fairfax County Loudoun County
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
3 | Northern Virginia | Offiice Market | Q3 2017
Submarket Statistics
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301.951.6500 or [email protected].
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703.972.5799
Submarket Total Bldgs InventorySublet
AvailableTotal Available Total Vacant
Vacancy Rate
Net Absorption (Q3 2017)
Net Absorption (YTD)
Class A Rent Class B RentTotal
Direct Rent Under Constr.
SF Delivered YTD
Tysons Corner 151 23,747,379 595,403 6,962,296 5,305,485 22.3% 24,845 27,984 $36.75 $27.60 $33.09 800,419 -
Merrifield 82 7,570,230 94,499 1,936,978 1,535,379 20.3% (69,490) (266,755) $32.81 $27.57 $31.81 - -
Vienna 25 1,188,243 33,012 184,916 77,671 6.5% (88,522) (112,016) n/a $31.86 $31.86 - -
Oakton 16 1,447,595 3,082 259,949 234,248 16.2% 11,266 51,743 $30.77 $26.95 $29.68 - -
Fairfax Center 61 6,896,689 179,722 2,024,035 1,870,053 27.1% (18,189) (45,831) $28.93 $24.28 $27.00 150,000 -
Fairfax City 103 3,751,213 4,200 588,567 526,155 14.0% 8,863 83,658 $26.36 $22.27 $23.60 - -
Reston 146 16,262,032 382,668 3,350,375 2,237,562 13.8% 67,484 249,238 $32.34 $27.88 $30.47 - 368,413
Herndon 127 11,734,864 350,106 2,970,837 2,733,662 23.3% 12,485 (142,475) $30.84 $21.80 $29.13 - -
Route 28 S 139 11,686,697 311,720 2,601,214 1,892,190 16.2% 30,625 2,396 $27.01 $22.41 $25.43 680,000 -
Springfield 117 5,707,363 116,529 1,516,195 1,231,294 21.6% (31,018) (74,093) $36.84 $24.44 $30.80 - -
Fairfax County 967 89,992,305 2,070,941 22,395,362 17,643,699 19.6% (51,651) (226,151) $32.81 $25.62 $30.00 1,630,419 368,413
Route 28 N 121 8,550,454 200,482 2,095,726 1,612,290 18.9% 35,294 1,205 $24.99 $21.20 $23.74 - -
Route 7 48 2,366,941 18,803 377,741 293,553 12.4% 106,299 137,093 $26.69 $20.35 $25.42 - -
Leesburg 60 2,092,066 12,331 166,630 141,613 6.8% 2,100 26,532 $29.09 $23.27 $25.50 - -
Loudoun County 229 13,009,461 231,616 2,640,097 2,047,456 15.7% 143,693 164,830 $25.50 $21.53 $24.13 - -
Rosslyn 37 9,032,190 664,609 3,219,554 2,486,630 27.5% (6,178) 843 $46.94 $39.33 $41.36 552,781 -
Clarendon/Courthouse
30 4,948,608 75,527 1,126,239 848,501 17.1% 34,666 156,998 $44.07 $39.97 $42.80 175,000 -
Virginia Square 10 883,943 19,282 222,083 59,923 6.8% (4,006) 12,605 $41.89 $36.54 $40.93 - -
Ballston 34 7,792,641 164,211 2,452,614 2,015,375 25.9% (642,453) (459,976) $42.93 $38.19 $41.58 - 166,756
RB Corridor 111 22,657,382 923,629 7,020,490 5,410,429 23.9% (617,971) (289,530) $43.63 $39.11 $41.99 727,781 166,756
Crystal City 35 10,318,192 106,210 2,338,474 2,240,685 21.7% 14,591 97,011 $38.42 $35.39 $36.78 - -
Arlington County 146 33,143,996 1,102,326 9,423,344 6,968,756 21.0% (603,380) (192,519) $41.94 $37.59 $40.22 727,781 166,756
Old Town 126 7,237,646 367,205 1,761,780 993,024 13.7% (27,258) (16,766) $35.98 $31.45 $34.57 - -
Eisenhower Ave. 24 5,036,413 8,945 485,865 497,508 9.9% 689,824 64,092 $42.08 $24.13 $39.77 - 720,000
I-395 69 7,915,434 19,476 3,444,588 3,208,490 40.5% 13,045 (43,096) $31.19 $28.59 $30.56 - -
Alexandria County
219 20,189,493 395,626 5,692,233 4,699,022 23.3% 675,611 4,230 $33.66 $29.06 $32.46 - 720,000
Northern Virginia Totals
1,672 178,992,637 4,724,138 47,171,526 36,769,362 20.1% 164,273 (249,610) $34.62 $28.87 $32.50 2,358,200 1,255,169