1. NORTHERN VIRGINIA MARKETFLASH
27 February 2017
The tech sector continues to grow, driving leasing activity and net demand in Northern Virginia
Leasing Activity Overview
Following a slow fourth quarter, leasing velocity in Northern Virginia fell 13% below the five-year average, totalling 9.6 million sq. ft. in 2016.
Core submarkets—the Toll Road, Tysons and RB Corridor—continue to dominate activity in the region. While these submarkets account for 44% of the total inventory, they contributed 55% of the total leased space in 2016.
The market was most active in the $30-$40 price range, accounting for more than half of all leases. 75% of all leasing struck higher than $31.75.
Although leases greater than 50,000 sq. ft. accounted for nearly half of total leased space (4.5 of 9.6 million sq. ft.), over 50% of transactions were under 10,000 sq. ft. (304 of 492 deals).
2016 Leasing Activity (by SF)
By Price
By Deal Size (weighted by transaction volume)
Gross Base Rent ($/SF)
Share (%)
Up to 19.99
0.5
19.5
54.8
40 and above
25.2
Deal Size (SF)
Share (%)
Under 10,000
52.0
10,000-24,999
23.4
25,000-50,000
8.1
Over 50,000
16.5
Technology Reigns
The large share of telecommunications leasing in 2015 was driven by Verizon’s 1.5-million-sq.-ft. sale leaseback in Loudoun County.
The tech sector accounted for 22% of total leasing activity in 2016, up from 7% in Tech firms contributed over 400,000 sq. ft. of positive net demand in 2016.
Leasing Activity by Industry Sector (by SF)
2015
2016
Northern Virginia Office Market – Increasingly Segmented
The market continues the flight to quality with tenants increasing their focus on high-quality, well-located products with rich amenities.
In 2016, Class A product accounted for over 80% of total lease volume and 120,000 sq. ft. of positive net absorption, while Class B and C product posted 307,000 sq. ft. of occupancy loss.
Inventory
(MSF)
2016 Gross Leasing
2016 Net Absorption
(SF)
Vacancy
(%)
Gross Asking Rate
($/SF)
Class A
(67%)
8.0 (83%)
120,000
19.2
34.07
Class B/C
(33%)
1.6 (17%)
(307,000)
18.7
28.67
TOTAL
180.3
9.6
(187,000)
18.3
32.50
Supply Metrics
Although overall development volume remains low, activity increased over the year with eight projects breaking ground in million sq. ft. is under construction with 58% preleased. Of this, 2 million sq. ft. is slated to deliver in 2017, currently at 68% preleased. This will be the most space delivered in one year since 2013.
MSF
Forecast
Source: CBRE Research, Q