1. Office Market Snapshot
Northern Virginia • Third Quarter • 2012
Market Tracker Vacancy Net Absorption Deliveries Asking Rent
*Arrows = Current Qtr Trend 16.0% (342,000) SF 0 SF $31.69 FS
BRAC Moves Aside, Northern Virginia Office Shows Signs of Growth
The Northern Virginia office market exhibited balanced growth in pockets across the
region in the third quarter of the year. Negative overall demand contributed to a 0.2
percentage point increase in total vacancy from the second quarter, bringing the rate to
16.0%. Continued government relocations and large-scale corporate consolidations
outweighed new demand over the period, contributing to the negative 342,000 square
feet of net absorption during the third quarter. This brings net absorption for the first
NORTHERN VIRGINIA OFFICE three quarters of 2012 to negative 1.7 million square feet. Nearly all of the negative
absorption can be attributed to BRAC. Setting BRAC-related moves aside, demand for
Economic Indicators office space would have been positive 432,000 square feet in 2012.
Q3 12 Q3 11 The velocity of BRAC-related move-outs slowed during the third quarter as BRAC tenants
vacated 557,000 square feet, primarily inside the Beltway, adding to the 1.5 million
DC Metro Employment 2.5M 2.4M square feet returned in the first half of 2012. The relocations continued to affect markets
near the Pentagon the greatest, driving overall vacancy up in Crystal City by 3.3
DC Metro Unemployment 5.5% 6.0%
percentage points and in the I-395 Corridor by 2.0 percentage points.
U.S. Unemployment 8.2% 9.7% Inside and outside the Beltway, well-located quality inventory continued to attract new
tenants during the third quarter. Professional services and government tenants drove the
U.S. CCI 65.64 50.26 majority of leasing activity in Arlington, with new leases signed in Crystal City by the
Department of Homeland Security and the U.S. Agency for International Development
(USAID) and in the Rosslyn/Ballston Corridor from private sector tenants including MIL
Net Absorption Corporation, MCG Capital, and Evolent Health, which leased 33,000 square feet at the
newly-delivered 800 N Glebe Road. Outside the Beltway, the technology and government
3
2
contracting sectors continued to be fundamental drivers for growth along the Toll Road.
Square Feet (Millions)
2 Major tech-company leases included those for Transaction Network Services, Inc. which
1
1
signed for 120,000 square feet at Parkridge 6 in Reston (which delivered in 2008) and
0 VMWare which leased 53,000 square feet at Reston Executive Center. Also in Reston,
-1
reinforced Earth and Network Alliance, Inc. leased a combined 27,000 square feet at the
-1
-2 recently-renovated Reston Corner I.
-2
2007 2008 2009 2010 2011 YTD Overall, average asking rents continued to press upward, rising 16 cents since June to
2012
$31.69, full-service at the end of the third quarter. With no new deliveries in the third
quarter and 444,000 square feet of new space scheduled to deliver by the end of the year
already 34% preleased, a limited supply pipeline will aid rent growth in the near term for
Vacancy Rate
high-quality spaces in the region.
17%
Historical Average
Forecast
15%
13% • The uncertainty surrounding the possibility of sequestration and federal procurement as
11% a result of budget legislation continue to be sources of concern for government
9% contractors in the DC area. Once new spending legislation is agreed upon in Congress,
7%
related businesses will likely be more amenable to facilitating growth.
5%
2007 2008 2009 2010 2011 YTD • In Arlington and Alexandria, BRAC-related relocations will continue to weigh on
2012
second-generation spaces, with the moves gradually slowing in momentum after 2012.
• Tysons Corner has begun its transformation into a transit-oriented environment with
multiple mixed-use developments under construction, Phase I of the Silver Line (more
than 75% complete) and the I-495 Express Lanes expected to open by December of
2012.
www.cassidyturley.com