The Northern Virginia office market (NoVA) has come back from largely stagnant conditions over the last decade, and is slowing shifting back to landlord-favorable conditions. This is indicated by falling vacancy, a lack of quality large existing blocks of space and rising rents in select submarkets. Over the course of the next 36 months, tightening in key NoVA submarkets is expected to continue as large requirements are filling existing spaces, projects under construction and future buildings. That being said, for smaller users, options still abound. The average lease in NoVa is approximately 5,000 square feet and there are currently 160 options for users of this size range in Tysons Corner, 180 options in Reston and Herndon and 200 options in the Rosslyn-Ballston Corridor. Because of this, owners of office buildings are getting increasingly creative in differentiating their vacant spaces, especially smaller suites, including adding amenity zones, conferencing, speculative suites, and rooftop decks. In addition, concessions to attract tenants with a variety of options remain at peak levels with tenant improvement allowances averaging $60 per square feet on a five year or greater lease term and free rent concessions averaging one month of free rent per year of lease term.
The development pipeline in NoVa is robust. But, compared to other parts of the Washington, DC metropolitan region, it has been relatively constrained in key core submarkets. For example, the Toll Road Corridor of Reston and Herndon has only delivered one ground up office building since 2009. This is about to change as preleases recently signed for Fannie Mae and Leidos will add 1.3 million square feet of inventory in those submarkets. Tysons Corner will also have several large tenant requirements hitting the market with limited options available to accommodate them in the near-term. The developer that risks putting a shovel in the ground and building space speculatively is likely to be handsomely rewarded with a large user. Rents in new construction in NoVA have been trending in the mid $50’s to low $60’s full service range. This is huge value relative to other parts of the region with rents for new construction in Bethesda, Maryland hitting $70 FS and in the core downtown District of Columbia submarkets ranging from $70 to $90 FS equivalent.
NoVa has continued to outperform the other markets in the DC Metro region in attracting large regionally and nationally competitive headquarters relocations thanks to its attractive corporate tax structure, business friendly environment, well-educated workforce and competitive pricing for office space. Over the past decade, this has resulted in several high-profile wins including Volkwagen, Northrop Grumman, Hilton Hotels, Nestle, and Amazon. These groups, as well as several others, have all relocated to NoVA from other parts of the country. In addition, the class B office market in the District of Columbia has continued to tighten and value-oriented users (particularly those in the non-profit sector) have found better quality options at considerable savings just across the Potomac River in Crystal City and Rosslyn, VA. For this reason, Northern Virginia will continue to be a competitive option for occupiers that are looking to recruit and retain talented workers at a great value.