It’s still a tenants’ market in Northern Virginia
Despite some clarity in the market following the bipartisan budget agreement, demand for office space remained subdued in Northern Virginia during the first quarter, according to a market report from Studley.
Overall, leasing activity declined by 3.9 percent compared to the first quarter of 2013 — the lowest total since the third quarter of 2011.
Short-term renewals, early lease restructures and consolidations continued to dominate the market, putting pressure on Northern Virginia’s availability rate, (the total amount of available space), which ended the quarter at 21.3 percent. That compared to an availability rate of 14.2 percent in Washington, D.C., and 16.8 percent in Montgomery County, Md.
In terms of outlook, Studley, a commercial real estate services firm that represents only tenants in commercial transactions, reported that the NoVa office market would see little change throughout the year. Availability is expected to continue trending upward in the face of a shrinking federal presence and decreased demand from the government contractor sector. Proposed consolidations by federal agencies would result in a combined 8.7 percent decrease in occupied space over the next several years. Not surprisingly, rental rates are expected to be flat. Asking rents for Class A office space fell by 1.2 percent to $32.30 in the first quarter, compared to the same time last year.
Tenants are expected to retain leverage as demand for space efficiency, early lease restructures and federal spending cuts become a more permanent part of the landscape.
On a brighter note, the Reston submarket posted a strong performance in early 2014, with direct vacancy dropping by 1.6 percent to 14.4 percent at the end of the first quarter. The Fairfax County Board of Supervisors recently voted to adopt a revised master plan that positions Reston as a growth area for the future. Under the plan, redevelopment in Reston could more than double over the next 25 to 30 years.