Northern Virginia office market saw significant growth in 2015

Published January 25, 2016 by Paula C. Squires

The Northern Virginia office market experienced significant growth in 2015 for the first time since 2011, with absorption achieving a rate not seen since sequestration drove government contractors to seek major space reductions. Year-end reports by Colliers International also suggest that office activity in Washington, D.C., closed out the year strong despite substantial downsizing in some industry sectors.

However, suburban Maryland continues to struggle to attract tenants, regardless of improving market fundamentals.

“This is one of those times when activity varies dramatically based on geography and the market stats that follow. Northern Virginia, for instance, tells a particularly exciting story, with major leases being signed in opposition to the trend toward smaller footprints that began with the sequester,” Robert Hartley, director of research for Colliers International in the Washington metro area, said in a statement. 

“In DC, we’re watching a game of musical chairs, where one move-out is balanced by another move-in. And in Maryland, where fundamentals have improved significantly, leasing demand nonetheless continues to lag.”

The 2015 year-end reports by Colliers International break down market activity as follows:

In Northern Virginia, a surge in office demand is attributed to the federal government’s loosening of the cap on spending activity. Government contractors lead the region for the largest leases signed, and six of the D.C. metro’s ten largest leases were in Northern Virginia.

Three constituted new or additional space. Agencies and contractors that were once consolidating, such as the Department of Defense and Booz Allen Hamilton, joined other large contractors in renewing leases in the fourth quarter with no contraction. In areas such as Arlington’s Rosslyn-Ballston Corridor, efforts to attract start-up and tech companies are starting to pay off. The overall office using economy also demonstrated growth during the fourth quarter of 2015, which is likely to lead to stronger demand.

In Washington, D.C., tenant movement remained strong in 2015 but substantial downsizing in once-powerful business sectors kept net absorption subdued. Reversing a trend toward smaller workplaces, mid-sized tenants were active and willing to take more space, due to aggressive offers by landlords and increased comfort with an improving D.C. economy. But the growth is offset by once-strong industries that now have dramatically reduced footprints, such as the Washington Post and its shedding of 350,000 square feet of space in the fourth quarter.

In suburban Maryland, it has been three years since the market has seen positive annual net absorption. Three deals during the fourth quarter were inked for more than 100,000 square feet, but none added positive net absorption.