Northern Virginia outer CRE submarkets outperform areas inside beltway

Published November 9, 2015 by Paula C. Squires

 
Who says close in, urban mixed-use environments are all the rage? A market report from the Washington office of Colliers found a “surprising divide” in vacancy rates between Northern Virginia office submarkets inside and outside the Capital Beltway at the end of the third quarter.

Despite expectations that millennial-popular features such as walkability and amenities would have the highest impact on performance, outer submarkets such as Reston, Herndon, Loudoun County, and Prince William County outperformed some of more walkable inner submarkets.

“The commercial real estate industry has been focused on submarkets where investors and landlords are expressing angst over softening demand.  Perhaps for that reason, few have tracked that Prince William County has the lowest vacancy rate of all the jurisdictions we track and that, with the exception of 2013, demand has been positive in Prince William every single year over the last ten,” Colliers International Director of Research Rob Hartley said in a statement.

Colliers calculation of office vacancy rates for all of Northern Virginia came in at 18 percent, roughly equivalent to the 17.9 percent vacancy rate tracked at this same time last year.

Third quarter reports from other real estate companies reported office vacancy rates for Northern Virginia, ranging from 14.8 to 20 percent.

For Prince William, the Colliers report said third-quarter vacancy rates improved from 13.4% in 2014 to 12.1%.  This compares with 13.4% in Reston-Herndon, 18.5% in Tysons, and 22.7% in Rosslyn-Ballston.

Colliers said that while third-quarter demand for office space grew across Prince William, Reston-Herndon, and Loudoun County, demand shrank in the inner submarkets, with the exceptions of Crystal City and the Eisenhower Avenue corridor, which has gained large new leases from federal agencies.

In part, an influx of new product contributed to higher vacancy rates inside and along the Beltway, where 6.5 million square feet of space has been added since 2010.

“Federal budget uncertainties also contributed to softer demand in inner submarkets, where landlords have been unable to backfill space that was vacated when the government and government contractors downsized their footprints. Outer submarkets have faced little to no challenges in backfilling available space due to increased demand,” Hartley said.