NoVA Office Market Joins D.C. in Record-High Vacancy Rate
It’s not just core urban markets facing half-empty offices.
Like Manhattan, Los Angeles and Washington, D.C., the Northern Virginia office market is currently facing its highest vacancy rate ever, reaching a market high of 25.8 percent in the second quarter of 2023, according to Savills’ second-quarter market report.
The market’s vacancy rate at the end of 2019—the last fully pre-pandemic quarter—was 18.1 percent.
“The leasing market is down but not out,” Wendy Feldman Block, executive managing director at Savills, told Commercial Observer. “Leases are continuing to be done but tenants are typically looking to reduce their footprints as they deal with the challenges of a post-pandemic workplace and hybrid occupancies.”
Leasing activity did increase marginally from the first quarter of 2023 to a total of 1.9 million square feet, but was significantly down from the 2.6 million square feet of activity seen in the second quarter of 2022, the report revealed.
“Market conditions continue to be tenant-favorable and occupiers have ample direct and sublet options to choose from,” the report stated. “Tenants needing to make real estate decisions are choosing the highest-quality spaces, leaving behind out-of-date buildings to idle vacant.”
Block noted amenitization is a key consideration in attracting tenants, as they are seeking conference centers, tenant lounges, fitness facilities and more. Additionally, outdoor space where available is highly sought after.
“While not universally adopted, many landlords are seeking and promoting certifications that address sustainability and wellness, such as LEED, Energy Star, WELL Health Safety and Fitwel Viral Response,” she said.
Of the leases signed this quarter, the majority were in the business and professional services sectors, with government contractors and government-related services making up approximately 46 percent of leases signed. The largest lease of the quarter was General Services Administration’s FBI lease for 175,000 square feet at 15020 Conference Center Drive in Chantilly.
Other leases that passed the 100,000-square-foot mark were Arcfield signing for 124,400 square feet at 14295 Park Meadow Drive in Chantilly; ManTech Advanced Systems International signing for 118,678 square feet at 2251 Corporate Park Drive in Reston; and Parsons renewing for 109,559 square feet at 5875 and 5885 Trinity Parkway in Chantilly.
Average Class A rent rates increased marginally by 0.4 percent from one year ago, ending the quarter at $36.67 per square foot.
“The flight to quality will continue to drive the market, and we anticipate seeing similar levels of leasing activity through the end of the year,” Block said. “However, we are seeing many tenants are realizing that they actually need less space than previously anticipated. This is causing many tenants to move in fits and starts as they evaluate the market and their options.”
Keith Loria can be reached at Kloria@commercialobserver.com.