6 Key NoVa Office Trends You Need to Know
The Northern Virginia office market is slowly improving, with vacancy inching downward and tech companies picking up some of the government contracting slack. And 2016 is supposed to be even better. Here are six of the key trends brokers are watching in the market.
1. Office Activity Is Slowly Picking Up
Inside-the-beltway office activity has been the most robust since 2011 when sequestration paused the government contracting sector. But companies are starting to feel more confidence about the economy and non-government tenants are seeing some organic growth, says Cushman & Wakefield vice chairman Spencer Stouffer. Government contractors are nearly done shedding unused office space. The rest of the year will still be slow growth, but 2016 is expected to pick up as job growth strengthens, according to Transwestern research.
2. Techies Are Filling The Empty Space
Avison Young principal Peter Berk, left with Newmark Grubb's John Henschel, says he's seeing an increase in demand by tech firms as opposed to government contractors that dominated NoVa real estate for so many years. Government contractors are going through rightsizing and consolidation. Venture capital raised by technology companies ($1.1B in 2014) is on the rise, giving them a chance to grow head count and square footage. Tech firms are going to be spreading out to different submarkets from burgeoning DC neighborhoods through Arlington, Tysons and the Dulles Toll Road. Their sweet spot is urban-centric, walkable communities near Metro, Peter says.
3. New Office Product Is In High Demand
Tenants want new office product in neighborhoods close to Metro and they’re willing to pay premium rents (as high as $50/SF) for it if they could just find it. Peter says the market isn’t seeing as much new spec construction because vacancy is still so high, especially in Arlington, where it's around 20%. Some have had the courage to go spec like Lerner and Macerich in Tysons. There’s 2.3M SF of office space under construction or renovation in Northern Virginia, according to Transwestern. Spencer says lenders will start recognizing the void in the market and be more willing to finance their construction.
4. Moving Is Winning Over Staying
Lease renewals are at a historic low, adds Spencer. He says landlords could historically count on 75% of tenants renewing their leases, but the percentage has dropped as tenants change the way they use and occupy space. (Above is Clarabridge's new space in Reston.) It’s easier for tenants to relocate into a new retrofitted space rather than renovate in place. Building owners are also adding more amenities like bike rooms and coffee lounges to be more competitive as tenants make their moves.
5. Keep An Eye On Tysons
The next 24 months will be significant for Tysons as 2,000 apartments are delivered, Colliers VP Jeff Tarae tells us. If leasing goes well, it could put retail and office developments on the fast track, says Jeff. All this is fueled by the fact that developers are eager to create a “sense of place” in Tysons, he adds. Jeff's also seeing more companies that weren’t previously interested in being in the suburbs now taking a closer look.
6. Industrial Is Shrinking
New office isn’t the only thing in short supply in NoVa. Loudoun County’s ground industrial space is dwindling, says Commercial Group Realty president Dave Gunter. He tells us part of the problem is that there’s some land along Route 28 suitable for warehouse product but it’s priced for office and retail. Another factor contributing to the shortage is the growth of data centers in Loudoun. They’ve absorbed much of the supply extending into Dulles South.