Loudoun County's Office Market Outperforming Region As New Silver Line Stations Drive Activity
Long known as a hub for data centers, breweries and wineries, Loudoun County is beginning to emerge as an appealing office market that can compete with other parts of the Northern Virginia suburbs.
The county's 11.5M SF of office inventory had a 12.3% vacancy rate as of last quarter, according to CBRE's Q2 report, while Fairfax County, Arlington County and Alexandria all posted vacancy rates above 20%. Loudoun recorded positive net absorption through the first six months of the year, adding 25K SF of occupancy gains as Arlington and Fairfax each lost around 500K SF.
As its existing inventory appears healthier, Loudoun also has a series of projects planned around its new Silver Line Metro stations, which opened in November, that would give it the type of trophy offerings in transit-oriented, mixed-use areas that have stayed attractive to tenants as the broader office market struggles.
"Having Metro is such an opportunity for us to open up a new kind of product," said Buddy Rizer, executive director of Loudoun County's Department of Economic Development.
"I’m very excited about the opportunity to have office," he added. "We really have a new category, and I’m thrilled ... I don’t have the same sort of doom and gloom thoughts about office as some people. It has to be the right kind of office in the right place, and we by and large have that."
Comstock Vice President of Leasing Jessy Toor said at Bisnow's Loudoun County event last month the developer is "fortunate" that the building has stayed occupied. She told Bisnow in an interview this week that the building is 95% leased and is in negotiations with a tenant that would bring it to 100%.
The developer is actively marketing its next phase of office, a 13-story building approved for up to 250K SF. Toor said the building has generated interest because of its amenities, its finishes, the surrounding retail offerings and the transit-oriented location.
"We are Loudoun County’s first and only Metro-connected development," Toor said. "That is certainly a selling point."
Comstock has achieved strong office leasing at its Reston Station mixed-use project next to the Wiehle-Reston East Station, which was previously the Silver Line's terminus before Phase 2 opened. It has constructed three office buildings there with tenants including Google, Rolls-Royce North America, Neustar and ICF International.
Toor said she expects that momentum will keep spreading farther west to its planned Loudoun Station office tower.
"Similar to Reston Station, we’re actively marketing to pre-lease this building, and we believe in our product and are optimistic about our product," Toor said.
Rizer said his team has helped court prospective tenants to the county's planned office offerings, including Comstock's new tower.
"We have several companies that are really looking at it and are doing their due diligence," Rizer said.
The other Metro-adjacent projects planned to bring new office buildings to the county include Rivana at Innovation Station, which received final approval in May for 6.4M SF of mixed-use development, including 2.4M SF of office. Another major mixed-use project, Silver District West, received approval in 2019 for a 158-acre plan that includes 740K SF of office. And the 600-acre Moorefield Station development has been approved for about 2.8M SF of nonresidential uses.
"The whole goal was to create these little urban areas around Metro, because that’s the trend we’re seeing with office," Rizer said. "Office parks are tough right now."
The sectors driving demand for office in Loudoun County today are similar to the rest of Northern Virginia, with government contractors providing a boost. In the first quarter, Northrop Grumman renewed its 337K SF lease at 45101, 45201 and 45301 Warp Drive, while RTX Corp. — formerly Raytheon — renewed its lease for 175K SF at 22265 Pacific Blvd., according to CBRE.
"When you’re proximate to the world’s largest [government contracting] customer, you’re always going to do pretty well there," Rizer said. "It’s mostly on the tech and R&D side, that’s what we’re seeing mostly with RTX and Northrop. It’s a great opportunity for us, and the more product we bring online the better off we’re going to be."
Rizer said the county is also generating interest from international firms that are looking to plant their flag in the U.S. and are drawn to the proximity of Dulles International Airport.
The county's office market also benefits from having the world's largest concentration of data centers, as companies that operate and service those facilities like to have offices nearby.
"They already have significant workforce and infrastructure in place, so it only makes sense to have that proximity," Rizer said.
Loudoun County Board of Supervisors Chair Phyllis Randall, speaking at Bisnow's event last month, said the county received $10B of commercial investment in the last fiscal year, 80% of which came from the data center industry.
"But what’s interesting is that although 80% of them were data centers, the majority of new businesses that came to Loudoun were not data centers," Randall said. "So we are diversifying our economy, which was the actual goal, even though the largest portion of actual revenue is data center revenue."