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Pandemic Has Put Leases On Pause, But Tech Demand Still Expected To Grow In D.C. Area

Office leasing activity in the D.C. area has slowed during the pandemic, with many companies putting major decisions on hold. But as market stakeholders look ahead, they see the tech sector as a bright spot that could make the region more resilient. 

A rendering of the first phase of Amazon HQ2 development, seen from 15th and Eads streets.
A rendering of the first phase of Amazon HQ2 development, seen from 15th and Eads streets.

Technology companies have been growing their footprints in the D.C. market in recent years, highlighted by Amazon HQ2 and other West Coast companies moving to the region, and office landlords and brokers say the coronavirus will stop that trend. 

"You already had technology that has started to get more serious about the Washington area, and I think that will continue," said Oxford Properties U.S. Head of Office Chris Mundy, speaking Thursday on a Bisnow webinar

Amazon's commitment to bringing 25,000 employees to the region is the largest, but not the only, recent example of a major technology company growing its presence in the region. Facebook and Yelp both signed 70K SF-plus leases at Terrell Place in Chinatown in 2017. Google last year signed a 165K SF lease at Reston Station

Bisnow's Mike Ponticelli, Oxford Properties' Chris Mundy and Savills' Wendy Feldman Block
Clockwise from top left: Bisnow's Mike Ponticelli, Oxford Properties' Chris Mundy and Savills' Wendy Feldman Block on a May 14 webinar.

Savills Senior Managing Director Wendy Feldman Block, also speaking on Thursday's webinar, said she has seen more large technology companies continue to look at the Northern Virginia market. 

"Before the COVID closures, the amount of space Microsoft, Facebook and Google were looking to take on the Toll Road, I don't think that's going away," Feldman Block said. "Everything is sort of on pause, and people are going to wait and see. But we've seen a lot of attention in this marketplace, and the fundamentals are good."

Transwestern Executive Vice President Joe Ritchey, who manages the leasing at Reston Town Center, said 70% of the project's tenants are technology-related companies, and he continues to see strong demand from the sector during the pandemic. 

"Most of our opportunities are from the technology and cloud-related companies, and that's where most of the demand is coming from for Reston Town Center and the rest of the Silver Line corridor," Ritchey said. 

Reston Town Center
Reston Town Center

Ritchey said the concentration of data centers in Loudoun County has drawn a significant number of technology companies to the area in recent years. He said the tech sector is going to be the second anchor, in addition to the federal government, that will help the region weather the current economic storm. 

"You think about how COVID has affected the way we work and live, the biggest surge in demand has been for cloud services," Ritchey said. 

The Silver Line corridor represents one of the largest office markets in the world, with tens of millions of square feet of space from Tysons to Reston to eastern Loudoun. Future development sites along the rail line's second phase could draw more technology companies to the region, Ritchey said. He pointed to the CIT site near the Innovation Center Metro station, which on Thursday sold to Origami Capital Partners, and nearby development The Hub. 

"Even though Amazon passed [on the CIT site] the first time around and went to National Landing, I would not be surprised if firms like Amazon or other cloud-related companies in the years to come could be relocating to the CIT and The Hub site, or similar sites on the Silver Line corridor," Ritchey said. 

Cushman & Wakefield Senior Director Theo Slagle, a tenant representative who works with technology companies, said the factors that make D.C. attractive to the sector, such as the strong educational system and talented workforce, are only getting better. He pointed to the planned Virginia Tech campus in Alexandria increasing the number of skilled tech workers in the area. 

"The foundation to justify setting up or expanding an office in the region, all the pieces are in place for it to make sense for current companies to expand or groups from out of town to look at it," Slagle said. 

But Slagle said he sees those expansions as long-term moves, and he sees companies putting plans on pause in the current environment. He said he does have some business services and technology companies looking for space today, but he sees many companies halting plans as they shore up their existing operations. 

"Tech companies rely on getting contracts in place much like any other company, so I think a lot of deals that maybe weren't in place prior to this happening may have been stalled," Slagle said. "For the most part, the focus has been on operating differently and thinking about protocols on how to get back to a sense of normalcy and back to the office."

Feldman Block also said she has seen office tenants put major decisions on hold as they navigate the crisis.

"We've seen a big pause since the stay-at-home order went into effect, unless somebody has to get something finished, and we did have some projects that were underway," Feldman Block said. "But in general, people are waiting to see what's happening."