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Northern Virginia Office Report Q3 2021

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After four consecutive quarters of negative absorption returning 4.1 million square feet to the market from Q3 2020 to Q2 2021, demand was positive this quarter. This was a good sign for the market, but not necessarily indicative of the future. As the expected post Labor Day return to office plans of companies were pushed back, the near-term absorption outlook is expected to slow heading into the winter. The top leases this quarter were signed by the Koch Foundation for nearly 180,000 square feet at 4201 Wilson Boulevard, Zeta Associates who renewed at 10302 Eaton Place for 142,852 square feet and Airbus Americas who signed a new lease for 119,242 square feet at 2550 Wasser Terrace.

Supply & Demand

Demand in Northern Virginia turned positive during the third quarter totaling 168,562 square feet which resulted in absorption of negative 2.2 million square feet year-to-date. This compared to the same time last year when negative 622,970 square feet of demand occurred during the first three quarters of 2020. In the third quarter, Class A product had 213,292 square feet of absorption while Class B and C product combined totaled 44,730 square feet being returned to the market. While absorption was positive this quarter, continued positive demand is uncertain as office strategies are being reevaluated by tenants as COVID-19 remains a key topic. The third quarter had no space deliver to the market. 4.2 million square feet of construction was underway with half of that attributed to Amazon’s HQ2 campus in National Landing. Construction continued on the two office towers that will total over 2 million square feet when completed. Additionally, construction on the two office buildings at RTC Next are nearing completion. Fannie Mae and Volkswagen will be key tenants in the new development.

Rental Rate

The overall average direct asking rate continued to rise, increasing $0.27 during the third quarter to end at $33.97 per square foot. Class A product had a $0.28 increase to end the quarter at $37.71 per square foot while the Class B rate increased $0.20 to end at $31.44 per square foot. Overall rates have increased $0.65 from a year ago.

Vacancy

The overall vacancy rate ended the quarter at 18.1 percent, down from 18.2 percent at the end of the second quarter. At 18.1 percent, the rate had increased 160-basis points from the same time last year. The Class A vacancy rate decreased 20 basis points to end the quarter at 18.8 percent. The combined Class B/C rate also decreased, dropping from 17.5 to 17.4 percent.


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Northern Virginia Office Report Q3 2021

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