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Northern Virginia Office Report Q4 2020

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Market News

  • The fourth quarter of 2020 continued to be impacted by the pandemic. Net absorption during the quarter was negative, affected by move-outs of all sizes. Sublet and direct availability continued to increase as some companies decided to list their space due to underutilization.
  • While the third quarter had top deals done largely by the Federal government, the fourth quarter had four of the top five deals signed by non-government sectors. Volkswagen and Microsoft signed deals on Sunset Hills Road in Reston for 196,000 and 185,966 square feet, respectively. Raytheon signed a long-term renewal for 116,000 square feet at 1100 Wilson Boulevard and GDIT signed a renewal for 84,652 square feet at 14700 Lee Road.

Demand & Supply

  • Overall net absorption for the quarter was negative 763,358 square feet. Class A space had positive absorption, largely due to the delivery of the 634,000 square foot TSA headquarters building at 6595 Springfield Drive. This is a relocation from 601 and 701 S 12th Street in Arlington. The 2020 net absorption total was negative 1.07 million square feet. 2016 was the last year that demand was negative in Northern Virginia, giving back 503,602 square feet of space back to the market.
  • Two buildings delivered during the quarter. The TSA Headquarters at 6595 Springfield Drive and the renovation of 1770 Crystal Drive in National Landing. 1770 Crystal Drive, a 271,572 square foot building, was pre-leased entirely by Amazon. Additionally, two of Amazon’s HQ2 towers began construction, adding 2.1 million square feet of construction to what was already underway. At year-end 4.87 million square feet was under construction, after 1.88 million square feet delivered during the year.

Vacancy & Rental Rates

  • Overall vacancy increased 58 basis points during the quarter, ending at 17.2 percent, which is up from the start of the year when it stood at 16.2 percent. The direct vacancy rate increased from 15.8 percent to 16.3 percent during the fourth quarter. The sublet vacancy rate is 0.9 percent; however, the availability rate is higher, due to tenants continuing to test the market to see if they can recoup some of their real estate costs. 
  • Class B vacancy saw the largest increase, rising from 18.1 percent to 19.1 percent during the quarter. Class A space increased 47 basis points to 17.7 percent and Class C product ended the quarter at 10.2 percent.
  • Direct average asking rents increased during the fourth quarter of 2020 to end at $33.57 per square foot. This was a $0.25 increase from last quarter and was likely due to the influx of higher quality space coming to the market. While the overall face rents increased, concession packages continued to be generous as competition for tenants expanded.

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Northern Virginia Office Report Q4 2020

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