The Washington, DC (DC) Metropolitan Region ended 2014 with an unemployment rate of 4.8%--the lowest level since the region began to feel the effects of the recession in late 2008. In Northern Virginia, unemployment rates in all jurisdictions were south of 4% as of January 2015. But even with declining unemployment, NoVA has faced some challenges. In a typical year, NoVA adds approximately 20,000 nonfarm payroll jobs; in 2014, NoVA’s economy created just over half of that average by adding 12,100 nonfarm jobs. 2014 also marked the second consecutive year in which NoVA lost jobs in the Professional & Business Services (PBS) sector. PBS, the traditional powerhouse sector and main driver of office demand, cut 2,241 jobs throughout last year. Despite job growth that was below average for 2014, there are still reasons to be optimistic about a NoVA resurgence in 2015. With increased budget authority for fiscal year 2015, federal spending will increase for major NoVA demand drivers such as the Pentagon, the National Science Foundation and the Defense Advanced Research Projects Agency. This spending will lead to increased contracting opportunities for the private sector, resulting in increased hiring and demand for office space.
In the first quarter of 2015, the Northern Virginia office market returned 251,900 square feet (sf) to the market. Gross leasing activity was shy of the typical 3.3 million square feet (msf) as continued rightsizing efforts from both public and private sector tenants resulted in negative demand. The largest lease signed during the first quarter was that of the GSA-U.S. Marshals Services . The agency signed for 333,000 sf at 1215 South Clark Street in Crystal City, having consolidated from surrounding Crystal City buildings and giving back roughly 40,000 sf in the process as GSA continued to reduce its real estate footprint in the region. In the private sector, Noblis relocated to Reston, signing for 161,500 sf at 2000 and 2002 Edmund Halley Drive. The federal contractor shed 58,300 sf in the move as it relocated from Fairview Park in Merrifield. Noblis’ move was indicative of another trend in the NoVA office market: tenants shrinking their footprints and relocating to a more urban environment that will be proximate to Metro when the Reston Town Center Station opens, scheduled for 2018.
With space returned to the market, the overall vacancy rate in NoVA ticked up 0.2 percentage points from the fourth quarter to 19.0%. Still, there were some bright spots in the leasing landscape. For a second consecutive quarter, submarkets located inside of the Capital Beltway collectively outperformed those outside of the Beltway. Small concentrations of growth in the Rosslyn-Ballston (RB) Corridor, specifically Rosslyn, paced demand in the interior markets. Sands Capital Management signed for 82,200 sf at 1000 Wilson Boulevard in Rosslyn, expanding its footprint by 22,200 sf in its move from neighboring 1101 Wilson Boulevard. With concentrated growth by tenants, rental rates have remained mostly stagnant in NoVA. Rents in NoVA are currently just $0.10 ahead of their first-quarter 2014 average at $31.65 per square foot on a full-service basis. No major construction projects are set to deliver in 2015, so vacancy could tighten as existing product captures demand.
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By: Nathan Edwards
Director of Research, DTZ - Washington, D.C.
Email Nathan: Nathan.Edwards@dtz.com
Contributor: CJ Hardy, Research Analyst, DTZ
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