1 Northern Virginia Quarterly Market Report 1st Quarter 2020 lpcwashingtondc.com Northern Virginia Leasing & Market Research Neil Alt Senior Vice President [email protected] | 703.284.5868 Doug McLearn Senior Vice President [email protected] | 703.284.5862 Gary Cook Table of Contents Senior Vice President [email protected] | 703.284.3379 Chris Dyson Metropolitan D.C. Market Overview .....................................3 Senior Vice President Northern Virginia Quarterly Overview .................................5 [email protected] | 703.284.3633 Northern Virginia Top Ten Leases ........................................ 8 Eamon McCrann Senior Vice President Northern Virginia Sales Transactions................................... 9 [email protected] | 703.284.5861 Jae Lee Market Spotlight, 1Q 2020: Senior Vice President [email protected] | 202.513.6700 Northern Virginia .................................................................. 11 Alexandria ............................................................................. 13 Stoddie Nibley Senior Vice President Fairfax .................................................................................... 15 [email protected] | 703.284.5884 Loudoun County ................................................................. 17 Correll Caulfield Merrifield ...............................................................................19 Vice President [email protected] | 703.284.5886 National Landing ................................................................ 21 Jed Prossner Old Town Alexandria/Eisenhower Avenue..................23 Vice President Reston - Herndon .............................................................. 25 [email protected] | 703.284.5864 Rosslyn - Ballston Corridor ..............................................27 Jack Redmond Senior Associate Route 28 North ................................................................... 29 [email protected] | 703.284.5880 Route 28 South.......................................................................31 Brenda Sosa Springfield ............................................................................. 33 Leasing Associate [email protected] | 703.284.5881 Tysons Corner ..................................................................... 35 13 Ben Hickey Leasing Associate [email protected] | 703.284.3364 Sarah Rossero Market Research Associate [email protected] | 703.284.3354 Jacqueline Spross Market Research Associate [email protected] | 703.284.3635 2 Metropolitan D.C. Market Overview 1st Quarter 2020 Overall Market Summary The Washington, DC Metropolitan commercial real estate market is comprised of approximately 427.6 million square feet of rentable office space located in the District of Columbia, Northern Virginia, and Suburban Maryland. square feet, delivered. The largest addition was 45 L Street, NE - Sentinel Square III delivering 539,903 The total vacancy rate ticked up to 13.6% at the square feet (88% leased to the FCC) to the NoMa end of the first quarter, while the market recorded submarket in DC. -839,909 square feet of net absorption. Only Washington, DC posted positive net absorption for There were twenty-one sale transactions in the first the quarter with 30,454 square feet absorbed. quarter, totaling $2.01 billion. The largest sale was 99 M Street, SE trading for $163,019,413 ($694 psf) in Leasing activity for the quarter totaled 4,842,729 DC’s Capitol Riverfront submarket square feet. The largest lease executed was a 237,062-square-foot renewal by the State Services Average asking rental rates increased $0.71 to $39.16 Organization (SSO) at 400-444 N. Capitol Street, per square foot, Full Service. NW - The Hall of States, in Washington, DC. From February 2019-February 2020 the DC At the end of the quarter, there was 7,743,316 Metropolitan Statistical Area (MSA) had a net square feet under construction, with 72% of the increase of 55,600 jobs (47,000 private sector, space pre-leased. No buildings broke ground this 8,600 government) representing 1.7% growth YOY, quarter; while five buildings, totaling 1,364,363 while the unemployment rate increased to 3.0%. Metro DC VA MD Area (YTD) Direct Vacancy 12.0% 13.3% 13.1% 12.8% (1Q 2020) Total Vacancy 13.0% 14.0% 13.9% 13.6% (1Q 2020) Total Net Absorption -839,909 30,454 -712,680 -156,873 (YTD 2020) SF Leasing Activity 1,939,623 1,901,424 1,001,682 4.8 M SF (YTD 2020) 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 3 4300 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 8120 Woodmont Ave., Suite 560 | Bethesda, MD | 301.304.8300 Metropolitan D.C. Market Overview 1st Quarter 2020 Market Outlook / COVID-19 Market fundamentals for the Metropolitan Virtual tours and the use other on-line Washington, DC office market weakened in technologies are being utilized to conduct the first quarter 2020. Total vacancy increased business as social distancing/stay-at-home across all three markets, with significant negative guidelines are observed. The vast majority of absorption recorded for the region. Leasing office tenants, both Federal and private sector, are activity and sales remained flat compared to teleworking, while only those employees deemed fourth quarter 2019, however, there was an 81% essential are allowed access to their place of increase in new deliveries (SF) quarter over business. Leasing activity is expected to decline quarter. The region added 55,600 new jobs YOY due the economic uncertainty. Some tenants ending February 2020 with 3.0% unemployment. will discuss with their brokers and landlords rent The Washington, DC MSA ranked 14th nationally relief or rent deferment options, while others may in unemployment (in MSAs over 1 million in sign short-term lease extensions. Landlords may population). view that government leases are quite attractive compared to private sector alternatives in this However, the outbreak of the COVID-19 challenging environment and may continue to coronavirus pandemic is having a profound, and think so in the foreseeable future. Investment ongoing, impact on the national economy and sales are expected to be placed on hold, while no commercial real estate industry. On March 27th, new product is expected to come to the market. 2020 the Trump Administration enacted the Lending will be extremely limited, while banks $2.2 trillion CARES Act (Coronavirus Aid, Relief, assess their own portfolios. and Economic Security Act) stimulus package to provide unemployment healthcare benefits and The impact of the COVID-19 pandemic on small business assistance. And more recently our daily lives, and commercial real estate, is on April 9th, the Federal Reserve provided extremely fluid and ever-changing. An increase an additional $2.3 trillion in loans to small in vacancy and negative absorption are expected businesses, consumers, states, cities, and towns. for the next two quarters (as tenants attempt These unprecedented stimulus/loan packages to downsize and an increase of sublease space are there to assist the 16.8 million Americans, floods the market), as well as, a sharp decline or 11% of the U.S. labor force, that have filed for in leasing activity. Best case scenario, COVID-19 unemployment over the past three weeks and to subsides late in the second quarter, or by the blunt the spike in unemployment. third quarter at the latest, then the economy and CRE can start the recovery process in the fourth Locally, the Washington, DC regional economy quarter 2020 or early 2021. could contract .08% to 2.0% in 2020, and possibly rebound up to 3.0% in 2021 (per The Stephen S. Fuller Institute). COVID-19 is having the greatest impact on the Retail and Leisure/ Hospitality sectors as non-essential retail must remain closed and residents are advised to follow social distancing and stay-at-home guidelines. Thousands employed by these two sectors have been furloughed or laid off. However, grocery stores, pharmacies (Walgreen’s, CVS), and big- box retailers like Target, Walmart, and Costco remain open and have seen significant increase in sales, e-commerce especially. 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 4 4300 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 8120 Woodmont Ave., Suite 560 | Bethesda, MD | 301.304.8300 Northern Virginia 1st Quarter 2020 Market Summary The Northern Virginia office market consists of 1Q 2020 4Q 2019 1Q 2019 1,529 buildings over 25,000 square feet, totaling approximately 187.4 million square feet of rentable space. Direct 13.3% 13.0% 14.3% The largest non-GSA lease signed during the fourth Vacancy quarter was a 125,556-square-foot renewal by Booz Allen Hamilton at 575 Herndon Parkway. Total 14.0% 13.6% 14.9% The largest lease signed by the GSA was a Vacancy 44,989-square-foot renewal by the Department of Defense at Potomac Gateway North - 2800 Crystal Net Drive. Absorption -712,680 SF 2,522,677 SF 472,834 SF (YTD) Building sales volume totaled $697,271,738 during the first quarter. The largest transaction was the sale of Dominion Tech Park - Buildings 1 & 2 - 399 & 499 Leasing Grove Street in the Reston-Herndon submarket. Activity 1.9 M SF 11.2 M SF 2.9 M SF USAA acquired the buildings from Boston Properties (YTD) for $256,000,000 ($519.69 psf). The portfolio was 100.0% occupied at the time of sale. The second Under 3.5 M SF 3.8 M SF 2.6 M SF largest sale was Fairview Park - 2941 Fairview Park Construction Drive in the Merrifield submarket. Menlo Equities acquired the building from Fairfax Park LLC for $97,590,405 ($265.66 psf). The building