Northern Virginia Quarterly Market Report 4th Quarter 2019 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, 4Q 2019: Senior Vice President [email protected] | 202.513.6700 Northern Virginia .................................................................. 11 Alexandria ............................................................................. 13 Stoddie Nibley Senior Vice President Crystal City ........................................................................... 15 [email protected] | 703.284.5884 Fairfax .................................................................................... 17 Correll Caulfield Loudoun County .................................................................19 Vice President [email protected] | 703.284.5886 Merrifield ............................................................................... 21 Jed Prossner National Landing ............................................................... 23 Vice President Old Town Alexandria/Eisenhower Avenue..................24 [email protected] | 703.284.5864 Reston - Herndon .............................................................. 26 Jack Redmond Senior Associate Rosslyn - Ballston Corridor ............................................. 28 [email protected] | 703.284.5880 Route 28 North ...................................................................30 Brenda Sosa Route 28 South................................................................... 32 Leasing Associate [email protected] | 703.284.5881 Springfield ............................................................................ 34 Tysons Corner ..................................................................... 36 Ben Hickey Leasing Associate 13 [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 4th Quarter 2019 Overall Market Summary The Washington, DC Metropolitan commercial real estate market is comprised of approximately 425.4 million square feet of rentable office space located in the District of Columbia, Northern Virginia, and Suburban Maryland. totaling 824,921 square feet, delivered. The largest addition was 250 Massachusetts Avenue, NW - The total vacancy rate ticked up to 13.3% at the end Capitol Crossing delivering 559,921 square feet (0% of the fourth quarter, while the market recorded pre-leased) to the Capitol Hill submarket in DC. 668,949 square feet of net absorption. Northern Virginia posted the largest amount of net absorption There were twenty-one sale transactions in the with approximately 602,000 square feet absorbed fourth quarter, totaling $1.96 billion. The largest sale in the fourth quarter. was in the District with 901 15th Street, NW trading for $209,100,000 ($817 psf). Leasing activity for the quarter totaled 5,005,459 square feet. The largest lease executed was a new Average asking rental rates decreased $0.42 to 308,989-square-foot lease signed by the GSA - DOJ $38.45 per square foot, Full Service. at 601 D Street, NW in Washington, DC. From November 2018-November 2019 the At the end of the quarter, there was 9,537,394 Washington, DC MSA had a net increase of 61,100 square feet under construction, with 66% of the jobs (57,500 private sector, 3,600 government) space pre-leased. Two buildings, totaling 753,628 representing 1.8% growth YOY, while the square feet, broke ground; while two buildings, unemployment rate decreased to 2.8%. Metro DC VA MD Area (YTD) Direct Vacancy 11.3% 13.0% 13.1% 12.4% (4Q 2019) Total Vacancy 12.5% 13.6% 13.8% 13.3% (4Q 2019) Total Net Absorption 491,028 2,522,677 111,669 3.1 M SF (YTD 2019) Leasing Activity 10,720,637 11,237,970 3,753,095 25.7 M SF (YTD 2019) 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 4th Quarter 2019 Outlook The Metropolitan Washington, DC office Overall, the DC Metro had a strong 2019 market slowed down slightly in the final quarter and that trend is expected to continue into of 2019. Total vacancy ticked up, while there was 2020. Amazon will continue to have a trans- a slight decrease in absorption, leasing activity, formative affect on National Landing impacting; and sales compared to the third quarter. Northern leasing, absorption, rent growth, employment, Virginia lead the region this quarter in absorption commercial and residential development. Also in (with 602,000 sf absorbed), leasing activity (2.4 Virginia, Phase II of the Silver Line is scheduled M sf), and sales ($745.25 M), while DC lead in to complete construction and provide passenger new construction with two buildings delivering service to Dulles Airport and Loudoun County by (totaling 824,921 sf). Market fundamentals Summer 2020. The GSA is expected to sign longer strengthen overall in 2019 as vacancy ticked term leases (15-20 years) and avoid short term down 0.7% and absorption increased 63% (or 1.2 extensions, when possible, to reduce costs. In M sf) compared to year-end 2018. The regional Maryland, the bio-tech industry should continue economy strengthened as well with the DC Metro to be an economic driver, while in DC, vacancy area experiencing 1.8% job growth YOY and rates may start to stabilize in the CBD and East the unemployment rate dropping to 2.8% (the End due to a very limited supply of new buildings national average is 3.5%). The DC Metro ranked scheduled to deliver over the next three years 17th nationally for unemployment in metro areas (only 1.3 M sf). with populations over 1 million. 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 4th Quarter 2019 Market Summary The Northern Virginia office market consists of 4Q 2019 3Q 2019 4Q 2018 1,524 buildings over 25,000 square feet, totaling approximately 186.7 million square feet of rentable space. Direct 13.0% 12.9% 14.3% The largest non-GSA lease signed during the fourth Vacancy quarter was a 207,000-square-foot new lease by ICF at Reston Station - Phase III - 1902 Reston Total Metro Plaza. 13.6% 13.6% 15.0% Vacancy The largest lease signed by the GSA was a 60,421-square-foot renewal at Herndon Square II - Net 535 Huntmar Park Drive. Absorption 2,522,677 SF 1,920,369 SF 1,389,691 SF (YTD) Building sales volume totaled $745,250,000 during the fourth quarter. The largest transaction was the sale of the Skyline Office Portfolio - 5107- Leasing 5275 Leesburg Pike in the Falls Church submarket. Activity 11.2 M SF 8.8 M SF 13.4 M SF Somera Road acquired the portfolio from CW (YTD) Capital for $210,700,000 ($78.00 psf). The portfolio was 49.2% occupied at the time of sale. The second Under 3.8 M SF 3.0 M SF 1.8 M SF largest sale was 1525 Wilson Boulevard in the Construction Rosslyn-Ballston Corridor submarket. The Meridian Group acquired the building from The Blackstone Group for $113,150,000 ($355.27 psf). The building Deliveries 627,777 SF 627,777 SF 1,675,000 SF was 78.4% occupied at the time of sale. The third (YTD) largest sale was of Centerstone @ Tysons - 1550 Westbranch Drive in the Tysons Corner submarket. KAMCO Investment Company acquired the building from Griffith Properties for $80,500,00 ($530.00 Rental Rates $32.81 PSF $33.08 PSF $33.00 PSF psf). The building was 100.0% occupied at the time of sale and traded at a 5.00% Cap Rate. U/C Percent Inside the Beltway, there were 40 buildings 74.7% 72.5% 62.1% marketing 50,000 square feet or greater of Pre-Leased contiguous space available at the end of the fourth quarter 2019, compared to 37 from the third quarter 2019. Outside the Beltway, there were 76 buildings marketing 50,000 square feet or greater of contiguous space available at the end of the fourth quarter 2019, compared to 75 from the third quarter 2019. 101 Constitution Ave., Suite 325 East | Washington D.C. | 202.513.6700 lpcwashingtondc.com 4300 Wilson Blvd., Suite 200 | Arlington, VA | 703.522.4600 5 8120 Woodmont Ave., Suite 560 | Bethesda, MD | 301.304.8300 Northern Virginia 4th Quarter 2019 Vacancy Rate Deliveries vs. Under Construction Total vacancy in Northern Virginia remained flat at 5 13.6% from the third quarter 2019 to the fourth quarter 2019, and has decreased from 15.0% since fourth quarter 2018. At the end of the fourth quarter 2019, 4 25.3 million square feet was vacant and available. 3 Direct vacancy has increased from 12.9% in the third quarter 2019 to 13.0% in the fourth quarter 2019, and SF (Millions) 2 has decreased from 14.3% since fourth quarter 2018. At the end of the fourth quarter 2019, 24.2 million 1 square feet was vacant and available for direct lease. 0 The sublet vacancy rate in Northern Virginia decreased '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 YTD '19 from 0.7% from the third quarter 2019 to 0.6% in the Deliveries Under Construction fourth quarter 2019, and has decreased from 0.7% since fourth quarter 2018. At the end of the fourth quarter 2019, 1.1 million square feet was vacant and available for sublease. Deliveries | Net Absorption | Vacancy Rate Total vacancy for Class A product in Northern Virginia was 15.2% while Class B product was 10.9% for the 3.0 20 quarter. Class A vacancy increased from 14.9% in the 2.5 18 third quarter 2019, and Class B vacancy decreased 2.0 16 from 11.5% in the third quarter 2019.