Q1 2012 | OFFICE NORTHERN VIRGINIA MARKET REPORT/media/files/united states... · 2013. 1. 28. · Telecommunications Telecommunications Equipment * * Telecommunications Services 2,291

ROUTE 28 SOUTH OFFICE LEASE COMPARABLES OF NOTE

LEASEE BUILDING ADDRESS SIZE SF RENTAL RATES NOTES

Scitor Corp. Liberty Center 2 14672 Lee Road 158,919 SF $22.00 NNN $20.00 TI’s

Blackbird Lincoln Center I 13900 Lincoln Park Drive 22,517 SF $23.65 NoJ9 months free rent; Total occupancy

of 96,135 SF

Fairfax Medical Labs (Clinical Pathology Labs)

Park at Lafayette A 4200 Pleasant Valley Road 21,212 SF $16.50 NoE 6 months free rent

MARKET OVERVIEW

The Route 28 South Submarket is located in Western Fairfax County, immediately south of Washington Dulles International Airport. It is the premier employment center in Western Fairfax County, with 13.4 million square feet of office space in 157 buildings. This submarket is anchored by the county’s largest office park, Westfields. This 1,100-acre park is anchored by the National Reconnaissance Office (NRO) and currently includes 5.8 million square feet of office and flex buildings in a campus-like setting. Ultimately the park will accommodate 16-18 million square feet of development. The proximity to the Washington Dulles International Airport and Washington D.C., as well as abundant retail and housing options has made Route 28 South a preferred destination for office tenants.

The presence of the Federal Government has been the single biggest factor in the commercial success of the Route 28 South Submarket. Some of the nation’s largest contractors including companies such as General Dynamics, SAIC, and CSC all have a presence in Chantilly. The recent tightening of the Federal Government has been a cause for concern in Chantilly. Historically, this submarket has not performed as strongly as submarkets inside the Beltway, and there are fears this will only widen the gap. However, research shows that the vacancy in Chantilly will remain fairly flat in the next few quarters, despite these concerns. The presence of the Federal Government is still very important, but Route 28 South is now attracting tenants less dependent on the Federal Government. Fairfax County has one of the nation’s largest concentrations of telecommunications and high-tech companies and it is believed this trend will continue.

MARKET REPORTVIRGINIA SUBMARKET - ROUTE 28 SOUTH (CHANTILLY)

www.colliers.com/washingtondc

Q1 2012 | OFFICE

First QuarterMARKET OVERVIEWThe Northern Virginia office market is comprised of 191.7 million square feet of office space in approximately 2,300 properties in the cities of Arlington and Alexandria, Fairfax, Loudoun, and Prince William counties. The cities of Arlington and Alexandria fall on the border of Washington D.C and are comprised of approximately 61.6 million square feet of office space combined. Fairfax County is the largest market in Northern Virginia, accounting for 108.6 million square feet, or 57%, of the total office inventory. Loudoun County, the western-most county in the market, has 16 million square feet of office space, while Prince William County is comprised of only 5.4 million square feet of office space.

During the 1st quarter of 2012, the Northern Virginia office market remained relatively flat. Net absorption was modestly negative and the overall vacancy rate increased fifty basis points over the past three months. Class B space took the biggest step back during the 1st quarter, netting negative 450,367 square feet of absorption and accounting for nearly 83% of all net absorption. Class A and Class C space both remained relatively flat during the 1st quarter. With approximately 600,000 square feet expected to deliver by year-end 2012 and over 800,000 square feet by 2013, we anticipate demand to drop slightly, and for the vacancy rate to edge up over the next 12-24 months.

ECONOMIC OVERVIEWThe Washington Metro Area unemployment rate dropped 10 basis points over the last year, to 5.9%, according to the latest economic data from The Bureau of Labor Statistics. The national unemployment rate improved as well, dropping to 8.2% in March 2012, from 8.9% twelve months earlier. Office using jobs have increased by 35,200, or 1.5%, in the Washington Metro area over the past 12-months. The Mining, Logging, Construction, Financial Activities, Education and Health, and Leisure and Hospitality industries have led the way over the last year, and we expect this trend to continue over the next year.

SALES ACTIVITYThere were 836,063 square feet of significant (> $5 million) office sales totaling $175.5 million ($210/SF) in Northern Virginia during the 1st quarter of 2012. Two noteworthy purchases were Wells Real Estate purchase of 13820 Sunrise Valley Drive in Herndon for $91.1 million ($340/SF) and The Brick Companies purchase of 8607 Westwood Center Drive in Tysons Corner for $26.7 million ($308/SF).

MARKET REPORTNORTHERN VIRGINIA

www.colliers.com/washingtondc

Q1 2012 | OFFICE

First Quarter

Q3 2011 Q4 2011 (p)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

UPDATED SUMMARY STATISTICS

Q1 2011 Q1 2012

VACANCY RATE: 14.8% 15.4%ABSORPTION YTD: (624,972) SF (543,589) SF

DELIVERIES YTD: 265,495 SF 330,198 SF UNDER CONSTRUCTION: 1,281,005 SF 2,290,708 SF

ASKING RENTS/SF: $29.63 $30.47

MARKET INDICATIONS

Q1 2012 Q2 2012 (p)

VACANCY —

NET ABSORPTION —

CONSTRUCTION

RENTAL RATE

RECENT SALES TRANSACTIONS

PROPERTY SUBMARKET SALE PRICE SIZE SF PRICE/SF CAP RATE BUYER SELLER

13820 Sunrise

Valley DriveHerndon $91,100,000 268,240 $340 6.8%

Wells Real

Estate Funds

Brandywine

Realty Trust

8607 Westwood

Center DriveTysons Corner $26,700,000 86,560 $308 6.3%

The Brick

Companies

America’s

Capital

Partners

MARKET OVERVIEWThe Northern Virginia office market is comprised of 191.7 million square feet of office space in approximately 2,300 properties in the cities of Arlington and Alexandria, Fairfax, Loudoun, and Prince William counties. The cities of Arlington and Alexandria fall on the border of Washington D.C and are comprised of approximately 61.6 million square feet of office space combined. Fairfax County is the largest market in Northern Virginia, accounting for 108.6 million square feet, or 57%, of the total office inventory. Loudoun County, the western-most county in the market, has 16 million square feet of office space, while Prince William County is comprised of only 5.4 million square feet of office space.

During the 1st quarter of 2012, the Northern Virginia office market remained relatively flat. Net absorption was modestly negative and the overall vacancy rate increased fifty basis points over the past three months. Class B space took the biggest step back during the 1st quarter, netting negative 450,367 square feet of absorption and accounting for nearly 83% of all net absorption. Class A and Class C space both remained relatively flat during the 1st quarter. With approximately 600,000 square feet expected to deliver by year-end 2012 and over 800,000 square feet by 2013, we anticipate demand to drop slightly, and for the vacancy rate to edge up over the next 12-24 months.

ECONOMIC OVERVIEWThe Washington Metro Area unemployment rate dropped 10 basis points over the last year, to 5.9%, according to the latest economic data from The Bureau of Labor Statistics. The national unemployment rate improved as well, dropping to 8.2% in March 2012, from 8.9% twelve months earlier. Office using jobs have increased by 35,200, or 1.5%, in the Washington Metro area over the past 12-months. The Mining, Logging, Construction, Financial Activities, Education and Health, and Leisure and Hospitality industries have led the way over the last year, and we expect this trend to continue over the next year.

SALES ACTIVITYThere were 836,063 square feet of significant (> $5 million) office sales totaling $175.5 million ($210/SF) in Northern Virginia during the 1st quarter of 2012. Two noteworthy purchases were Wells Real Estate purchase of 13820 Sunrise Valley Drive in Herndon for $91.1 million ($340/SF) and The Brick Companies purchase of 8607 Westwood Center Drive in Tysons Corner for $26.7 million ($308/SF).

MARKET REPORTNORTHERN VIRGINIA

www.colliers.com/washingtondc

Q1 2012 | OFFICE

First Quarter

Q3 2011 Q4 2011 (p)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

UPDATED SUMMARY STATISTICS

Q1 2011 Q1 2012

VACANCY RATE: 14.8% 15.4%ABSORPTION YTD: (624,972) SF (543,589) SF

DELIVERIES YTD: 265,495 SF 330,198 SF UNDER CONSTRUCTION: 1,281,005 SF 2,290,708 SF

ASKING RENTS/SF: $29.63 $30.47

MARKET INDICATIONS

Q1 2012 Q2 2012 (p)

VACANCY —

NET ABSORPTION —

CONSTRUCTION

RENTAL RATE

RECENT SALES TRANSACTIONS

PROPERTY SUBMARKET SALE PRICE SIZE SF PRICE/SF CAP RATE BUYER SELLER

13820 Sunrise

Valley DriveHerndon $91,100,000 268,240 $340 6.8%

Wells Real

Estate Funds

Brandywine

Realty Trust

8607 Westwood

Center DriveTysons Corner $26,700,000 86,560 $308 6.3%

The Brick

Companies

America’s

Capital

Partners

NET ABSORPTION

VACANCY

Centreville–Chantilly–Dulles

© FAIRFAX COUNTY ECONOMIC DEVELOPMENT AUTHORITY, MARCH 2010

CENTREVILLE–CHANTILLY–DULLES TECHNoLogY SECToRS

TECHNoLogY SECToR JobS bUSINESSES

Information Technology (IT) Computer and Data Services 4,615 103 IT Equipment/Hardware * * Software and Programming 4,869 251 Systems Integration 11,362 459

Telecommunications Telecommunications Equipment * * Telecommunications Services 2,291 44

other Aerospace/Defense * * Biotech/Biomedical * * Energy and Environment 7,794 125 Engineering/R&D Services * * Internet/E-commerce 757 14 Technology Management Services 808 132

Total 33,249 1,159

Economic base 81,191 3,784

Technology Share of Submarket (%) 4.1% 30.6%

*Not disclosed

Source: FCEDA analysis of 2008 VEC data

CentrevilleThe Centreville business area is located in the western part of Fairfax County at the crossroads of Interstate 66, Route 28 and U.S. Route 29. Pre-dominately a residential community of more than 60,000, Centreville’s commercial sector includes 1.7 million square feet of retail space, 982,000 square feet of office space and two hotels. Much of the space is in Trinity Centre, a mixed-use development that at buildout will feature 1.2 million square feet of office space, numerous restaurants, a 140-room hotel and apartments.

ChantillyAt the crossroads of Route 28 and U.S. Route 50, north of Centreville and immediately south of Washington Dulles International Airport, Chantilly is the major employment center in western Fairfax County, with more than 10.8 million square feet of office space (the county’s third largest office submarket) and 9.4 million square feet of industrial/flex space.

This submarket is home to one of the Washington, D.C., region’s largest business parks: Westfields, a 1,100-acre campus anchored by the National Reconnaissance Office. Westfields currently has 8 million square feet of office and flex buildings. The park can accommodate 16-18 million square feet of development at buildout.

Because of its proximity to Dulles Airport and the substantial business base, Chantilly has 14 hotels with nearly 2,000 rooms, as well as more than 2.5 million square feet of retail development.

Chantilly was listed as one of Money magazine’s “Six-Figure Towns” in 2009, with a median family income o f $132,623.

DullesHome to the new U.S. headquarters of Volkswagen Group of America, Inc., the Dulles submarket is located east of Dulles Airport and is pri-marily an office market with more than 9.1 million square feet of space. Together with the Chantilly submarket, this area contains the greatest concentration of undeveloped land in Fairfax County, although numer-ous large-scale mixed-use projects are underway or planned. The Dulles area also has more than 1.6 million square feet of flex space, more than 702,000 square feet of retail development and nine hotels with more than 1,900 rooms.

The Center for Innovative Tech-nology, a state-sponsored institution that promotes tech-nological innovation by linking businesses to Virginia colleges and universities, is located in Dulles.

The Smithsonian National Air and Space Museum’s Steven F. Udvar-Hazy Center is located on airport property on the southern edge of the submar-ket, attracting millions of visi-tors since its 2003 opening.

Sector (NAICS*) Jobs Share

Professional, Scientific and Technical Services 27,969 34.4%

Construction 6,495 8.0%

Information 6,137 7.6%

Administrative and Support Services 5,905 7.3%

Accommodation and Food Services 5,414 6.7%

Retail Trade 4,479 5.5%

Health Care and Social Assistance 4,273 5.3%

Wholesale Trade 3,596 4.4%

Other 16,923 21.2%

Total Employment 81,191 100%

ECoNomIC bASE

Number of business Establishments: 3,784

*North American Industrial Classification System

Source: Virginia Employment Commission (VEC), 2Q 2008, and Fairfax County Public Schools

Note: 2Q 2008 VEC data adjusted upward to reflect Fairfax County public school locations and employment in each ABR market.

DEmogRApHICS

pLANNINg 2015 pRoJECTED 2025 pRoJECTED DISTRICT popULATIoN popULATIoN popULATIoN

Bull Run 114,027 124,492 147,685 (includes Centreville and Chantilly)

Upper Potomac 193,809 208,384 226,887 (Includes Dulles)

Source: Fairfax County Department of Systems Management for Human Services, 2007 through 2035

HoUSINg

Average price of Homes Sold

ZIp CoDE AVERAgE pRICE

Centreville20120 $325,30020121 $232,500

Chantilly20151 $339,100

Dulles20171 (Herndon) $470,000

Source: Metropolitan Regional Information Systems, Fairfax County Report, 2Q 2009

SELECTED OFFICE TENANTS

Computer Sciences Corporation Northrop Grumman Corporation

GSA General Dynamics Information Technology

Federal Aviation Administration Blackbird Technologies, Inc.

ARCOM Publishing, Inc. SAIC

TASC, Inc. CACI International, Inc.

Scitor Corp. Deltek Systems

Long and Foster Real Estate, Inc. Boeing North American Services

ACTIVITY ABSORPTION RENTS

Submarket/Class Bldgs RBA

Direct 2

VacancyRate

Sublease Vacancy

Rate

Total 3

VacancyRate

Total Vacancy

Rate Prior Qtr

LeasingActivity

SF

Net 4

Absorption Current Qtr

SF

Net Absorption YTD

Weighted 5

Avg Asking Lease Rate

RT. 28 SOUTH (CHANTILLY)A 53 8,012,989 13.0% 0.3% 13.3% 16.7% 56,485 277,746 277,746 $28.97B 68 4,188,801 18.7% 1.5% 20.2% 20.7% 69,536 20,543 20,543 $22.51C 36 1,148,628 13.3% 5.8% 19.1% 18.9% 28,182 (2,446) (2,446) $18.34Subtotal 157 13,350,418 14.8% 1.1% 16.0% 18.1% 154,203 295,843 295,843 $25.69

SPRINGFIELDA 12 1,771,759 24.5% 5.3% 29.8% 27.9% 2,015 (33,848) (33,848) $41.37B 41 1,933,330 11.4% 0.0% 11.4% 13.2% 20,596 34,866 34,866 $29.96C 80 2,498,373 12.5% 0.2% 12.7% 11.6% 3,696 (26,576) (26,576) $20.41Subtotal 133 6,203,462 15.6% 1.6% 17.2% 16.8% 26,307 (25,558) (25,558) $30.50

TYSONS CORNERA 47 12,313,834 11.0% 2.1% 13.1% 12.5% 91,070 (66,472) (66,472) $37.77B 104 13,255,051 18.8% 0.8% 19.6% 18.3% 156,274 (167,718) (167,718) $26.80C 43 2,501,841 23.2% 0.2% 23.4% 22.4% 70,529 (26,146) (26,146) $25.13Subtotal 194 28,070,726 15.8% 1.3% 17.1% 16.2% 317,873 (260,336) (260,336) $29.63

VIENNAA 1 189,000 0.0% 0.0% 0.0% 0.0% 0 0 0 - B 5 567,653 3.0% 0.0% 3.0% 1.6% 0 (7,667) (7,667) $20.84C 33 810,210 26.3% 0.0% 26.3% 26.7% 4,734 3,866 3,866 $25.75Subtotal 39 1,566,863 14.7% 0.0% 14.7% 14.4% 4,734 (3,801) (3,801) $24.61

FAIRFAX COUNTYA #REF! #REF! #REF! #REF! #REF! 14.4% #REF! #REF! #REF! $31.72B #REF! #REF! #REF! #REF! #REF! 17.6% #REF! #REF! #REF! $25.76C #REF! #REF! 13.9% 0.7% 14.6% 14.3% #REF! #REF! #REF! $22.64Subtotal #REF! #REF! #REF! #REF! #REF! 15.5% #REF! #REF! #REF! $27.73

59 14,958,018 9.3% 3.1% 12.4% 11.6% 195,248 155,510 155,510 $43.47

B 45 7,286,514 12.8% 0.5% 13.3% 13.3% 73,874 (1,363) (1,363) $41.13

32 1,791,017 9.9% 0.5% 10.4% 12.3% 19,656 32,963 32,963 $33.50

136 24,035,549 10.4% 2.1% 12.5% 12.2% 288,778 187,110 187,110 $41.35

16 5,156,638 13.0% 0.3% 13.3% 11.9% 12,653 (72,523) (72,523) $42.20B 15 4,400,655 23.7% 0.3% 24.0% 15.5% 120,412 (374,289) (374,289) $39.02

18 3,774,281 5.6% 0.2% 5.8% 6.2% 36,034 15,110 15,110 $33.9749 13,331,574 14.4% 0.3% 14.7% 11.5% 169,099 (431,702) (431,702) $39.56

75 20,114,656 10.2% 2.4% 12.6% 11.7% 207,901 82,987 82,987 $43.01B 60 11,687,169 16.9% 0.5% 17.4% 14.2% 194,286 (375,652) (375,652) $40.13

50 5,565,298 7.0% 0.3% 7.3% 8.1% 55,690 48,073 48,073 $33.71185 37,367,123 11.8% 1.5% 13.3% 11.9% 457,877 (244,592) (244,592) $40.60

R-B CORRIDOR

Arlin

gton

Cou

nty **Delivery of office at 800 N Glebe Road (301,895 SF) caused vacancy to rise despite positive net absorption.

Subtotal

Subtotal

ARLINGTON COUNTYA

CRYSTAL/PENTAGON CITIESA

C

A **

C

C

VACANCYEXISTING PROPERTIES

FAIR

FAX

CO

UN

TYFA

IRFA

X C

OU

NTY

Subtotal

Northern Virginia Market Stats First Quarter 2012

-400

-200

0

200

400

600

800

Thou

sand

s of

Squ

are

Feet

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Perc

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acan

t

P. 2 | COLLIERS INTERNATIONAL

MARKET REPORT | Q4 2011 | OFFICE | VIRGINIA | MERRIFIELDMARKET REPORT | Q1 2012 | OFFICE | VIRGINIA | ROUTE 28 SOUTH

Accelerating success.

512 offices in 61 countries on 6 continentsUnited States: 135Canada: 39Latin America: 17Asia Pacific: 194EMEA: 95

• $1.5 billion in annual revenue

• 978.6 million square feet under management

• Over 12,000 professionals

Deliveries:

Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property.

Direct Space:

Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of tenant) trying to sublet a space that has already been leased.

Existing Inventory:

The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation.

Leasing Activity:

The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings.

Rentable Building Area (RBA):

The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant’s rental obligation. This report tracks buildings with 10,000 square feet or more of speculative space. Includes competitive space in Class A, B and C single and multitenant buildings. Excludes buildings that were built with the intent to house only medical users and government owner-occupied buildings.

Sublease Space:

Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space.

Vacant Space:

Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space.

Inventory:

Includes all existing multi- or single-tenant leased and owner-occupied office properties greater than or equal to 10,000 square feet (net rentable area). Does not include medical of government buildings.

DEFINITIONS OF KEY TERMS FOUND IN THIS REPORT

Net Absorption:

The net change in occupied space over a given period of time. Unless otherwise noted, Net Absorption includes direct and sublease space.

Weighted Average Asking Rental Rates:

Weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reports on an annual per square foot basis.

COLLIERS INTERNATIONALNORTHERN VIRGINIA OFFICE:

8045 Leesburg PikeSuite 401Vienna, VA 22182TEL +1 703 394 4800www.colliers.com/washingtondc

RESEARCHER:JAKE SAMPERTON

TEL +1 703 394 [email protected]

COLLIERS INTERNATIONALNORTHERN VIRGINIA OFFICE:

8045 Leesburg PikeSuite 401Vienna, VA 22182TEL +1 703 394 4800www.colliers.com/washingtondc

RESEARCHER:PATRICK SCORAH

TEL +1 703 394 [email protected]

Accelerating success.

512 offices in 61 countries on 6 continentsUnited States: 135Canada: 39Latin America: 17Asia Pacific: 194EMEA: 95

• $1.5 billion in annual revenue

• 978.6 million square feet under management

• Over 12,000 professionals

MARKET REPORT | Q1 2012 | OFFICE | VIRGINIA | ROUTE 28 SOUTH