Top 5 Worst Markets for Office Space in the D.C. Area

In the world of commercial office space, a market with a vacancy rate of 10 percent is considered stable; anything below that percentage is to be coveted.  Logically, developers should flock to a market with a low office inventory, especially one with short supply of Class-A office space.  After all, someone is leasing all that space right?

On the other end of the spectrum, vacancy rates within the 10-15 percent range is considered normal in today’s weak office market. This holds true especially in the Washington, D.C. area where the federal government is dumping vast amounts of office space on the market while working with smaller segments. The D.C. area had negative absorption of nearly 3 million square feet in 2012 – the equivalent size of submarkets like McLean, Va; Laurel, MD; or Georgetown in D.C. sitting empty.

Some markets are still desirable and have held strong through the downturn, even attracting new businesses and fortunately for them, they aren’t on this list. The submarkets that are on the list haven’t been able to hold up and have done poorly in keeping their vacancy rate down, due to a mixture of conditions including too much supply. Surprisingly, developers are still sticking a shovel in these overbuilt markets, inundated with empty office space and poor lease rates even though there are much better markets in the area.  The following data from a report provided by Transwestern reveals that there are actually better markets in the D.C. area that could use a serious dose of Class-A office space (to be covered on our next report) but it also shows that the following submarkets are the top 5 worst submarkets for Class-A office space, in the D.C. area.

#5 Tysons Corner / McLean / Vienna, Virginia

Some may be surprised by Tysons Corner making the list, so were we, but the giant suburban office market's vacancy rate doesn’t take into account what is under construction and almost complete. Tysons Corner is on the verge of turning a conglomerate of office parks to an array of urban centers, but with over 1.3 million square feet of office space under construction, and only about 30 percent pre-leased, the actual vacancy rate is around 17 percent. There is also 17 million square feet of office space sitting empty in Fairfax County, more than all of the space in Loudoun County. 

  • Direct Vacancy Rate Q4 2013: 4.3%
  • Vacancy Rate with Sublet Q4 2013: 5.8%
  • Under Construction: 1,323,857 square feet
  • Net Absorption
    • 2010: (-39,000)
    •  2011: 256,000
    • 2012: 37,000
    •  2013: 134,000

 

#4 Loudoun County, Virginia

The rural-suburban county has been vying for the construction of newer office space over residential, but it’s Class-A office vacancy is above 17 percent.

  • Direct Vacancy Rate Q4 2013: 16.6%
  • Vacancy Rate with Sublet Q4 2013: 17.1%
  • Under Construction: 255,681 square feet
  • Net Absorption
    • 2010: 242,000
    • 2011: 291,000
    •  2012: 216,000
    • 2013: (-77,000)

 

#3 Navy Yard/Capitol Riverfront, Washington, D.C.

Home of the Washington Nationals and now home of the highest office vacancy rate in D.C. proper. The area has lured local offices of several defense contractors but supply has outstripped demand.

  • Direct Vacancy Rate Q4 2013: 18.0%
  • Vacancy Rate with Sublet Q4 2013: 18.3%
  • Under Construction: 0 square feet
  • Net Absorption
    • 2010: 208,000
    • 2011: 13,000
    • 2012: (-4,000)
    • 2013: (-4,000)

 

#2 Springfield/Huntington/I-95, Virginia

The blighted and enclosed Springfield Mall is no more; however, it is in the process of being revamped, ironically with another enclosed mall pegged Springfield Town Center. Can the newest retail spot in Fairfax County bring the vacancy rate down from a whopping 36 percent?

  • Direct Vacancy Rate Q4 2013: 31.7%
  • Vacancy Rate with Sublet Q4 2013: 36.4%
  • Under Construction: 0 square feet
  • Net Absorption
    •  2010: 107,000
    •  2011: 263,000
    • 2012: 84,000
    • 2013: (-89,000)

 

#1 Crystal and Pentagon Cities, Virginia

The poster child for dependence on the Federal Government, Crystal and Pentagon Cities, in Arlington County, have almost half of their Class-A office space empty. The last thing you would guess is that someone would want to add more. Surprisingly, 329,000 square feet is under construction.

  • Direct Vacancy Rate Q4 2013: 45.5%
  • Vacancy Rate with Sublet Q4 2013: 46%
  • Under Construction: 329,000 square feet
  • Net Absorption
    • 2010: 89,000
    • 2011: 15,000
    • 2012:-1,000
    • 2013 (-94,000)

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