ROSSLYN, VA–Who's afraid of BRAC and sequestration? Not the Rosslyn Ballston Corridor, at least not anymore.
Since those events the area has shifted to a more business oriented one that has pushed rents higher and created enough demand to support new construction.
“When you think back historically the Rosslyn-Ballston Corridor was a government-centric market and events such as BRAC and sequestration were able to have a severe impact, driving vacancies up,” JLL Senior Research Manager Michael Hartnett tells GlobeSt.com.
However, the corridor's vacancy rate has been dropping since the market's peak in 2014 and is now 20%, according to JLL. The Rosslyn market has declined by 3.4% in that period to reach 26.3% and Ballston declined by 4.3% to reach 15.3%, according to JLL. “We predict it will continue to tick downward, primarily driven by a diverse private-sector tenant base that includes tech firms, professional business services as well as companies like Nestle,” Hartnett says.
Read Nestlé USA's New HQ Will Whittle Down Rosslyn's High Vacancy Rate
Changing Rent Economics
At the same time rents are rising for the same reason — businesses have become a major component of the RB Corridor tenant base now.
According to JLL research, from 2007 to 2009, $30-39 per square foot rents comprised almost two-thirds of leases, driven by a larger concentration of federal government tenants.
Today, $30-39 per square foot rents comprise only 20% of leases, while the share of $40-49 per square foot rents has increased from 15% in 2007 to 59% year to date. Writes JLL:
As the market continues its slow recovery from BRAC and sequestration, the private sector is driving leasing activity. Landlords that were bound by GSA rent caps have benefited from up to a 31% increase in rent from the last year of federal government lease to the first year of a private-sector lease.
No New Construction Starts
In addition to the uptick in private sector leasing, new construction is also driving rents. The RB Corridor leads Northern Virginia in new construction pricing, and as a result, the share of leases with rents that are greater than $50 per square foot is at an all-time high of 20%. JLL writes:
Increased mixed-use focus and a hefty proposed pipeline are expected to transform the corridor, streetscape and perception of the corridor further in coming years. Obsolete product will eventually be removed from supply and the share of leases with rents over $50 per square foot will trend upward, establishing new rent highs.
Currently 64% of supply is pre leased, Hartnett says.
One notable difference between Rosslyn and the District is that as of right now there are no new construction starts, Hartnett says. Delivery this year will be about 341,767 square feet (including 1000 N. Glebe Rd. and 2311 Wilson Blvd) and next year there will be 552,781 square feet delivered, including 1201 Wilson Blvd.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
