Q2 2020 Northern Virginia
Northern Virginia’s office market maintained steady growth in Q2, despite the onset of the coronavirus. NoVA’s leasing pipeline was relatively robust before COVID-19, which helped to prop up leasing velocity as demand among smaller firms effectively froze. Despite mega-deals, such as Microsoft’s 396,740 SF development hub in Reston, NoVa’s overall leasing volume was historically low in Q2. Sustained low leasing activity will manifest itself as tepid occupancy growth, elevated vacancy, and increased landlord competition. While forecasts show near-term softening due to COVID, NoVA’s tenant composition could provide some insulation from a sluggish economy. The region’s strong technology sector – including consumer, federal, and defense-related firms – has generally been less impacted by layoffs and furloughs relative to other knowledge-based industries. While tech may support some of the region’s recovery, much of NoVa remains structurally oversupplied with office space, as evidenced by its static vacancy rate of 17.9%. Additionally, slumping asking rents in nearly all submarkets further indicate that landlords are aware of the slowdown in demand and their shrinking leverage.