The Reston and Herndon business corridor was the standout for office leasing across Northern Virginia in the third quarter, according to new data.
While total leasing volume regionwide dipped 25.8% year-over-year, the Reston and Herndon area posted its best performance in three years and totaling about one-third of leasing activity in Northern Virginia as government contractors shrugged off economic challenges and looked toward higher defense spending, according to Savills Research & Data Services.
“While leasing volume dropped 25% year-over-year to 1.8 million square feet, the underlying market fundamentals are actually strengthening,” analysts said when reporting their third-quarter results last week. “Availability just hit its lowest level since 2020 — the third consecutive quarterly decline — driven by office conversions and fewer new listings hitting the market.”
The report also underscored the persistence of a flight-to-quality trend, with Class A properties capturing three-quarters of all leasing activity during the quarter from July through September. The average asking price of $38.21 rose 4.5% year-over-year.
Also year-over-year, subleasing inventory has fallen by about 1.5 million square feet, as firms have strategically picked up space.
“Despite slower transaction velocity, these trends suggest the Northern Virginia market is finding its footing with tenants gravitating toward premium space,” Savills analysts said.
The third-quarter report delivered a mix of data that paints a complicated but apparently stabilizing picture across Northern Virginia, according to analysts.
“Defense contractors will continue to be a major demand driver, with the current administration set on boosting military spending and modernization,” they said.
The report also predicts that recent interest rate cuts “should bring increased liquidity to the investment market,” but the office inventory will likely “contract,” with several properties getting redeveloped as housing and few new office space in the construction pipeline.
Nine of the top 10 leasing agreements by square footage during the quarter occurred in either Reston, Herndon or Tysons. The list was led by CACI, which inked a deal for just under 134,000 square feet at 11487 Sunset Hills Road in Reston Commons.
Reston and Herndon benefited from easy access to a variety of transportation options, analysts said.
“Tenants favor locations along the [Dulles] Toll Road with strong transit access, particularly between the Wiehle-Reston East and Reston Town Center Metro stations,” they said.
The largest deal in Tysons during the quarter was the Financial Industry Regulatory Authority’s planned relocation to nearly 78,000 square feet at Valo Park (7950 Jones Branch Drive), where it’ll fill part of the space vacated last year by Gannett.
Across Northern Virginia, the vacancy rate for commercial space stood at 22.8% in the third quarter, down from 25.5% a year before. Overall asking price was $36.99 per square foot, up from $35.48.
Among various sub-sectors in Fairfax County and vicinity:
- Tysons had an average per-square-foot asking price of $38 per square foot and an availability or vacancy rate of 28.8%
- Reston/Herndon: average asking price of $35.62, availability rate of 25.5%
- Huntington/Eisenhower Avenue: average asking price of $38.72, its availability rate of 27.9%
- The I-395 corridor: average asking price of $35.38, availability rate of 15.5%
- Merrifield/Route 50: average asking price of $32.16, availability rate of 19.7%
- Springfield/Annandale: average asking price of $31.50, availability rate of 15.3%
- Route 28 South/Chantilly: average asking price of $29.90, availability rate of 13.1%
- Fairfax/Oakton/Vienna: average asking price of $29.64, availability rate of 24.8%
While neighboring Arlington had high office vacancy rates for the quarter, it also posted the region’s most expensive asking prices at more than $40 per square foot for the Rosslyn, Ballston, National Landing and Clarendon/Courthouse/Virginia Square corridors.
Both Arlington and Fairfax are seeing some excess capacity of commercial space being removed through either redevelopment or conversion to housing or apartments. But new construction hasn’t completely stopped: the total commercial inventory for the quarter across Northern Virginia was 151.1 million square feet, up from 150.3 million a year before.
