Office – Vacancy in Route 28 Corridor North has lingered above the metro average for most of the cycle, but the spread has thinned this year and is expected to compress further because of the U.S. Customs & Border Protection’s lease for 457,000 SF. Plus, demand has potential to grow here with the eventual expansion of the Silver Line. Deliveries have picked up over the past few years: Of the six properties delivered since 2010, four have come on line since 2015. Furthermore, Google recently purchased 148 acres, where it plans to build a data center, strengthening Loudoun County’s reputation as a key hub for internet traffic. Rents have been among the best performing in the metro over the past five years, and growth so far this year has been the strongest of the cycle. Sales volume in 2015 and 2016 more than doubled and quadrupled the historical average, respectively, but it slowed significantly in 2017 and the first three quarters of 2018.
Industrial – This submarket is best known for the corridor known as Data Center Alley, a stretch along the Dulles Greenway (Route 267) containing one of the largest and fastest-growing concentrations of data centers in the nation. As companies like Amazon, which has another distribution center under construction here, and Google have expanded their needs for server space, the dense node of data centers, along with strong cyclical growth, has made this the busiest submarket for construction in the metro (the next busiest submarket has about one-seventh as much inventory underway). Vacancy rates expanded in early 2016 due to heavy supply hitting the submarket, but strong absorption has since kicked in, and the current rate is at a cyclical low. Relatively little construction this year has helped keep fundamentals on solid footing, but there was more than 7 million SF under construction as of 18Q3, so the supply pipeline is worth monitoring.
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