Herndon Submarket Overview Q1 2019

dulles view herndon officeOffice vacancies in Herndon began rapidly increasing in 2015 and reached almost 20% in 2017. Since the submarket has been spared of any construction this cycle, this trend is fueled by large move-outs, including Spectrum’s nearly 410,000-SF move-out between late 2017 and early 2018 (in two buildings), XO Communications’ 110,000-SF move-out in Q4 2017, and Booz Allen Hamilton’s 396,000-SF move out of One Dulles Tower in Q1 2016. Vacancies seem to have plateaued, however, and elevated levels have not weighed on rents, with average annual growth of about 2.3% from 2014–18, strong by D.C. standards. Sales surpassed $300 million in 2015 and 2016 but slowed in 2017, with volume in 2017 at about $176 million. Volume in 2018, however, cleared $736 million, making it the strongest year in history. While many of the technology and e-commerce companies (such as Amazon) that shaped Herndon remain here, the submarket also hosts defense and other federal government contractors, such as Northrop Grumman, Lockheed Martin, and Mantech. The North American headquarters for Audi and Volkswagen also call Herndon home. The average lease in Herndon (about 10,000 SF) is almost one-third larger than in neighboring Reston, thanks to some of these larger users. Office demand in Herndon could get a boost from the Metrorail’s Silver Line, and developers have been actively acquiring sites next to the new stations under construction.

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