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. Construction slowed slightly last year, helping keep fundamentals on solid footing, but there was 3.4 million SF under construction at the end of Q4 2018, so the supply pipeline is worth monitoring. Strong demand and tightening vacancies have led to the highest rent growth so far this cycle—average annual growth was above 3.5% from 2016–17, and growth last year again surpassed 3%. Sales have also had a banner year, hitting a record high.
The Route 28/Dulles North Submarket is the busiest submarket for construction in the metro (the next busiest submarket has about one-seventh as much inventory underway), due mainly to 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 and Google have expanded their needs for server space, they have expanded into the dense node of data centers where roughly 70% of the world’s internet traffic flows through.
Vacancy rates have dropped to their lowest levels of the cycle after increasing in early 2016 when new supply reversed years of compression. More than 5.5 million SF delivered from 2016–18, marking the peak of this cycle’s supply wave. And while vacancies have recovered, the robust pipeline could cause rates to increase yet again.
Route 28/Dulles North is home to Data Center Alley, which is along the Dulles Greenway (Route 267). Also known as the Dulles Technology Corridor, the submarket includes one of the largest concentrations of data centers in the nation. In fact, nearly 70% of the world’s internet traffic is routed through Data Center Alley. A recent example of demand from major tech companies comes from Google. In late 2017, the tech giant purchased two sites here for a combined 148 acres where it plans to build data centers. More recently, Microsoft purchased 332 acres in Leesburg, though the firm has yet to disclose how it will use the land.
However, the typical tenant here is relatively small, with only a handful of users occupying blocks larger than 75,000 SF. More than 70% of tenants occupy less than 5,000 SF, with tenants like Excel Courier, Raytheon, and Broad Run Contracting occupying some of the largest spaces. Tenants of note in the 50,000–100,000 SF range include Allied Van Lines, Pryme Technologies, and DHL Global Forwarding.
Rent growth was relatively tame this cycle until 2016 when submarket rents took off. Growth has surpassed 3% each year since 2016, including in 2018. Today, average rents are above $12/SF and at an all-time high, more than 16% above the submarket’s low in 2011.
- Route 28 North Office Report Q1 2019
- Route 28 North Industrial Report Q1 2019
- Route 28 North Retail Report Q1 2019