Overview – Several years of negative absorption led to increasing vacancies in Annandale, and levels are now just marginally below the metro average. The submarket lacks large office users, but this presents one benefit—a limited risk of further increase in vacancies. The subpar fundamentals here have kept rents from fully recovering from the recession, with growth wavering between years of gains and losses. Pricing and volume are typically depressed in this locally driven submarket, but volume in 2017 was the highest in years, at more than $13 million. Sales this year have been relatively strong as well—as of early October, volume was just over $9 million.
Leasing – Tenant move-outs have weighed on fundamentals and caused significant vacancy expansion since 2014. Submarkets farther north like Tysons Corner and Reston, which boast Metro access and newer office stock, have attracted tenants like DynCorp, Noblis, and Computer Sciences Corporation. In Annandale, the only tenants that occupy more than 25,000 SF are the Fairfax County Government and Northern Virginia Community College. Annandale has had trouble attracting new tenants to fill the void, too—only six leases for more than 5,000 SF have been signed since January 2016.
The bulk of office demand since 2016 has come from local Northern Virginia businesses and nonprofits that typically lease small blocks of space (1,000 SF–2,000 SF). But anemic leasing paired with tenant move-outs has resulted in several years of negative net absorption and has kept rents from gaining traction.
Rent – Weak fundamentals have weighed on rents in Annandale, which remain below their prerecession peak. Rents have struggled to find consistent gains, with growth wavering between positive and negative, resulting in losses in six of the 10 years from 2008–17. After posting gains of almost 2% last year, rents essentially stayed flat in the first three quarters of 2018. At just under $25/SF, rents here are among the lowest in the metro. An old inventory and lack of public transit prevent landlords from raising rates, especially when many tenants willingly give up the rock-bottom rents here in search of newer inventory and Metro accessibility. The one bright spot for Annandale is a lack of construction, which could help vacancies—and, in turn, rents—recover slightly.