Springfield/Burke Submarket Q1 2019

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Overview – Vacancies peaked at about 22% following a supply wave from 2011–13 and, despite a subtle recovery, are still extremely high. Rent growth has been weak as a result, and rents remain below the prerecession peak. On a bright note, the submarket experienced a big win when the GSA announced it was moving the Transportation Security Administration’s (TSA) headquarters to Springfield from Pentagon City, a move that will bring 3,400 employees to the submarket and help stabilize fundamentals. Sales have been relatively tame this cycle, with the exception of last year, when more than $63 million in volume recorded.

Leasing – The majority of office space in Springfield/Burke is clustered on the eastern end of the submarket, which provides the best access to highways and public transportation. While the Metro’s Blue Line terminus is in the submarket—the Franconia-Springfield station—it’s more likely to serve commuters going into D.C. than those who work in Springfield/Burke. Regardless, both the Capital Beltway and I-395 provide easy access to the submarket’s office nodes.

A supply wave from 2011–13 led to a large jump in vacancy, but strong demand in 2015–16 helped it to recover somewhat. High-end 4 & 5 Star properties comprise nearly one-third of Springfield/Burke’s office inventory, and these are the worst-performing products here. The submarket’s overall vacancy is high, but that of 4 & 5 Star product is even worse. As of mid-October, vacancy for 4 & 5 Star assets was more than 35%.

Three major move-ins made 2015 a great year for demand—with more than 170,000 SF of net absorption, it was the strongest year this cycle. The largest was an 80,000-SF lease signed by MGP Retail Consulting, the real estate arm of German grocery chain Lidl. Accenture also signed a 53,000-SF lease, and the GSA took 33,000 SF.

The biggest news for Springfield/Burke was the GSA’s decision to move the TSA headquarters to Springfield. The agency is relocating from Pentagon City and will bring about 3,400 employees to the area. Boston Properties plans to break ground this year on a 625,000- SF property adjacent to the Franconia-Springfield Metro station, where the TSA has a 15-year lease.

Rent – Rent growth has been inconsistent since the recession, and rents have yet to match the prerecession peak. The submarket logged three years of rent gains, however modest, from 2015–17, but rents had dropped slightly this year as of October. Persistently high vacancies could continue to weigh on growth moving forward. Despite extremely high vacancies in 4 & 5 Star properties and lackluster growth, rents in these assets have returned to their prior peak.

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