When it comes to office leasing in Northern Virginia, there two submarkets that dominate in both demand and supply: Tysons Corner and Reston. Tysons Corner is the business center of NoVA and, despite horror stories about its traffic, Tysons Corner provides some of the best access to major highways and public transportation in the region. Reston is the nation’s first planned community and, as a result, is uniquely positioned for growth in ways that Tysons Corner is not. With a little help from Dulles International Airport, the submarket created its own epicenter in Reston Town Center, which boasts some of the highest rental rates in the region. At $9.5B and $6.5B respectively, Tysons Corner and Reston are the largest office submarkets in Virginia, and they’re only just getting started.
The four Silver-Line Metro stations were a game-changer for Tysons Corner. Access and proximity to mass transit increased development density and connected Tysons Corner to the region like never before. The submarket is now being heralded as America’s next great city, but the explosion of residential development has not yet translated into comparable increases in office demand.
After Capital One completed its new headquarters, now the tallest building in the region, the Meridian Group delivered the first office building of the new Boro project. This approximately 440,000 sf building experienced strong preleasing and was nearly 75% leased by Q1 2019. This quarter should see another boost in demand as Appian moves its 600 employees (with plans to hire 600 more) into 205,000 sf at the former USA Today building.
Vacancy levels in Tysons Corner bely the overall strength of the submarket. They are still in the upper teens and above prerecession levels, but this is mostly due to 3 Star properties. Questions remain as to what will become of this older product as the flight to quality is likely to continue. Rent growth is indicative of this phenomenon with gains equaling about 2.5% since last year. Rents in Tysons average about $35/sf with new properties commanding average rents of $47/sf. Still, Tysons Corner offers a more affordable option to companies that don’t necessarily need to be in close proximity to DC with rates that are about 25% less than Rosslyn and Ballston.
Tysons Corner has a pipeline of proposed properties that is staggering; however, only one is set to deliver this summer: the latest addition to the Boro project. The majority of development has been multi-family and has centered around the four metro stations, but if the economy continues to boom we should see some of the more than two-dozen office projects begin to break ground in the coming years.
Much like Tysons Corner, Reston has benefited from the introduction of the Silver-Line Metro, a trend that will continue when the 2nd phase delivers in 2020. The submarket’s diverse tenant makeup, relatively affordable rents, and proximity to Dulles International Airport have led to vacancy levels below the metro average and annual rent growth of nearly 2.5% over the past 4 years.
Measured growth is responsible for Reston’s steady decline in vacancy as only 300,000 sf delivered from 2014-2017. The largest and latest delivery was the 368,000 sf, 5 Star office building at the Wiehle Metro Station. While leasing at this property has been anemic thus far, Google will be leasing a large block of space which should prompt Comstock to move forward with its plans to build an additional 2 towers for a total of approximately 800,000 sf. Boston Properties is, by far, the largest landlord in the submarket and just signed a lease with Fannie Mae for about 850,000 sf at Reston Gateway, which hasn’t even broken ground yet.
Average rents in Reston are slightly over $32/sf. While low compared to the metro as a whole, they are higher than the rest of the Dulles Corridor and Reston Town Center consistently commands rents that are 20% higher than the rest of the submarket’s 4 and 5 Star properties. Continued office, retail, and residential development around the metro station(s) and Reston Town Center should cause rates to continue to rise.