Crystal City
- RBA: 12,100,053 SF
- Vacancy Rate: 18.4%
- 12 Month Net Absorption: (122,000 SF)
- Average Asking Rent: $38.04
- 12 Month Rent Growth: 2.1%
Crystal City may consider a name change to Amazon City. Amazon’s announcement to locate its HQ2 there did more than breathe new life into the submarket… it raised it from the dead. To provide some perspective vacancies peaked in Q4 2014 at over 25% and remained above 20% until recently. They are now 18.4% and dropping. Just last quarter, Amazon leased a staggering 585,000 SF JBG Smith. Along with companies moving into the submarket to be close to the tech giant, an increase in defense spending should also see more space being leased by the Crystal City’s traditional tenants, federal contractors. As a result, rents have seen consistent quarterly growth, averaging 2.1% in the past 12 months, with average market rate of $38.04/SF. Over 100,000 SF delivered in the past 12 months with another 115,000 SF in the pipeline. Interestingly, this new delivery is not Amazon-related, but rather is for the American Physical Therapy Association. The financial package offered to Amazon by Arlington County was based on Amazon occupying at least 6,000,000 SF of office space by 2024. Demand should continue to outpace supply leading to a continuing decrease in vacancy and increase in rents. The future for Crystal City is so bright is has to wear shades.
Pentagon City
- RBA: 1,588,349 SF
- Vacancy Rate: 0%
- 12 Month Net Absorption: 0 SF
- Average Asking Rent: $38.75
- 12 Month Rent Growth: 3.4%
As the name suggests, Pentagon City’s small office market traditionally served defense contractors with most recent development being dominated by multi-family projects. Amazon’s presence will certainly transform the submarket, especially with its recent land purchases at Pen Place and Metropolitan Park, which combined have more than 4,000,000 SF of development potential; however, recent increases in defense spending should have a more immediate impact. Anemic demand has kept rents low in recent years despite low vacancy and while the 3.4% growth in the past 12 months may be seen as an outlier today, it is more likely an indication of things to come as the submarket benefits from the Amazon effect.