I-395 Corridor

• RBA: 11,121,602 SF
• Vacancy Rate: 24.7%
• 12 Month Net Absorption: (27,200 SF)
• Average Asking Rent: $30.47
• 12 Month Rent Growth: 2.7%

Landlords in the I-395 Corridor are praying that the “Amazon effect” extends to their submarket, which has one of the highest vacancy rates in the metro at 24.7%. Rent growth was the highest in the area behind only the Capitol Riverfront, which may indicate an increase in demand to its proximity to Amazon’s HQ2. Still the submarket suffers from a lack of metro access and competition from neighboring submarkets like Falls Church, Crystal City, and particularly the Eisenhower Ave Corridor, which has only slightly higher rents, metro access, and an abundance of 4 & 5-Star properties. In fact, the I-395 Corridor has only slightly more 4 & 5-Star inventory at 5,362,225 SF vs. Eisenhower Ave’s 4,109,627 SF despite its total inventory over twice that of its neighbor. Time will tell if the submarket can recover from the damage done by BRAC. Apart from renewals from the U.S. Patent and Trademark Office and the GSA, leasing has been dominated by local businesses downsizing.

Eisenhower Ave Corridor

• RBA: 4,891,844 SF
• Vacancy Rate: 9.1%
• 12 Month Net Absorption: 29,500 SF
• Average Asking Rent: $36.24
• 12 Month Rent Growth: 3.9%

At only 4,891,844 SF, the Eisenhower Ave Corridor is a relatively small submarket; however, it is absolutely dominated by 4 & 5-Star properties which comprise 84% of the total office inventory. The submarket’s vacancy rate is comfortably below the metro average of 13.1%. The Department of Defense vacated 600,000 SF in 2017 but the building was demolished, which reduced the office inventory and vacancy levels. This large-scale move out was also offset by the National Science Foundation leasing 700,000 SF when 2415 Eisenhower Ave delivered in the same year. Two indicators that the “Amazon effect” may continue to improve fundamentals are the nearly 4% growth in submarket rents over the past 12 months along with the co-working company, Industrious, recently leasing 25,000 SF at Carlyle Tower. This may signal diversification in tenant mix in a submarket dominated by federal tenants. The submarket’s resiliency and attractiveness will be put to the test in a few years (2023, 2024, and 2025) when over 2.1 million square feet of space come up for renewal from government tenants. The USPTO, alone, occupies 2,000,000 SF.

Old Town Alexandria

• RBA: 10,398,384 SF
• Vacancy Rate: 10.9%
• 12 Month Net Absorption: (3,600 SF)
• Average Asking Rent: $33.45
• 12 Month Rent Growth: 1.3%

Conventional wisdom would suggest that Old Town Alexandria will benefit from Amazon’s HQ2 based on its location, alone; however, I do not believe this will be the case. The major issue with Old Town is that it’s old. Rent growth, while positive, is more likely the result of a strong economy rather than increased demand. The submarket is comprised mostly of 3 and 1 & 2-Star properties (over 77%), and the type of companies that will want to be in close proximity to Amazon will prefer neighboring submarkets with an abundance of 4 & 5-Star properties. Old Town is still Old Town and due to its walkability, retail amenities, and metro access it will still be attractive to certain, most likely smaller, tenants. Evidence of this is ALX Community and Spaces leasing approximately 59,000 SF in the past year. The two co-working companies clearly saw a demand from small businesses and entrepreneurs who want to work, live, and play in Old Town without having to sign “larger,” long-term leases.