Route 28 Corridor Q3 2019

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Route 28 North Industrial Submarket

  • RBA: 35,287,627 SF
  • Vacancy Rate: 3.7%
  • 12 Month Net Absorption: 1,800,000 SF
  • Average Asking Rent: $12.65
  • 12 Month Rent Growth: 4.5%

The Route 28 North Industrial submarket may be the strongest in the DC metro area across every asset class. Even with 2,000,000 SF delivering in the past 12 months the vacancy rate only increased by 0.3% in that time and is well below the market average at 3.7%. The submarket saw 1,800,000 SF in positive net absorption over the same period and a staggering 4.5% growth in rents. Over 1.1M SF is set to deliver in the next year with an additional 694,000 SF proposed. This area is also known as Data Center Alley with one of the largest concentrations of data centers in the nation/world with nearly 70% of the world’s internet traffic flowing through the corridor. The submarket has AOL to thank for the infrastructure that eventually led Amazon, Google, and Microsoft to purchase hundreds of acres for future development. In addition to this, the submarket’s proximity to Dulles International Airport, location in the richest county in the nation (Loudoun), and major north/south and east/west highways (Route 28 and the Dulles Greenway respectively) have all combined to create the region’s largest industrial submarket with seemingly unlimited potential.

Route 28 North Office Submarket 

  • RBA: 10,348,741 SF
  • Vacancy Rate: 16.3%
  • 12 Month Net Absorption: (115,000 SF)
  • Average Asking Rent: $26.52
  • 12 Month Rent Growth: 0.8%

Route 28 North’s office and industrial markets’ fundamentals are in stark contrast and tell a story that began before the Great Recession. Before 2008, Loudoun County planners had a much more optimistic outlook for area’s office demand, as evidenced by the prevalence of land zoned PD-OP (Planned Development Office Park). Over the years the submarket became known as Data Center Alley and demand was primarily for industrial uses. This quietly created prime conditions for a surge in office demand in the submarket. Amazon, Google, and Microsoft have invested heavily in the submarket and with the completion of the Silver Line in late 2020, developers will have the opportunity to transform the office market into mixed use, transit-oriented office projects that attract both international and regional companies that support and/or collaborate with the tech giants.

Route 28 South Industrial Submarket 

  • RBA: 11,780,111 SF
  • Vacancy Rate: 8.2%
  • 12 Month Net Absorption: 126,000 SF
  • Average Asking Rent: $12.96
  • 12 Month Rent Growth: 4.2%

The Route 28 South Industrial submarket is a smaller, older version of its northern neighbor; however, its fundamentals comparatively strong. The past 12 months saw a 1% drop in the vacancy rate, 126,000 SF of net absorption, and a 4.2% growth in rents. Despite having a vacancy rate that is above the metro average (8.2% vs. 6.6%), the submarket commands an average rental rate that is $0.31/SF higher than Route 28 North. There are no projects proposed or set to deliver in the next 12 months which should cause vacancy rates to continue to decline. Further evidence of the submarket’s health is the average and median submarket cap rates in the past 12 months: 6.3% and 5.4% respectively.

Route 28 South Submarket Office 

  • RBA: 14,330,215 SF
  • Vacancy Rate: 15.2%
  • 12 Month Net Absorption: 210,000 SF
  • Average Asking Rent: $28.25
  • 12 Month Rent Growth: 0.7%

Route 28 South’s office vacancy is above the metro average, but this is not necessarily reflective of the overall health of the submarket. It does, however, reveal its vulnerability to large move-outs as UNICOM’s move in 2018 increased the submarket’s vacancy rate by a brutal 3.2%. The submarket’s inventory is nearly evenly split between 4 & 5-Star and 3-Star properties, but the differences in average rents and vacancy is anything but even at $31.70/SF vs. $25.21/SF and 13.9% and 21.5% respectively. Peterson Companies delivered 480,000 SF in September 2018 (for a government tenant) and there is 125,000 SF set to deliver in the next 12 months with another 170,000 SF proposed. The presence of large (3-letter) government tenants should generate consistent demand from government contractor tenants and, barring any large-scale move-outs, should contribute to a continued improvement in submarket fundamentals.

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