Much like Washington DC’s downtown submarket cluster, the Rosslyn-Ballston Corridor is suffering from competition from emerging submarkets that offer newer, 4 & 5-Star properties with access to public transit and lower market rents. What was once home to Northern Virginia’s premier submarkets is now being assaulted on two fronts. The Silver Line provided suburban submarkets like Tysons Corner and Reston with access to public transit and increased densities, and Amazon’s announcement to locate its HQ2 just next door in Crystal City has left many tenants searching for reasons to be in the R-B Corridor.

Ballston

• RBA: 8,037,415 SF
• Vacancy Rate: 21.7%
• 12 Month Net Absorption: 172,000 SF
• Average Asking Rent: $41.92
• 12 Month Rent Growth: 0.6%

At 21.7%, Ballston has the 2^nd highest vacancy rate of all Northern Virginia submarkets behind only the I-395 Corridor. From an absorption standpoint, this can be attributed to the National Science Foundation relocating to Alexandria and vacating approximately 600,000 SF (almost 7.5% of the submarket’s total inventory); however, this is only part of the story. The true cause of Ballston’s woes is competition from emerging submarkets like Tysons Corner and Reston, which have lower market rents, access to public transit, and new 4 & 5-Star properties. Ballston is in trouble. With the 2^nd highest rents (and vacancy) in Northern Virginia, Ballston has seen a steady decline in market rents over the past 2 years with its 4 & 5-Star properties particularly hard hit (3.7% decline last quarter). The problem is that there is simply no reason to be in Ballston anymore. The delivery of the Silver Line changed the game and Ballston may not be able to recover in the foreseeable future. After the National Science Foundation’s relocation, the building owner performed a $140,000,000 renovation. The property is currently is only 14% leased.

Virginia Square

• RBA: 1,651,601 SF
• Vacancy Rate: 14.2%
• 12 Month Net Absorption: (35,500 SF)
• Average Asking Rent: $38.25
• 12 Month Rent Growth: 1.3%

Blink and you may miss it. The Virginia Square submarket lies between Ballston and Clarendon and has only 1,651,601 SF of total inventory. Even more than Ballston, there is simply no reason to be there, and this is reflected in the submarket’s fundamentals. The vacancy rate is slightly above the metro average at 14.2%; however, this is deceptive. The vacancy rate for 4 & 5-Star properties, which comprise over 71% of the submarket’s office space, is at 18.1%. Despite being one of the smallest submarkets in Northern Virginia, Virginia Square is one of the most expensive with market rents for 4 & 5-Star properties at $41.05/SF. With no projects under construction or even proposed, Virginia Square should continue to suffer from a lack of demand. Coupled with the oversized impact of any negative net absorption due to its diminutive inventory, Virginia Square should see continued downward pressure on rents and rising vacancy rates.

Clarendon/Courthouse

• RBA: 6,295,624 SF
• Vacancy Rate: 14.7%
• 12 Month Net Absorption: (228,000 SF)
• Average Asking Rent: $40.90
• 12 Month Rent Growth: 0.6%

Clarendon/Courthouse is more a multi-family submarket than an office submarket. The only building built in the past 2 years, 2311 Wilson Blvd, is more than 90% leased but is also only 175,000 SF. Clarendon/Courthouse’s vacancy rate has jumped by 3.6% over the past 12 months and while this is in large part due to the renovation of (3-Star) 1650 Edgewood St, it represents only 139,000 SF of the total 228,000 SF of negative net absorption over that period. The 3-Star vacancy rate in Clarendon/Courthouse is only 10.5%; meaning its 4 & 5-Star inventory (17.9% vacancy) is largely responsible for the submarket’s elevated vacancy rate. At $40.90/SF ($43.44/SF for 4 & 5-Star properties), market rents in Clarendon/Courthouse are among the most expensive in the DC metro area and, with no new projects under construction to drive demand, the submarket should continue to see fundamentals suffer. In addition to its nearly 1,000,000 SF of vacant and available space, Clarendon/Courthouse must compete for demand with neighbors, Ballston and Rosslyn, and their nearly 4,000,000 SF of space along with emerging submarkets like Reston and Tysons, which offer the same access to public transit with lower market rents.

Rosslyn

• RBA: 10,144,610 SF
• Vacancy Rate: 18.5%
• 12 Month Net Absorption: 928,000 SF
• Average Asking Rent: $44.97
• 12 Month Rent Growth: 0.7%

As strange as it may sound, Rosslyn is celebrating a vacancy rate below 20% for the first time since Q4 2013. The submarket delivered 504,000 SF of new inventory in the past 12 months but saw positive net absorption of 928,000 SF over the same period. This is encouraging news but may not be a true indicator of Rosslyn’s viability. Despite having the 3^rd highest vacancy rate in Northern Virginia, Rosslyn has the highest market rents at $44.97/SF; $47.83/SF for 4 & 5-Star properties which comprise over 76% of the submarket’s inventory. This has led to negative rent growth in eight of the past 10 quarters. Rosslyn is in need of a makeover. Roughly 80% of its office inventory was built before 2000 (45% between 1960 and 1979). The most recent delivery was 1201 Wilson Blvd which completed in Q4 2019 and added 565,000 SF. Due to strong preleasing the property is currently over 92% leased. While this provides evidence of the demand for new product in Rosslyn, there are no projects under construction or proposed in the next 12 months. Arlington County created the Rosslyn Sector Plan to “set out policies on public spaces building height and form, access, affordable housing, bicycle and pedestrian amenities, and viewshed preservation” to transform the submarket. Unfortunately this will take many years and, with large GSA leases expiring in 2020 and 2021, the submarket may not respond in time to shifts in demand and competition from less expensive but equally accessible submarkets.