Fairfax City

• RBA: 5,054,602 SF
• Vacancy Rate: 10.9%
• 12 Month Net Absorption: 24,000 SF
• Average Asking Rent: $24.72
• 12 Month Rent Growth: (0.2%)

At slightly over 5,000,000 SF, Fairfax City is 1.78, 2.55, and 2.96 times larger than the McLean, Vienna, and Falls Church submarkets respectively. The vast majority of the submarket is comprised of 3-Star and 1 & 2-Star properties (98%) and the average market rate of $24.72/SF reflects as much. The submarket’s vacancy rate of 10.9% is well below the metro average but this is the result of zero supply side pressure. There have been no significant deliveries since 2007, before the Great Recession, and there are no projects under construction and none proposed in the next 12 months. Low demand is the biggest threat to Fairfax City’s fundamentals. The office inventory is old with an average and median age of 1978 and 1982 respectively and small with an average and median size of 22,872 SF and 13,096 SF respectively). Combined with a lack of metro access the submarket will continue to struggle to attract large tenants. This risk is reflected in the recent sales of WillowWood Plaza I & II (10300 & 10306 Eaton Pl) and WillowWood Plaza III & IV (10302-10304 Eaton Pl), arguably the submarket’s nicest and best located buildings. Buildings I & II sold in June 2018 for $22,300,000 ($91/SF) and were about 50% vacant at the time of sale. Buildings III & IV sold in December 2018 for $32,000,000 ($115/SF) and were 0% and 50.1% vacant at the time of sale respectively. The submarket’s largest tenant, Zeta Associates, occupies the entire building at 10302 Eaton Pl (Building III). Despite having an occupancy level approximately 25% higher, this portfolio sale was only able to achieve a $24/SF higher sales price.

City of Falls Church

• RBA: 2,831,871 SF
• Vacancy Rate: 12.4%
• 12 Month Net Absorption: (25,400 SF)
• Average Asking Rent: $25.46
• 12 Month Rent Growth: 1.4%

Negative net absorption of 25,400 SF led to a 0.9% increase in the submarket’s vacancy rate over the past 12 months. Oddly, this was accompanied by a 1.4% increase in market rents. Even more strange was that this increase came largely from 4 & 5-Star properties ($30.10/SF average rent), which have a vacancy rate of 21.5%. Despite only comprising 17.5% of total office inventory, 4 & 5-Star metrics are heavily influencing the submarket’s fundamentals. Combined, 3-Star and 1 & 2-Star properties have an average market rent of $24.48/SF and vacancy rate of 10.5% versus the submarket’s $25.46/SF and 12.4%. Vacancy rates should remain low due to zero supply side pressure. There are no properties under construction or proposed in the next 12 months. The average & median age of the office inventory is 1962 & 1965 and the average & median size is 14,749 SF & 5,560 SF respectively. As a result of demand trends, Falls Church would benefit from new product, particularly in proximity to the submarket’s lone metro station (East Falls Church). The most significant recent sale was of 6400 & 6402 Arlington Blvd in February 2019. The 410,197 SF project was 26.76% vacant at the time of sale and sold for $38,119,000 ($92.93/SF); reflecting the value-add nature of the sale.

McLean

• RBA: 1,708,579 SF
• Vacancy Rate: 11.2%
• 12 Month Net Absorption: (40,800 SF)
• Average Asking Rent: $31.18
• 12 Month Rent Growth: (0.5%)

McLean was once the central business district of Fairfax County; however, this title was usurped by neighboring Tysons Corner. The submarket’s fundamentals provide a telling picture of the state of office demand in McLean and the greater DC metro, as a whole. Negative net absorption of 40,800 SF led to a 2.4% increase in the submarket’s vacancy rate and a 0.5% drop in market rents, which despite having no 4 & 5-Star properties average $31.18/SF. At $32.82/SF and $28.93/SF, McLean has the highest 3-Star and 1 & 2-Star rents in Fairfax County. With an aging inventory (average/median age of 1977/1980) and no access to metro, McLean’s fundamentals should continue to suffer. The submarket’s one saving grace, zero supply-side pressure, is also the main contributing factor to its lack of demand.  There are no properties under construction or proposed in the next 12 months and with high rents relative to asset quality and demand trends favoring newer product with proximity to metro, tenants will likely look to Tysons Corner for their office needs. Despite this Fairfax County’s Department of Tax Administration considers McLean to be one of the County’s premier submarkets, along with Tysons Corner and Reston. As a result, commercial properties received a 0.5% reduction in their market cap rate; leading to an increase in assessed values even if a property’s net operating income remained the same. The recent sale of 1420 Beverly Rd may cause assessors to reevaluate the submarket’s status. The 46,000 SF building, built in 1985, sold in November 2018 for $12,700,000 ($276/SF) at a 7% cap rate and was fully leased at the time of sale. Another significant sale occurred in December of 2018 when 1313 Dolley Madison Blvd (53,051 SF) sold for $13,000,000 ($245/SF). The property was 13.8% vacant at the time of sale with the most recent lease signed in September 2018 at $32.00/SF full-service.

Town of Vienna

• RBA: 1,984,657 SF
• Vacancy Rate: 7.3%
• 12 Month Net Absorption: (8,200 SF)
• Average Asking Rent: $28.86
• 12 Month Rent Growth: 2.0%

Vienna’s total office inventory is fairly, evenly divided between 4 & 5-Star, 3-Star, and 1 & 2-Star properties (634,390 SF, 595,033 SF, and 755,234 SF respectively) as are the rents for each property class with an average of $4.46/SF between them. Despite a 7.3% vacancy rate which decreased by 0.5% over the past 12 months and is nearly half the metro average along with 2% rent growth over the same period, Vienna’s fundamentals are misleading. The true Vienna submarket is located within 2 blocks of Maple Ave (Rt-123) and is comprised solely of 3-Star and 1 & 2-Star properties with an average rent and vacancy rate of $26.64/SF and 10.4% versus the submarket’s $28.86/SF and 7.3%. Vienna’s inventory is old and small, with an average and median age of 43 years (built in 1976) and average and median size of 18,901 SF and 7,200 SF respectively. A total of 3 buildings comprise the submarket’s 634,390 SF of 4 & 5-Star office inventory. One of the three is 1007 Electric Ave, a build-to-suit, headquarters expansion for Navy Federal Credit Union that delivered in 2017 and increased the submarket’s 4 & 5-Star inventory by 37%. This property borders Tysons Corner. The other two, 9300 & 9302 Lee Hwy, are located by the Dunn Loring Metro and I-66’s Nutley St exit and border the Fairfax City submarket. Full building leases for both properties expire in 2022, which could have a tremendous impact on the submarket’s vacancy rate if they remain unleased. That being said, the properties’ proximity to metro coupled with the submarket’s most significant, recent sale may alleviate such concerns. In December 2018, the 41,224 SF 2-Star office building located at 9401 Lee Hwy sold for $9,300,000 ($226/SF) despite its age (built in 1973). This property is even closer to the Fairfax City submarket, notably the new mixed-use development, Scout on the Circle, which will have 83,200 SF of retail space and 400 apartments and was likely purchased as a redevelopment play.