- RBA: 10,196,000 SF
- Vacancy Rate: 15.6%
- 12 Month Net Absorption: (96,900 SF)
- Average Asking Rent: $32.71
- 12 Month Rent Growth: 3.2%
Merrifield, along with Herndon and Fairfax Center, have historically been considered 2nd tier office submarkets in Fairfax County; however, changing demand trends have resulted in a growing disparity not only between premier and secondary submarkets but also within this 2nd tier. Employers and developers are increasingly catering to the millennial generation, which constitute a greater percentage of the employment base every day and value convenience and experiences; leading to the emergence and dominance of the mixed-use development. A combination of preference and lack of affordability in the DC metro housing market has given rise to a more urban generation, many of which do not own automobiles. In order to be able to recruit and retain top talent, employers are moving to metro accessible submarkets. Within these submarkets, 4 & 5-Star properties are absorbing the lion’s share of demand, particularly newly built assets. As a result, developers are focused on metro assessible submarkets due to the increased density levels and higher rents, which can offset rising construction and labor costs.
Merrifield, while technically metro accessible, has less than 10% of its office inventory within walking distance (0.5 miles) of its one metro station, Dunn Loring. On top of that, only 16.5% of its 4 & 5-Star properties (4 of 26) are metro accessible; even less considering the fact that 2675 Prosperity Ave is 100% occupied by U.S. Citizenship and Immigration Services. Most development in the submarket over the past decade, particularly around the Dunn Loring metro, has been multi-family, mixed-use. While considered the submarket’s crown jewel, the Mosaic District is not metro accessible and has only one office property totaling a meager 97,191 SF and which is 100% leased by CustomInk. Over half of the submarket’s 4 & 5-Star inventory (51.6%) is located within the Fairview Park office campus and, of that, nearly a quarter (2,426,213 SF) is available for lease. Of the remaining 4 & 5-Star properties, 8115 Gatehouse Rd (209,423 SF) is owned and occupied by Fairfax County Public Schools; 8110 Gatehouse Rd (214,075 SF) is owned and occupied by Inova Health Systems; and 3023 Hamaker Ct, 8501 Arlington Blvd, & 8505 Arlington Blvd (288,423 SF total) are medical buildings. That leaves only 8260, 8270, & 8280 Willow Oaks Corporate Dr (596,802 SF total) which, like the Fairview Park Dr properties are not metro accessible. *Costar has 2751 Prosperity Ave (93,893 SF) erroneously listed as a 4-Star property.
The submarket’s vacancy rate has been improving since it nearly doubled (12.1% to 23.1%) in Q2 2015 when Exxon Mobil vacated its 117-acre campus and approximately 1,200,000 SF. Positive net absorption from 2016-2018 brought vacancy levels back down. Inova Health Systems is mostly responsible for the rebound in the submarket’s fundamentals. It purchased the former Exxon Mobil site in 2015 across from its flagship hospital. The Fairfax County Board of Supervisors approved updates to Inova’s plans in September 2019 to allow more academic and research space along with complementary housing, retail, and hotels. Initial plans were scaled back from 15,000,000 SF to 5,000,000, and while this seems like a dramatic reduction it is still on par with Amazon’s HQ2 plans in National Landing. The University of Virginia and Inova will each occupy approximately 2,000,000 SF; leaving an additional 1,000,000 SF for commercial use. Officials expect the center to establish Fairfax County as a health sciences innovation hub, thereby helping to grow and diversity the economy.
General Dynamics added to the 1,000,000 SF of positive net absorption in 2017 when it leased the entire building at 3170 Fairview Park Dr (143,000 SF) and BAE Systems just relocated its headquarters from Rossyln to 2941 Fairview Park (133,000 SF). Most leasing is from smaller tenants though and owners and investors are hoping that Inova will have its own “Amazon effect;” acting as the submarket’s main demand driver.
Despite this, rent growth has been strong; averaging 3.2% over the past 12 months. This is exclusively attributable to the submarket’s 4 & 5-Star properties which saw a 5.62% increase in rents versus a 0.17% drop in 3-Star rents. This is consistent with the “flight-to-quality” trend across the DC metro area. At $36.64/SF, Merrifield’s 4 & 5-Star rents may be lower than Tysons Corner and Reston but they are higher than Herndon ($36.02/SF). Two of the metro stations in the 2nd phase of the Silver Line will be located in the Herndon submarket, immediately connecting it with the entire DC metro region via public transportation. With twice the number of metro stations and millions more square feet in existing and proposed inventory, Herndon will emerge as the next premier submarkets in Northern Virginia; leaving Merrifield in the dust.
Due to no supply-side pressure, landlords may be able to maintain rents in the short-term, but with an aging inventory and competition from more urban, metro accessible submarkets the long-term outlook isn’t promising. Net absorption for 2019 is currently at negative 96,900 SF and the submarket’s vacancy rate jumped by a staggering 2.3% from last quarter. Submarket sales also provide evidence of Merrifield’s decline, which averaged around $60,000,000 over the past 5 years but are just over half that for the year ($36,500,000). This may all be temporary, but it is more likely that Merrifield’s failure to evolve as an office submarket prior to the delivery of the Silver Line in 2014 will likely doom it to an existence as a secondary submarket for the foreseeable future.