Eisenhower Ave Corridor
- RBA: 4,896,873 SF
- Vacancy Rate: 10.0%
- 12 Month Net Absorption: (32,800 SF)
- Average Asking Rent: $36.45
- 12 Month Rent Growth: 3.1%
The Eisenhower Ave Corridor is an extremely dense submarket. Average rents may be higher than Tysons Corner or Reston at $36.45/SF, but this is due to the high concentration of 4 & 5-Star properties (84% of total inventory), which have an average rent of $38.54/SF. This puts them well below Tysons Corner ($40.60/SF) and only slightly below Reston ($38.82/SF), but these submarkets have more options and newer inventory with a focus on complementary residential and retail development. Relatively high rents may make it difficult to attract tenants but with vacancy rates hovering around 10% landlords should be able to continue pushing rents.
The lifeblood and main demand driver for the Eisenhower Ave Corridor is the United States Patent & Trademark Office, which occupies 2,000,000 SF in 4 buildings on Dulany St. These leases are not set to expire until 2024. Other notable tenants include ADT Alexandria, SENTEL Corporation, and the American Academy of PA’s, which combined lease approximately 132,000 SF with staggered lease expiration dates from 2023-2025. The co-working company, Industrious recently announced that it would be leasing 25,000 SF at 2461 Eisenhower Ave, a move that confirms the submarket’s current and future viability.
Two significant deals that did not have a direct, immediate impact on submarket fundamentals but which should have a huge impact on future demand are the National Science Foundation’s 700,000 SF lease at 2415 Eisenhower Ave in 2017 along with WMATA’s 297,000 SF lease at 2395 Mill Rd. Because these deals were build-to-suit they did not impact vacancy levels; however, the positive impact on the submarket’s reputation cannot be understated, nor can the economic impact of the thousands of employees they will bring with them. This leads into the biggest story and overarching theme of the Eisenhower Ave Corridor: savvy and forward-thinking repositioning and redevelopment of the submarket’s assets.
Development around the DC metro area is hyper-focused on metro-accessible submarkets with rents high enough to justify rising construction and labor costs. Mixed-use projects are the result of changing demand trends and increased preference for work-live-play environments. Investors in the Eisenhower Ave Corridor are paying attention and responding by increasing the submarket’s livability by developing more multi-family properties with ground-level retail. After the Department of Defense vacated 600,000 SF at 200 Stovall St in 2017, the property was purchased by Perseus for $73.06/SF and demolished in 2018 to make way for a 520-unit apartment building; lowering the submarket’s vacancy rate by an incredible 10.2%. The aforementioned, National Science Foundation build-to-suit project also included plans for retail, restaurants, and a movie theater. Right next door is the Parc Meridian at Eisenhower Station, a 505-unit apartment building that stabilized in less than a year a half. All of this is positive news, albeit still somewhat speculative, as evidenced by the fact that approximately 40% of the submarket’s inventory traded this cycle, but at rates akin to smaller, suburban Virginia submarkets rather than closer-in, urban submarkets like Crystal City and Rosslyn. Still, there is much to be excited about in the Eisenhower Ave Corridor and submarket fundamentals should continue as much.
- RBA: 11,116,960 SF
- Vacancy Rate: 24.5%
- 12 Month Net Absorption: (108,000 SF)
- Average Asking Rent: $30.75
- 12 Month Rent Growth: 1.1%
The I-395 Corridor no longer has the highest vacancy rate in the DC metro area; Oakton now claims that title at 25.1%. The submarket’s issues are symptomatic of a larger shift towards metro-accessible, newer 4 & 5-Star properties. While a relatively large from both a geographic and square footage standpoint, the I-395 Corridor does not have a metro station and, to make matters worse, it is surrounded by submarkets that do. Crystal City, while slightly more expensive, is home to Amazon’s HQ2; Falls Church is more affordable; and Eisenhower Ave has newer product. The submarket is heavily reliant on federal agencies to drive demand and is thus highly vulnerable to large move-outs. Indeed, it is still reeling from the Defense Intelligence Agency’s relocation to Fort Meade, MD at the end of 2011, which contributed to a total negative net absorption in 2012 of 711,000 SF; causing a staggering 6.3% increase in the vacancy rate.
The submarket issued an audible sigh of relief late last year when the U.S. Patent & Trademark office renewed its lease at 2800 Randolph St for an additional 15 years. Adding another 191,000 SF to the more than 2,700,000 SF already vacant, would have been more than the submarket could bear as most leasing activity is from smaller, local businesses. There were 48 lease deals signed in the past 12 months for a total of just over 188,000 SF. The composition and size of these deals offers additional insight into both the status of the submarket, itself, and greater DC metro; being indicative of the overall flight-to-quality. Over 63% of the leasing activity took place in five 4-Star buildings with an average deal size of 9,216 SF. The remaining 35 deals took place across fifteen 3-Star properties with an average deal size of 1,975 SF.
Amazon’s HQ2 announcement is the likely cause of the submarket’s unjustifiable rent growth over the past 12 months, with 3-Star properties topping out at 6.6% in Q3 2018 and 4 & 5-Star properties hitting 7.4% last quarter. Gains resulting from the initial optimism have been completely negated for 3-Star properties (currently at 0.3%) and 4 & 5-Star rent growth is expected to plunge in early 2020. The is understandable considering the vacancy rate for the submarket’s 4 & 5-Star properties sits at an unbelievable 43.7% with the availability rate even higher at 47.9%. Indeed, if not for the low proportion of 4 & 5-Star inventory (48.2% vs. 70-80% in neighboring Crystal City, Eisenhower Ave, and RB Corridor submarkets) the submarket’s vacancy rate would be even higher. Unfortunately, the comparatively low average 4 & 5-Star rents ($33.16/SF) lack sufficient appeal to attract tenants away from surrounding metro-accessible submarkets.
The lack of supply side pressure has been a saving grace for the I-395 Corridor but is also revelatory of the submarket’s viability from an investor standpoint. The majority of new development across the metro area is focused on high-rent, metro-assessible submarkets with an emphasis on mixed-use projects. For investors to take a chance on a submarket like the I-395 Corridor a significant risk premium must be applied to the acquisition price; a fact evidenced by Stonebridge and Rockwood Capital’s purchase of Victory Center (5001 Eisenhower Ave). The 625,000 SF property sold for $71/SF in May of this year. Prior to the purchase, the building had been vacant since 2003 when the Army Material Command relocated to Fort Belvoir. The site has been entitled for new uses and rezoned with plans to create a high-density, commercial and residential mixed-use development and only time will tell if this may be a much-needed catalyst to renew interest from both tenants and investors, alike.