Customs and Border Protection Inks 445,000 SF Deal

• Construction activity remains strong with over 2.5 million square feet underway.

• 4040 Wilson Boulevard and 11011 Sunset Hills Road broke ground.

• Vacancy at its lowest rate since 2013, ending the quarter at 17.2 percent.

Market Overview

Leasing in the Northern Virginia office market was led by the U.S. Customs and Border Protection Agency, which signed a deal for 445,000 square feet at Quantum Park during the second quarter of 2018. The agency will occupy five buildings upon commencement. Appian signed a deal for 205,027 square feet at Valo Park, where they will relocate from Reston. Their current space will be backfilled by an expanding College Board, which initially subleased space to Appian. Demand continued to grow, with 242,384 square feet of net absorption registered during the quarter, totaling 1.2 million square feet year-to-date. Increased demand caused the overall vacancy rate to drop from 17.4 to 17.2 percent during the quarter, down from 17.9 percent at the start of the year.

During the quarter, 191,000 square feet of office product delivered. Most notably, 2311 Wilson Boulevard was completed, adding 175,000 square feet of space to the Clarendon/Courthouse submarket. The project was anchored by Opower and Bean, Kinney & Korman. 4040 Wilson Boulevard in Ballston and General Dynamics' headquarters at 11011 Sunset Hills Road in Reston broke ground during the second quarter. AvalonBay will anchor 4040 Wilson.

Outlook

Capital One's new headquarters is expected to deliver close to a million square feet in Tysons Corner during the second half of the year, while Leidos' new headquarters is expected to break in the next couple of months in Reston. As demand for office space has predominately been for Class A and trophy space, more and more lower quality product will continue to be converted to alternative uses or demolished to make way for new construction. Removal of these high vacancy buildings will contribute to lower vacancy rates in the future, as well as increasing rental rates in the market.