- Vacancy Up Across All Classes
Northern Virginia vacancy continues to inch higher across all product classes, ending the second quarter at 20.9%. Class A product increased 100 bps year-over-year (YoY) to 20.1%, Class B increased 150 bps to 24.0%, and Class C increased 150 bps to 16.6%.
- New Leasing Stable but Renewal Drops
New leasing activity remained relatively stable from Q1 2023 recording 689K SF inked, a 1.7% increase from the previous quarter. Class A product accounted for 92% of new leasing in the second quarter with a total of 632K SF inked. Renewal activity declined 10% from Q1 with a total of 660K SF signed. Class A also drove renewal activity with 84% of the deals done in Q2.
- Amazon’s HQ2 Delivers in Arlington
Amazon's Met Park, the first phase of HQ2, opened its doors in Q2 2023. Met Park is comprised of two buildings totaling 2.1 MSF and is projected to accommodate approximately 14,500 tenants in due course. The transition of tenants into the premises will occur gradually, as will the negative absorption of leased space in surrounding submarkets, given that the company's extensive leases are set to expire between 2024 and 2029.
- Construction Activity Remains Slow
No new office buildings delivered in the second quarter and no new projects were added to the construction pipeline in NoVA. Cushman & Wakefield is tracking 700,771 SF of office space across four projects set to be delivered in the next two years. This pipeline total is significantly lower than the 2.6 MSF previous 10-year average due to Covid impacts.
- Government Contractors Drive Leasing
Government contracting tenants continued to account for a significant portion of the leasing activity in the market. Out of the seven deals exceeding 40K SF signed in Q2, five of the deals were secured by government contracting tenants. Particularly noteworthy is Shield AI, an autonomous drone startup that recently secured a STRATFI contract with the US Air Force. The startup has inked an eleven-year lease for a spacious 43K SF in Crystal City.