The amount of available sublease space on the market has steadily increased since over the past year, closing the fourth quarter with 5.9 million square feet (msf), just over 4% of Northern Virginia’s (NoVA) inventory. As many companies are returning to the office with a hybrid work approach, non-utilized space is becoming very evident. Occupiers are putting excess space from pre-covid leases back on the market in hopes to lower their costs.
Class A space is responsible for most of the movement in the sublease market, making up nearly 80% of the available sublease space in NoVA. The Toll Road and RB-Corridor recorded the most available space with 1.29 msf and 1.24 msf listed, respectively (44% of the space on the market). While the two largest spaces are listed by tenants in the tech industry, more than half of the listings over 50,000 sf are large government contractors listing excess space after mergers and headquarter relocations. The largest available contiguous space is in Rosslyn where consulting firm Gartner has listed 314,708 sf for sublease. In Herndon, Walmart Labs has listed 162,357 sf which has been vacant since the lease was signed in 2020. Blocks larger than 20,000 sf currently make up 64% of NoVA’s available sublease space. On average sublease space spends 24.6 months on the market, 2.4 months less than direct space.
Northern Virginia’s average asking rate for subleases finished Q4 2022 at $28.64 per- –square- –foot (psf), a $6.19 psf discount compared to prime space. Arlington County recorded the highest average asking rates at $31.04 psf while Fairfax County recorded the lowest at $27.53 psf. The average asking rate for Class A sublease space was $29.81 psf and $26.20 psf for Class B. As more companies shed high quality space, prospective tenants are gaining cheaper, higher quality space to choose from. Antithesis Operations took advantage of this in Tysons, subleasing 19,051 sf from the Ambit Group for almost $10.00 psf under the direct asking rate. At 4350 N Fairfax Drive in Ballston, PowerUp Technologies leased 7,054 sf for $25.52 psf; the asking rate for direct space on the same floor is currently $43.00 psf.
Class A product made up 75% of subleased space this year. Subleasing accounted for 28.5% of the new leasing activity in Q4 2022, recording 199,510 sf for the quarter and 459,096 sf on the year. There were four subleases over 25,000 sf in the fourth quarter, two of which came from Democracy Tower in Reston Town Center where Yahoo and Internet Tool & Die Company sublet 54,948 sf and 27,474 sf, respectively. In Reston, Smartroof sublet 25,000 sf at 11091 Sunset Hills Road while in Rosslyn, Guidehouse took 38,204 sf of Grant Thornton’s space at 1000 Wilson Boulevard after acquiring the company’s public sector advisory team in October.
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