Commercial Real Estate Trends for 2022
Northern Virginia’s Loudoun, Fairfax, and Prince William Counties are economically strong and provide a firm foundation for 2022 CRE investment. Before we look at Q1’s statistics for the three counties, here are some comments on expected CRE trends in general.
Forbes recently published an interesting article on seven trends driving 2022’s CRE market. Three primary drivers impacting the CRE market are economic growth, inflation (February’s 12 month CPI stood at 7.9%), and stock market volatility. Those factors cause investors to look for stability, profitable assets, and a hedge against rising costs.Not only does commercial real estate answer that search, but Northern Virginia comes out as an obvious choice for investors, owner-occupiers, and long-term tenants.
The Forbes article begins by stating that capital and debt availability will be positive contributors to 2022’s CRE market growth. Multifamily properties will continue to be in demand. When we look at Northern Virginia’s economic history and population growth, we can conclude such demand should continue. The general growth of secondary markets outside major conurbations is seen in, for example, Loudoun County, which is one of the top-ranked business communities in the nation and has ranked as Virginia’s top business growth district every year since 2016. Fairfax County has seen huge data center investment, currently totaling 2.43 million SF, and new data center development pipeline numbers include a further 1.9 million SF, just to take one powerful example. Prince William County targets key industries, resulting in a growing and diversified local economy.
All of these facts support Forbes’ third trend that “the housing hot streak will continue.” Offices will upgrade to meet changing operational workplace demands, which should see both occupancy rates and rent growth stabilize. AI and machine learning will advance further. Quantitative firms will impact CRE even more. The increasing need for proptechs to lower operating costs will result in property managers delivering greater profitability to owners.
The final trend is logical. Building costs will continue to rise, so the value of existing assets will increase. Current owners should see the market value of their properties rise. NNN leases will mean tenants will be mainly responsible for rises in utility and maintenance costs, and property taxes. The increasing professional population in the three counties will result in a greater need for childcare and education facilities.
Let us now discuss Q1 numbers for each county.
Loudoun County Q1 Results
Summary Sales Stats
47 properties were sold in Loudoun County, totaling $399 million, with an average sales-to-asking price of 99.6%. This ranged from -3% to +6.3%. The total square footage sold was 914K, the average price/SF was $313, ranging from $133 to $644. The average property size was 19 KSF, and the average CAP rate was 4.8%.
Detailed Breakdown
- Most sales took place between mid-February and the end of March.
- 30% of all sales were in the $0.5 – $2 million range, 25% were in the $2 to $4.2 million range, and 17.5% were in the $4.2 to $8.7 million range.
- CAP rate ranged between 3% and 7%. Approximately 73% of sales had a CAP rate of between 5% and 6%.
- The average time on the market was 10.2 months, but there is a 50% probability of selling in 4.5 months.
Seller/Buyer Volume Breakdown
- B96% of the sold volume was by private sellers.
- 4% by user-owners.
- 70% of sales volume was by local entities, 29% were national names and about 1% were foreign-based.
- 51% of buyer transaction volume was institutional.
- 41% were private.
- 70% were local entities
- 8% user-owners.
- 86% of purchase volume was by national names and 14% local.
Rent/SF and Vacancy Rates
Daily asking rents are only available for January and February as of this writing. The average daily asking rent per SF ranged from $24.64 at the start of January, falling briefly to $24.42, then rising to $24.63. Daily asking rent then fell again to just below $24.50 at the start of February, then peaking at $24.65 during the month and ending February at just below $24.60/SF.
Daily vacancy rates for the two months were 14.95% at the start of January, falling to 14.2%, rising to 15.1% at the start of February, and ending the month at just below 15.8%. The percentage of available square footage leased at sale averaged 97.4%.
Fairfax County Q1 Results
Summary Sales Stats
Total sales added up to 46 properties totaling $349 million. The average sales-to-asking price was 85.7% with some sales exceeding the asking price. The total sold square footage was 2.1M, averaging $211/SF. The highest price/SF was $755. The average sold property size was 43.8KSF, and the average CAP rate was 8.2%.
Detailed Breakdown
- Mid-February and early March were the most active three weeks for sold transactions.
- Approximately 23% of sales were in the $430K to $1 million range. The same percentage of sales was in the $5.1M to $11M range. 17.5% was in the $2.2M to $5.1M range. All other sales ranged from less than $190K to over $58 million.
- All sold properties had CAP rates of 8-9%.
- The average time on the market was 6.7 months, but there is a 50% probability of selling in 6 months.
Seller/Buyer Volume Breakdown
- 43% of the sold volume was by private sellers.
- 42% by institutional sellers.
- 8% by user-owners.
- 7% by private equity names.
- 91% of sales volume was by national names, 8% by local entities, and about 1% by foreign entities.
- 85% of buyer transaction volume was by private entities.
- 10% private equity groups.
- 70% local entities.
- 5% user-owners.
- 50% of the purchase volume was by foreign entities, 26% national names, and 24% local.
Rent/SF and Vacancy Rates
Daily asking rents are only available for January and February. At the beginning of January, the average daily asking rent per SF was $24.82, slipping to $24.78 by the middle of the month, then rising to $24.84 and falling again to just below $24.80 at the end of the month. February’s daily asking rate dropped to $24.72 in the middle of the month but rose to finish February at $24.78. Average daily vacancy rates hovered between 24.65% and 25%, then fell in February Week 4 to 23.70%.
Prince William County Q1 Results
Summary Sales Stats
31 properties were sold totaling $328 million. The average sales-to-asking price was 94.1%, ranging from -19.3% to +2.3%. The total sold square footage was 664K, averaging $454/SF. The highest price paid/SF was $1,080. The average sold property size was 18.4KSF, and the average CAP rate was 6.5%.
Detailed Breakdown
- Mid-January to mid-February was the most active four weeks.
- Approximately 31% of sales were in the $270K to $610K range. 19% were in the $610K to $1.4M range, 14% were in the $120K to $270K range, and another 14% were in the $1.4M to $3.1M range. 22% were in the higher price range of $3.1M to >$16M.
- 33% of sold properties had CAP rates of 5-6% and another 33% had CAP rates of 7-8%. 17% had CAP rates of 6-7% and a final 17% ‘s CAP rates were 8-9%.
- The average time on the market was 13.6 months, but there is a 50% probability of selling in 6.7 months.
Seller/Buyer Volume Breakdown
- 68% of the sold volume was attributed to REIT/public entities.
- 15% by private sellers.
- 8% by user-owners.
- 8% by private equity names.
- 1% institutional.
- 83% of sales volume was by foreign entities, 9% were local and 8% were national names.
- 78% of buyer volume was private.
- 12% institutional.
- 9% private equity.
- 1% user-owner.
- 87% of the purchase volume was by national entities and 13% were local.
Rent/SF and Vacancy Rates
Daily asking rents for January and February. At the beginning of January, the average daily asking rent per SF was $19.20, falling to just over $19.16 from the second week of January to the second week of February, when it fell again by about 10 cents/SF to $19.06. February ended with an average asking rent/SF rising to $19.14.
Average daily vacancy rates hovered between 16.0% and 16.5% from January 1 to early February. The vacancy rate then went down to end February at 15.6%.
Current Listings in Loudoun, Fairfax, and Prince William Counties
Loudoun County CRE Listings
- There are 162 properties listed.
- Property size ranges from 759SF to 99KSF.
- List price/SF averages $311, ranging from $178 to $3,307.
- CAP rate averages 6.3%, ranging from 3.2% to 10.0%.
Fairfax County CRE Listings
- There are 250 properties listed.
- Property sizes range from 400 SF to 1.7M.
- List price/SF averages $245, ranging from $14 to $1,487.
- CAP rate averages 5.6%, ranging from 4.5% to 8.3%.
Prince William County CRE Listings
- There are 198 properties listed.
- Property sizes range from 800SF to 112K.
- List price/SF averages $358, ranging from $145 to $1,715.
- CAP rate averages 6.4%, ranging from 3.9% to 9.5%.
Summary Comment
The national CRE market is showing positive trends and our local economy looks set to support a strong CRE market for 2022 in Loudoun, Fairfax, and Prince William Counties. Many different property types were sold in Q1. Our recent closings offer a brief insight into local transactions, and Serafin’s current listings indicate opportunities for passive investors as well as user-owners. You may be looking for office space, childcare centers, or school buildings. You may want to learn more about what Northern Virginia offers or to seek advice on a specific property. In every case, please contact us, contact us, leave your details, and we will get back to you.
Resources and Disclosure: Information and data collected from CoStar, LoopNet, and other proprietary sources of Serafin Real Estate Inc.