Loudoun and Fairfax Counties’ commercial real estate market is strong. September’s statistics make an interesting and positive read. To begin, though, let us remind ourselves of a few of foundational planks that make our local market what it is. The US as a whole is suffering in this year of COVID-19, but our local market position reflects positively in Q3’s numbers.
Our proximity to Washington DC gives businesses easy access to a professional workforce of 3.4 million. Professional, scientific, technological, health and educational lines of business make up a very high percentage of our commercial strength. Each one of these business areas is well established and growing. To take a few examples:
- Data centers in Loudoun use 10 million square feet of commercial space with another 3 million being planned to manage what amounts to 70% of the world’s internet traffic.
- Howard Hughes Medical Institute invests approximately $100 million a year in biomedical research.
- 12% of Loudoun’s workforce is employed in health care; a market which gets stronger by the year.
- Fairfax is home to 8,700 technology companies, with 154,000 people working in knowledge-based businesses.
- The Inova Center for Personalized Health’s 117 acre campus will make the county a hub for genomics research.
- Life-science enterprises are developing services and products to satisfy the huge international demand for therapeutics, pharmaceuticals, and DNA forensics.
- Approximately 60% of our residents have bachelor’s degrees or above.
- Loudoun is investing $1.26 Billion in road improvements and is expanding public transport to support the Silver Line expansions due next year.
- Fairfax’s cloud computing and internet infrastructure resources offer almost unlimited potential to serve current and future business demands.
Loudoun and Fairfax Counties are, and will continue to be, a profitable center for commercial real estate investment. Let us now turn to September’s numbers for each county.
LOUDOUN COUNTY’S SEPTEMBER COMMERCIAL REAL ESTATE REPORT
CLOSED TRANSACTIONS
September saw 15 closed transactions with a sales volume of $234 million and an average list to sell timescale of 13.9 months. The lowest-priced property sold for $1.1 million, the highest for $145 million, with an average of $16.7 million. This calculates out at an average price per sq ft of $161. The lowest and highest prices per sq. ft. were $150 and $487.
LEASE RATES
Lease rates for closed sales averaged 81.2%. The lowest currently-leased space on a closed transaction was 33%, with the highest being fully occupied at 100%. The daily average asking rent per sq ft remained static for the whole of August and September at just below $18, after a slight rise in July.
CAP RATES
The average cap rate on sold properties was 5.9%. The lowest stood at 4.3% (bought by a national name) and the highest at 7.4% for the month (purchased by a local business.)
VACANCY RATES
Daily vacancy rates fell dramatically in September, going from a high in August of approximately 23.5% down to 14.5%.
BUYER/SELLER BREAKDOWN
93% of sales were by developers and capital management businesses such as Hines, Ryan, Lennar, and Avanath. 5% by private equity firms, and 2% by users. Geographically, 61% of buyer transactions were by US national names, 38% by local businesses, and 1% of transaction volume came from foreign entities. 87% of sold properties had been owned by national names, leaving 13% owned by locally-based sellers.
PROPERTIES CURRENTLY FOR SALE
There are 17 properties listed for sale. Totaling 50,200 sq ft. The average list price/sq ft was $286, ranging from $93 to $526. The average cap rate on listed properties was 8.5%.
FAIRFAX COUNTY’S SEPTEMBER COMMERCIAL REAL ESTATE REPORT
CLOSED TRANSACTIONS
There were 21 closed transactions last month totaling $394 million. The average list to sell timescale was 15.2 months, slightly longer than in Loudoun. The lowest sold property was $380K while the highest priced property was $113 million. The average sold price was $23.2 million, and the average sell-to-asking price of 93.4%. The stats also tell us the average $/sq ft was $415, ranging from $116 to $1,291.
LEASE RATES
Lease rates at sale were an average of 96.8%, ranging from full occupancy to 82.9%. The daily average asking rent per sq ft was slightly over $22 and was static after a slight rise at the start of the month.
CAP RATES
The average Cap Rate stood at 5%. The market Cap Rate has been rising this year standing at a little over 6.8%.
VACANCY RATES
Daily vacancy rates fell in September. They began the month at 16.75% and finished at just below 15.9%.
BUYER/SELLER BREAKDOWN
Almost all purchases in September (96%) were made by institutional buyers, Boyd Watterson Asset Management being the major player. Hyundai was the major seller. 99% of buyers were national names, the other1% being local. The sales side was almost identical, with 97% of the sold properties being owned by national names and 3% locally.
PROPERTIES CURRENTLY FOR SALE
There are 28 active listings totaling 455,000 sq ft. The average list price per sq ft is $173, ranging from $120 to $715.
FINAL COMMENTS
Loudoun and Fairfax Counties commercial real estate market was active in September. Todd Sinai, Chair of Wharton School’s Real Estate Department said in a recent interview that some large sectors of the commercial real estate market had been devastated because of COVID-19. This is not true of our locale.
Real estate is local, and that simple fact is delivering a positive result. The innate demand for research, technology, medical, and other high-demand lines of business remain constant. When we add the number of Fortune 500 companies and other major employers with offices in Loudoun and Fairfax the future continues to look bright. These factors, plus proximity to DC, almost automatically generate demand from their employees for high quality medical, healthcare, and childcare facilities.
Many employees are working remotely these days but, as Sinai commented, there is dislocation but there is still need for physical space, and certain facilities such as data centers are in demand, as are investments focusing on single family home rentals. The student community, when it fully returns to on-campus learning, will recharge the apartment market.
Sinai commented on retail space, saying much of it was in difficulty before the pandemic hit, but not all retail is equal. Grocery-anchored strip centers are “doing OK” and those malls in economically robust locations are ripe for redevelopment. Malls have good road access, so they lend themselves to redeploying from, say, retails space to distribution space. With last mile logistics becoming so important, well-situated warehouse and distribution space in economically viable communities will be in demand.
Sinai opined that remote working is unlikely to become “engrained” since humans are social animals and prefer to work in office environments not homes where they are isolated from colleagues. Potential investors should, therefore, focus on properties in good locations and with long-lease tenants who would also have high relocation costs if they were to consider moving. Even if one tenant leaves, the location will become the opportunity for a new tenant to take over the space.
When we check the stats, we see our local real estate is strong. When we include the opinions of experts such as Sinai, we look forward to that strength continuing.
Additional sources used in this article:
Loudoun County:
https://biz.loudoun.gov/information-center/business-industry-stats/
https://biz.loudoun.gov/information-center/healthcare/
https://biz.loudoun.gov/key-business-sectors/
Fairfax County:
https://www.fairfaxcountyeda.org/
https://www.fairfaxcountyeda.org/key-industries/
https://www.fairfaxcountyeda.org/key-industries/health-and-life-sciences/