Big congrats to our awesome researcher, Emmanuel Koduah, for producing a great report on office lease trends in the D.C. market! Noah Kotlove, our D.C. Community Manager, also did a great job of working with the press to get the report published. Well done, guys!
Nov 19, 2013, 4:59pm ESTIntelsat SA is planning to relocate to Tysons Tower, one of the beneficiaries of what CompStak says is a larger trend of tenants seeking out lower-cost space in Tysons Corner when compared to the District. It might be premature to say Gerry Gordon was right about D.C. becoming a suburb of Tysons Corner, but the Fairfax County Economic Development Authority president might have been onto something when he made that remark last year.
With D.C.'s office market in its slowest leasing period in more than a decade, Tysons Corner appears to have outperformed the region when it comes to rental rates. According to a report from crowdsourced real estate firm CompStak, the average starting rental rate in Tysons is about $31.65 per square foot, an increase of about 7.5 percent since 2012. The region's overall rental rate over the same period has held mostly steady at just under $47 per square foot.
CompStak draws its data from brokers or landlords involved in leasing deals, and in my experience its market intelligence turns out to be on target. It did not list overall vacancy rates or other details traditionally tracked by brokerages like Jones Lang LaSalle, but in this case its figures appear to hold up.
CompStak analyst Emmanuel Koduah argues in the report that Tysons is benefitting from several factors, including being a cheaper alternative to D.C. The report used Intelsat SA's decision to move from D.C. to the new Tysons Tower instead of CityCenterDC as an example of the trend — though it should be noted the company did not identify CityCenterDC as a potential relocation site when they announced their move last year.
CompStak also pointed to Cvent Inc.'s plans to move into a new building next to a planned Silver Line station in Fairfax County.
The effective full-service rental rate swings from the mid-$40s per square foot at Tysons Tower to the low-$70s per square foot at CityCenterDC. That despite D.C. landlords throwing in greater concessions, including $29.94 per square foot in tenant improvements. In Tysons, improvement costs hover around $40 per square foot.
"The most interesting trend at this time is the submarket's ability to seemingly benefit from the woes plaguing the Washington, D.C., market," CompStak's report said. "Driven by growing tenant emphasis on cost efficiency, the area is developing a reputation as a lower-cost alternative to the D.C. market, which ranks among the most expensive in the nation."
Jones Lang LaSalle noted the vacancy rate in Tysons improved to 16.9 percent in the third quarter, down from 17.8 percent a year ago. The vacancy rate in the Washington metro area rose to 16.4 percent during that same period, up from 15 percent a year earlier.