Office vacancy rates in Northern Virginia spiked significantly in the past year as the military’s 2005 base realignment and closure plan bore down on the region.
The region’s office vacancy rate now stands at about 18.1 percent, up from 15.3 percent in the third quarter of 2011, according to a new report by Cushman & Wakefield Inc. Crystal City and the Rosslyn-Ballston corridor showed the steepest increases, as those markets had the highest concentration of military agencies being shifted from leased space to bases throughout the Washington region.
Crystal City’s Class A vacancy rate jumped to 22.3 percent from third quarter of 2011, a 14.5 percent increase. Cushman & Wakefield estimates that 3.2 million square feet of Crystal City’s office market, or about 27 percent, has been impacted by the base realignment.
Across the R-B corridor, Class A office vacancies increased 4.6 percent to about 18 percent. Cushman & Wakefield predicts, however, that the corridor will rebound sooner than Crystal City because it has less exposure to the military reshuffling plan. About 1 million square feet of leases, or about 5 percent of the R-B corridor’s office market, will be impacted by the movement.
Landlords across the region have been working since the military realignment plan was announced to reposition their buildings, with Lowe Enterprises, Penzance Cos., and Vornado Realty Trust each planning major overhauls to recruit new tenants.
BRAC is also creating new opportunities for some commercial real estate developers. Among them is LCOR, which recently acquired 400 Army-Navy Drive and plans to redevelop the 235,000-square-foot building into multifamily housing. The building was vacated by several military agencies including the Office of the Secretary of Defense and the Washington Headquarters Service.
The sale was announced by Cushman & Wakefield Thursday, and brokerage Executive Director Eric Berkman said he received strong interest from prospective buyers considering office and residential uses.
“Although this is a vacant building in an office market with 19 percent vacancy, there was tremendous demand from prospective buyers – both from those considering it for office use and those looking at it for residential use,” Berkman said. “Despite the short-term issue of high vacancy rates, the strong interest here demonstrates people are still betting on D.C.”