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Net effective rents are down across Northern Virginia versus a decade ago as concessions reach new highs

• Net effective rents have declined across every major submarket in Northern Virginia over the last decade as strike rents have seen flat to modest growth, but concessions have reached record highs.

• In Crystal City/Pentagon City, net effective rents are 12% lower than taking rents today. Over the last decade, taking rents have increased only 1%, while concessions have ballooned: on average, a tenant relocating 10 years ago captured five months of rental abatement and $45 p.s.f. in tenant improvement (TI) allowance, while that same tenant in 2018 would be likely be able to negotiate 16 months of rental abatement and $80 p.s.f. in TI, with some private-sector tenants striking deals for longer terms garnering TI packages of $100 p.s.f. and higher. While this market has seen an increase in demand in the past two years due largely to these concessions, these levels are likely to remain at or near current levels to drive increased activity from out of market.

• In the RB Corridor, net effective rents are 12% lower than taking rents today and 8% lower than 2008 rates. Over the last decade, while direct vacancy surged from 6% in 2008 to 19% in 2018, taking rents stabilized, but concessions jumped: rental abatement tripled, from six months in 2008 to 18 months today, while TI have nearly doubled, from $55 p.s.f. to record highs of $100 p.s.f. or higher, led by new construction. We believe these levels have peaked due to vacancy significantly declining in new construction and deals in the active pipeline that will push vacancy down significantly over the next 24 months.

• In Tysons, net effective rents are 9% lower than taking rents today and down 11% since 2008. While concessions are averaging $60 p.s.f. with 12 months of rent abatement, new construction is moving at another pace: with mid-$50s p.s.f. taking rents versus $39.04 p.s.f. for relet Class A space. With those new construction Metro-centric building, tenants have been able to negotiate $100 p.s.f. and higher TI in some cases. We believe those levels have peaked, but due to the discrepancy in both demand and vacancy from on-Metro to off-Metro, there is more room for concessions to grow off Metro.

• Due to more consistent demand the past decade due to fiber, tech talent and the expansion of the Silver Line, the Toll Road has fared slightly better than peer markets: net effective rents are 12% lower than taking rents, but also only 5% lower than 2008 levels. In this node ahead, concessions for new construction will be on par with other Metro-centric submarkets, with TI reaching $100 p.s.f. and higher. With Metro being such a driver ahead due to the walkability and amenities nearby, concessions off-Metro (farther than ½ mile from Metro station) will likely trend into the upper $60s p.s.f. to $70 ps.f. with 12-15 months of rental abatement.

Souurce: JLL Research

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