Conversions to data centers eat into NoVA’s Dulles North current and future industrial supply
- As data center supply in Northern Virginia has skyrocketed, existing and future industrial supply has come under pressure, particularly in Loudoun County’s Dulles North submarket, where owners are repositioning existing warehouse buildings to accommodate date center users.
- Dulles North industrial and flex supply, which tops 16 million s.f. of space, is becoming strained: over 1.4 million s.f. of inventory has been converted to data centers since 2008. The pace of conversions has averaged 273,725 s.f. since 2015, eating away at nearly 2% of supply each year.
- The submarket has traditionally captured the bulk of new development and thus absorption in Northern Virginia as well. From 2000 to 2008, Dulles North development and absorption comprised 42.7% and 29.4% of Northern Virginia’s totals. Since 2008, however, data center conversions have removed nearly 9% of Dulles North’s inventory and thus inhibited absorption as the annual pace has dropped from 608,914 s.f. to 433,751 s.f. CyrusOne has
led the charge for industrial conversions recently. With their purchases of 511 Shaw Road & 45897 Maries Road (both former shell industrial buildings), they will have converted 283,189 s.f. of industrial space alone over the past 12 months.
- Shrinking supply has led to increasingly landlord-favorable market conditions as tenants face dwindling availabilities in Dulles North. Over the past five years, direct vacancy has dropped in half to 5.4%, while asking rental rates have jumped 18% to an average of $9.38 p.s.f.
- The biggest impact, though, could be on future industrial development potential. Since 2015, 627 acres, once marketed for industrial use, have traded to data center users and operators in 17 separate transactions. Estimating coverage for industrial development, this amounts to over 5.4 million s.f. of potential industrial development being removed from the proposed development pipeline. With shrinking inventory and increasingly limited access to future development, logistics users will have to increasingly look toward Manassas, or across the Potomac in Southern Prince George’s County, for options ahead.
Source: JLL Research