Spec suite leasing is surging in the RB Corridor, accounting for three out of every four leases < 10,000 s.f.
Leasing within the Metro DC spec suite market has surged the last five years
June 12, 2019
- Leasing within the Metro DC spec suite market has surged the last five years, providing tenants with short-term, move-in ready lease options, and providing landlords with a strategy for filling up smaller spaces at an accelerated pace. A few weeks ago, our DC Research team analyzed the downtown market here and today we look into spec suite leasing trend in Northern VA. Within the Northern VA market, the Rosslyn-Ballston (RB) Corridor is leading the office sector’s surge in spec suite leasing activity, with a higher concentration of leasing activity than all other submarkets. Six years ago in the RB Corridor, spec suites accounted for 2% of new leases and relocations < 10,000 s.f.; in the past 18 months, spec suite leasing has accounted for 73% of such leases in RB.
- A few key takeaways stand out when diving deeper into the data: Time to lease: 70.6% of spec suites are being filled within six months of delivery and only 8.8% lingered for more than 12 months on the market.
- Average term: Spec suite tenants are signing lease terms that have averaged four and a half years. Looking at the extremes of that spectrum, only two in 10 spec suite leases posted a term of less than three years and only one of 10 leases had a term of more than six years.
- Tenant prior location: 78% of spec suite tenants in the RB Corridor relocated from within the submarket, while 22% relocated from outside of the RB Corridor, including seven tenants who moved from Washington, DC and one that moved from Suburban MD. For instance, Alexandria Capital and Venturehouse Group signed leases in spec suites at 1300 N 17th in Rosslyn in relocations from the CBD and East End, respectively.
- Tenant industries: The growth in spec suites is helping drive the diversification of the RB Corridor’s office tenant base. Among the top sectors that comprised spec suite leases this past year, tech accounted for 35%, consulting for 21%, financial services for 16% and nonprofits for 12%. By contrast, the Corridor’s traditional tenant base represented a fraction of spec suite tenant activity, with government contractors comprising 8% of leasing share and government agencies, not surprisingly, accounting for none of the leases.
- Quality and pricing: Class A and Class B buildings comprised nearly an equal share of spec suite leasing activity in the RB Corridor, with 46% and 44%, respectively. Meanwhile, Trophy buildings account for only 2% of spec suites as those buildings in the Corridor have largely leased to large tenants. From a future pricing standpoint, tenants have a wide range of options in the availability pricing spectrum, ranging from $31 p.s.f. FS for lower quality Class C buildings to $63+ p.s.f. FS for Trophy space. Those ranges back-up the recent lease economics for spec suite leasing, as tenants have signed spec suite leases ranging from between $34 p.s.f. FS to $61 p.s.f. FS.
- Ahead, the 73% share of leases < 10,000 s.f. that spec suites account for today will increase further before stabilizing around 80%. What will drive the increase? As tech demand accelerates further in the Corridor, particularly for VC-backed start-ups and small cloud and cyber sub-contractors, spec suites are poised to see a disproportionate share of that leasing activity, pushing up pricing for tenants and downtime for landlords.
Source: JLL Research