Northern Virginia sees return to office spike

A surge in return-to-office activity is helping Northern Virginia’s office market stay resilient, even as property sales dipped in the third quarter, a new report from real estate services firm Avison Young shows.

The report found that, as of August, office attendance in Northern Virginia had reached 64.8% of pre-pandemic levels, surpassing the national average of 61.3%. Even more recent data provided this week by Avison Young shows the trend continuing, with attendance in the region climbing to 72.2% in September, underscoring the impact of renewed return-to-office mandates.

“While month-to-month visitation recovery is volatile, the positive trendline is indicative of a slow yet steady recovery,” the report noted.

Graham Sessoms, a senior market intelligence analyst with Avison Young, said the federal government and defense employers are leading the surge. Government contractors that want to follow the government’s lead “do what they do to keep in lockstep with them,” he added. Earlier this year, the Trump administration signed an executive order requiring federal agencies to terminate remote work arrangements.

Finance and life sciences firms are also reinforcing in-office culture, Sessoms said, either because the businesses prefer in-person communication or because it’s is necessary for employees to conduct research in person.

Tucker White, Avison Young’s U.S. office agency lead for market intelligence, noted, “It’s hard to convince the taxpayer that the government works better remote.” And “you can’t just take your laptop home if you have any security-level clearance,” he added. “You need to be in the office.”

Despite the return-to-office increase, sales volume declined sharply, falling from $558 million in the second quarter of the year to $158 million in the third quarter. Despite the drop, White said it’s not unusual for markets in their third quarter to drop at this time of year, attributing much of the drop to seasonal lulls. He added that recent fluctuations in interest rates may have led some building owners to delay sales. Private investors remained the dominant buyer group in the third quarter.

Meanwhile, the share of office space available to be leased tightened to 23.3%, down from 24.4% in Q2. Sublease availability also declined to 3.2 million square feet, while vacant sublease inventory held steady at about 1.62 million square feet. By comparison, about 2.1 million square feet of vacant sublease space was available at the beginning of 2024.

Ryan Price, chief economist with Virginia Realtors, has said that during the pandemic, many companies reduced their office space because fewer people were coming in, leading to a spike in sublease listings. But as more firms have started bringing employees back to the office under return-to-office policies, that trend has begun to reverse.

Trophy office space is the only property class to have seen a rise in rents since the beginning of 2023, with trophy offices averaging $70.72 per square foot, up slightly year-over-year. All other types of office space have seen stagnant rent prices, with Class A averaging $43.14, Class B $35.52 and Class C $27.83. The firm previously said this year that the higher price for trophy assets was driven by a significant reduction in available supply and continued tenant preference for high-quality space.

“The top end of the market has been performing very well,” Sessoms said. “Rents have increased substantially. Occupancy is high there, and availability has been slowly shrinking.”

Another significant development is the rise in conversions from office space to residential, with 12.9 million square feet — about 7.9% of the region’s inventory — slated to be repurposed. Out of 70 proposed buildings to be converted to residential use, 8.57% have either been approved or begun construction. Avison Young says this trend reflects growing interest in repurposing underperforming assets, often acquired at a discount due to financial challenges faced by landlords in recent years.

Sessoms said many of the buildings being converted were “not in a great place” and needed renovations anyway.

Ultimately, despite the dip in sales, Northern Virginia’s office market is in a healthy place and is seeing positive momentum, White and Sessoms said.

“There’s a lot to be excited about for both landlords and tenants,” Sessoms said. “Most tenants that we’re talking to, clients and nonclients, they are generally increasing their footprint or at least considering to do so at a higher rate than they have previously. So, [there’s] a lot to be excited about and hopeful for in the near future, throughout the rest of this year and in the next, as well.”