The ‘burbs are back

The suburbs accounted for 69.5 percent of Washington region’s leasing activity in the first quarter, up substantially from a 52.9 percent share in 2015, according to JLL’s quarterly market reports.

Tech firms, government contractors and healthcare groups were active in Northern Virginia and Suburban Maryland, while the District of Columbia experienced an unusually slow period of activity, partially a result of limited law firm lease expirations and continued financial pressure within that sector.

“Certain tenants – including tech firms and nonprofits– are looking beyond the Central Business District  and expanding the geographic scope of their searches,” Scott Homa, senior vice president, Mid-Atlantic research, JLL, said in a statement. “This is a result of an increasing battle over government incentives; tightening market conditions in D.C. and the enticing value proposition offered by suburban locations.”

Multiple nonprofits and associations have looked across the river into the Rosslyn-Ballston Corridor and Crystal City. In the first quarter, Chemonics International moved from the District of Columbia into 53,929 square feet at 251 18th Street, and GW Medical Faculty Associates moved from downtown into 48,900 square feet at 3811 N. Fairfax Drive. The opening of the Silver Line also has enticed tenants to tour sites further west, with some groups in the Rosslyn-Ballston Corridor now considering Tysons, according to the market reports.

“Government incentives have emerged as a key consideration for tenants in their space searches,” added Homa. “Precedents are being set and now everyone wants in on the action.”

Arlington County’s manager has proposed setting aside $1.5 million to attract tech companies between 5,000 and 20,000 square feet. There are two bills working their way through the Virginia legislature that would raise incentives to between $25 and $32 million.

Large-block leasing activity in suburban Maryland increased 77.7 percent over the fourth quarter of 2015. This increase was largely due to a few large leases including education technology company 2U, which signed a 252,952-square-foot lease in Prince George’s County, and the U.S. Food and Drug Administration, which renewed for 113,730 square feet. In Montgomery County, the office market experienced modest occupancy growth in the first quarter of 2016 after years of large-scale tenant consolidations.

“We expect future growth to be driven by emerging, non-traditional segments of the market,” Homa said. “Coworking establishments in particular have been expanding very rapidly in our market, which is reflective of the national trends we’re seeing given the rise of the freelance economy. Moving forward, we envision a more diversified office tenant base, driven not only by law firms, government contractors and federal agencies, but industries across a broad spectrum of the economy that are attracted to the region because of metro D.C.’s excellent workforce demographics, solid business drivers and pro-business governance.”