October’s stats for Loudoun and Fairfax Counties show another active month. After September’s high, lower numbers were expected in both units sold and closed sales value. October noticed the effect of two outside factors: the rise in COVID-19 cases in Virginia and the presidential election. Both will continue to impact our economy in different ways, but optimism seems, on balance, to be the position to take, as we discuss both factors. We will begin with the election and COVID, then look at the detailed October stats, as well as comparing them to September’s results.
THE PRESIDENTIAL ELECTION AND THE PANDEMIC
Taking a broader view to begin with, real estate has performed well under both Republican and Democratic administrations, delivering a national average return of 8.5% during the past 41 years. It is best, therefore, to focus on the specific factors we know that impact property values and financial returns. A president’s administration can affect any investment market, but they tend to have a slow-growth impact and are often linked to spending trends.
The House and, particularly, the Senate race outcomes will affect government policy, but until we see the final results it is not possible to say how party-political decisions on Capitol Hill will affect CRE.
An August Berkadia survey said the election is the first or second most important factor affecting the multi-family market, and it remains ‘cautiously confident’, stating ‘while activity may not return to “normal” until 2021, opportunities still exist in the current climate.’ If we put “the current climate” into the Loudoun and Fairfax context, we have several reasons to remain positive.
If the Senate remains in Republican hands, it is unlikely there will be speedy or major changes to tax law, such 1031 Exchange legislation. On top of that, Biden has said, given confirmation of current results, his first priorities will be on COVID and international matters such as WHO and the Paris Climate Accord. Given whichever way the election turns out, our market should not see anything but positive influences.
To support that conclusion, commonly-published opinion is that local tax measures have a greater and immediate impact on CRE than who sits in the Oval Office. The Tax Foundation’s 2021 State Business Tax Climate Index ranks Virginia at 26, overall, out of all 50 states: 16 for corporate tax matters, 11 for sales tax, and 27 for property tax (including real estate.) These numbers show little change from previous years, so it seems logical to assume that what we know about the effect of state taxes on our market will continue.
Finally, looking at local election issues, there is nothing to report on Loudoun and Fairfax Counties. The local ballots had no changes to property taxes but did have new bond issues to pay for schools, roads, libraries, etc. Further improvements to social capital can only reflect well on our market.
The most important factor today is the COVID-19 pandemic. A November 9 article in GlobeSt said the market awaits Biden’s decisions on how his administration will address it. 2020 has seen the virus’s impact, and our recent statistical reports have shown Loudoun and Fairfax’s market response. With recent announcements of vaccines becoming available, it may be reasonable to suggest we will soon have seen the worst of the virus’s effect.
Any immediate solution to mass sickness and unemployment will involve Health, Technology, and Logistic lines of business as well as government input. All of these are a major part of our local economy. Improvements in all these lines of business, as they work to deliver solutions, will drive our CRE markets.
The election, therefore, does not appear to signal any major impacts for us. The virus crisis should come under control with vaccines becoming available, so our local market should look forward to a positive Q4 and an even more positive 2021.
Let us now turn to October’s statistics.
LOUDOUN COUNTY OCTOBER COMMERCIAL REAL ESTATE REPORT
There were 12 closed transactions in October, compared to 15 in September. Sales volume was also down at $22.4 million. The average list-to-sell price was 97%. The highest priced property selling for $5.3 million. Taking all closed transactions, the average price per sq ft stood at $498, ranging from $185 to $1,183. September’s average was $161. List-to-sell timescale was an impressive 7.9 months compared to September’s13.9.
Lease rates at closing ranged from 96% to 100% comparing well to September’s average of 81.2%. Market rent per sq ft stayed just below $18 at $17.89. Annual rent growth currently stands at 2.5%.
October’s Cap Rate on sold properties was 1.8% higher than September’s, standing at 7.7%. The lowest being 6.8% and the highest 8.5%.
Daily vacancy rates stood at 7.8%, with an availability rate of 14%, showing another month of improvement compared to August’s high of 23.5%. October’s occupancy rate at time of sale averaged 98.4%.
77% of sales by volume originated locally and 23% by national names which is almost the reverse of buyer-originated purchases which stood at 75% national names and 25% local. The top sellers for October were Miller and Smith, Willowsford Management, and Sylvia E. Clark et al. The top buyers were Soave Enterprises, Beazer Homes, and Blackwood Properties.
PROPERTIES CURRENTLY FOR SALE
There are 18 properties currently listed, compared to 17 in September. Listed square footage total is 51,600. Average per sq ft list price is $291, up from September’s $286. The lowest price for October is $93 and the highest, $526.
FAIRFAX COUNTY OCTOBER COMMERCIAL REAL ESTATE REPORT
The county saw 14 closed transactions compared to 21 in September. Sales volume totaled $117 million, again down from September’s total of $394 million. List-to-sell time was 8.3 months compared to September’s 15.2 months. Sales price varied a lot, going from just $240K to $46.5 million. September’s lowest and highest sold prices by way of comparison were $380K and $113 million respectively. October’s average sale price was $10.7 million, average price per sq ft was $249, ranging from $143 to $332. List-to-sell price was 86% which is, again, down from September’s rate of 93.4%.
At sale, lease rates averaged 97.7%, with September’s being 96.8%, and ranging from 74.8% to fully occupied.
Average transaction Cap Rate stood at 6%, which is 1% higher than September.
Daily vacancy rates began to rise at the beginning of the month from 25% to just under 25.5%, then fell to 24.6%.
This month’s profile shows that 76% of buyers were national names, led by Vanderbilt Office Properties and Estein USA. Sellers were 83% private, 16% REIT/Public, and only 1% were institutional. Marcus Partners, Inc. and The RMR Group led the way.
PROPERTIES CURRENTLY FOR SALE
There were 30 active listings, two more than September, totaling 375,000 sq ft. The average list price per sq ft was $157, ranging from $120 to $319. The average list per sq ft for September was $173.
FINAL COMMENTS FOR OCTOBER
Loudoun and Fairfax Counties saw a dip in sales volume, dollar value, and price per sq ft in October compared to September. Given the high volume for September this is not surprising. When the fact that it was also the month before the election, and the spike in COVID-19 cases, a fair conclusion is that, overall, the market continues to show strength and comparatively high levels of activity.
If history repeats itself concerning the commercial market under both Democratic and Republican administrations, the strong likelihood of no major changes to tax law, and the imminent distribution of virus vaccines, then we look forward to a strong Q4.