A REVIEW OF THE LOUDOUN COUNTY COMMERCIAL INVESTMENT REAL ESTATE MARKET
In this article, we will review Loudoun County’s commercial real estate investment activity over the past three years and briefly list the typical lease terms associated with this market segment. We will also summarize the current, on-the-market activity.
LOUDOUN COUNTY COMMERCIAL REAL ESTATE OVERVIEW
By way of an overall summary, since March 2018 Loudoun County saw 450 total closed transactions totaling almost 14 million square feet and adding up to just over $5.411 Billion in total value. Q2 last year saw the lowest closed volume at just below $66.5 million, and the highest was in Q4 2019 when closed volume stood at just below $1.31 Billion. The average CAP rate across all transactions was 7%, with a low of 4.3% and a high of 13.6%. The first two months of 2021 saw nine closed transactions with a total dollar volume of $201.57 million.
Loudoun County attracts all types of businesses. 70% of the world’s internet traffic passes through Loudoun every day, biomedical research is a major employer, and almost 1,000 federal government contractors are based here. Four Loudoun County employers were in the DC region’s Top 10 last year. The demand for office space, industrial premises, warehousing, hospitality units, retail space, and healthcare premises is high. The increasing number of employees and business owners also generates demand for high-quality schools and homes, including multi-family properties.
The wide range of available CRE properties as well as those under development continues to grow. The past three years saw an active market across all 10 property types. Here is how the total inventory broke down in that period.
10 LOUDOUN COUNTY COMMERCIAL REAL ESTATE MAJOR PROPERTY TYPES
- Office Space
These are, typically, multi-tenanted properties, but some have household name-brand single tenancies. 58 properties were sold with an average price of $6,322,704 and a median price of $2,284,914. The $/SF averaged $171.40, actual CAP rate averaged 7.38% on an average RBA of 22,588 SF. Sales price to asking price (SP: AP) averaged 91.76%.
- Flex
29 properties in this segment sold at an average price of $46,102,685 and a median of $6,418,064. $/SF averaged $605.29 with an actual CAP rate averaging 8.32% on an average RBA of 74,206 SF. The average SP: AP was 95.2%.
- Industrial
29 properties were sold at an average price of $18,336,634 and a median of $15.4 million. $/SF averaged $188.42 with a CAP of 6.97% on an average RBA of 95,856 SF. The average SP: AP was 83.96%.
- General Retail
40 properties changed hands for an average price of $6,541,884 and an average $/SF of $262.44 on an average center size of 25,113 SF. The median sold price was $4,747,972, with an actual CAP averaging 6.25%. SP: AP averaged 90.81%, ranging from a low of 82.22% to 97.69%.
- Sports and Entertainment
1 property was sold at $23.5 million. It was a 42,530 SF building.
- Multi-Family
12 properties sold for an average price of $64,233,125 and a median of $39,069,706. The average building size was 316,172 SF and the number of units in each property averaged 274, giving an average price per unit of $234,356 and an average price per SF of $203.16. The CAP rate ranged from 4.3% to 5.3%, averaging at 4.89%.
- Hospitality
8 properties sold for an average price of $10,570,255 and a median price of $8,701,132. The average building size was 58,298 SF ranging from 9,036 to 95,000 SF. Price per SF ranged from $86.11 to $267.71. The CAP rate range was, as expected, also broad, going from 8.43% to 13.64 and averaging at 10.4%.
- Vacant Land
163 parcels were sold, with an average price of $12,005,652 and a median of $2.76 million. Parcel sizes ranged from a little over 2000 SF to 1,092.94 acres, with an average size of 3.98 acres. Price per acre averaged at $311,428. The average SP: AP was 85%.
- Health Care
1 property of 102,785 SF was sold for $7,916,500.
- Specialty Properties
8 properties were sold for an average price of $8,790,000 and a median of $9,490,000, giving an average Price/SF of $208.64. Both the average and median CAP rate was 6.88%.
TYPES OF COMMERCIAL LEASES COMMON IN LOUDOUN COUNTY
There are three primary types of a commercial lease, each based on different parameters. The main components of each type are as follows.
GROSS, OR FULL SERVICE, LEASE
- This type is common in freestanding buildings where there is no shared expense for common areas used by other tenants.
- The tenant’s rent covers all the property’s operating expenses including property taxes, insurance, maintenance work, utilities, janitorial services, etc.
- Typical costs associated with building standards are used as the basis for setting that portion of the monthly rent.
- Landlords set a higher rent to cover known and potential costs, and often include an escalation clause if variable costs exceed a certain, predetermined limit.
- The tenant benefits because their costs are known and fixed until lease renewal.
NET LEASE
- The rent payable is fixed, but other costs which would be covered in a gross lease agreement, become the tenant’s responsibility.
- Common area maintenance (CAM) fees may be calculated monthly and shared by each tenant.
Net leases subdivide into three categories known as single, double, or triple net, depending on which expenses are the tenant’s responsibilities and which the landlord’s.
Single Net Lease (The N Lease)
- Tenants pay rent plus an agreed proportion of property taxes plus their utilities and other services such as cleaning, trash collection, etc.
- The landlord pays building costs such as maintenance and repairs.
Double Net Lease (The NN Lease)
- Tenants pay property insurance premiums and property tax plus their utilities and other expenses they incur.
- The landlord covers CAM charges.
Triple Net Lease (The NNN Lease)
- Tenant is responsible for property taxes and insurance plus their own operating and maintenance costs, and an agreed percentage of any CAM costs. By minimizing their operating costs, tenants can lower their current liabilities.
Absolute Triple Net Lease
- Tenant takes on all responsibilities for the building including managing and funding costs associated with, for example, an Act of God or other catastrophes.
Modified Gross Lease
- This form of lease is a merge of gross and net leases and offers greater flexibility for tenants and landlords to negotiate levels of responsibility and the share of costs.
- Operating and other costs are based on building standards and the proportion of the building each tenant occupies.
- The tenant’s share becomes part of the monthly rent, so monthly costs remain the same whether actual costs change or not.
LOUDOUN COUNTY CRE INVESTMENT PROPERTIES CURRENTLY FOR SALE
We will now look at current market stats. There are 136 properties on the market with a combined For Sale volume of $244 million, totaling 799,000 SF and an average Price/SF of $261. The For Sale CAP rate averages 6.6%, ranging from 5% to10%. 72% of the listings show a For Sale CAP of 6-7%. The market CAP rate averages at 7%. There is a 33.5% vacancy rate across the entire inventory. The average Sale Price vs the Last Sale is up 242.1%. This, again, has a wide range going from negative 10.4% to +1,275%.
The market asking rent stands at an average of $20.77/SF. A different comparison tells us that an asking price of $200/SF carries an average asking rent of $20/SF and an asking price of $350/SF has an asking rent of $25/SF. 80% of the listings are being sold by private owners, and 20% by users. 32% of listings have Asking Price Rents (APR) of between $180 and $240. 21% have APRs of between $240 and $300, while another 24.5% of listings’ APRs range from $300/SF to $360.
BRINGING IT ALL TOGETHER
This review of the last three years along with the sorting analysis of current properties for sale gives you an insight into Loudoun County Investment CRE. Last month, we published a more in-depth review of the current CRE market in Leesburg specifically, which you can catch here, along with our list of current inventory and recent closings. They will introduce you to some specific opportunities currently available and some of our recent successes – adding to the $500 million in closings we have achieved.
Serafin Real Estate is a leader in the commercial investment market being one of the top-selling brokers for individual sellers in the Triple Net Lease space of the $2 million to $30 million market segment. If you would like to investigate the opportunities in Northern Virginia or learn more about how we can deliver the results you expect, please click here to contact us. Leave your details, and we will get right back to you. If you prefer, call us on (703) 261 4809.