Northern Virginia CRE Market: 2021 Year in Review

2021 Review of Loudoun, Fairfax, and Prince William Counties’ Commercial Real Estate Market

We will begin with an overall summary of the Northern Virginia commercial real estate market in 2021 and then look more closely at both Sales and Lease Figures. We will then briefly review the numbers for 11 Business Sectors and then end with a summary of Lease Activity for the year.

2021 was a positive year for commercial real estate. The CRE market is driven by business strength, and it is a strong reflection on the economy when the Virginia Economic Development Partnership’s report published in October 2021 states, “A Virginia location means quality and stability for companies seeking the right place to expand and grow.”

This comment is reinforced by Northern Virginia’s Economic Survey of 100 Businesses. 72% of respondents said they are optimistic about their near-term economic and business prospects. 67% of the respondents are based in Loudoun, Fairfax, and Prince William Counties and represent all sectors and company sizes. With that background, let us now focus on the CRE numbers.

An Overall 2021 Review for Northern Virginia Commercial Real Estate Market

There were 12,226 buildings in the three counties occupied, vacant, and under construction; an increase over 2020.

• Construction starts totaled 5.6 million square feet (MSF) averaging 147 KSF per property, all adding to an ‘under-construction’ total of 16.6 MSF (5.5% lower than 2020.) 6.5 MSF of completed construction were delivered, and 905 KSF were demolished as part of these new projects.
• 12-month occupancy at delivery was 50.9%.
• 843 properties were sold in 2021, totaling $8.1 Billion, with an average asking price of $243/SF. Asking prices rose in every quarter, ending the year at $260/SF.
• The average differential between asking and sales price was -5.8%. But there was a broad range that resulted in this average. The largest negative sale-to-asking price was -60.8% and the largest positive was +74.6%.

All of these numbers show an increase over 2020.

• The Market Cap Rate remained constant through the year at 6.0%, but Transaction Cap Rates saw a quarterly average low of 6.4% and two quarterly average highs of 7.3%. We go into more detail in the next section.
• Vacant square footage fell to 32.6 MSF, and Availability Rate fell to 11.6%.
• Occupancy Rates at sale rose to 90.8%, the percent-leased rate rose to 92.2%, and the 24-month lease renewal rate stood at 70.6%.
• The available asking rent /SF rose to an average of $31.48

2021 Sales Statistics for Loudoun, Fairfax, and Prince William Counties

843 properties were sold, totaling approximately $8.1 Billion. The average property SF was 36.6K and the average time to sell was 14.8 months. If we look in detail at these numbers, we see:

• Sales during the year were, Q1: $1.1B, Q2: $2.1B, Q3: $2.3B, and Q4: $2.5B. A steady rise for each quarter.
• Sales by transaction type show that the two main categories, by far, were individual and portfolio completions.
• Sales by price range show us that approximately 19% of sales were in the $610K – $1.4M range. 17.5% were between $260K and $610K, 15% were between $3.2M and $7.4M; 14.5% were in the $1.4M and $3.2M range. 29% of sales exceeded $7.4M and approximately 5% were in the less than $260K range.
• Sales Prices went from an average of $202.50/SF in Q1 to a peak of $237.50/SF in Q3, dropping a little in Q4 to an average of $236.50/SF.
• The $/SF distribution shows us that approximately 61% of all sales in 2021 were in the $100 – $300/SF, 14% in the $300 – $400 range, 8% sold at below $100/SF, and 16% sold at $400/SF –
• Cap Rate Distribution tells us that 44% of all sales were in the 6-8% range, 31% of sales were in the 4-6% range, 12% in the 2-4%, 0.75% in the 10-12%, and another 0.75% were above 14%.
• The Market Cap Rate dipped from just under 6.15% in Q1 to a low point of below 6.13% in Q3, then rising to end 2021 at an estimated 6.168%.

With regard to Buyer-Types, we see that:

• 42% were Private.
• 27% were Institutional.
• 16% were Private Equity.
• 8% were REIT or Public Purchasers.
• 7% were User Owners.
• 59% were national organizations, 31% foreign, and 10% locally based.

2021 Sales Stats for Loudoun, Fairfax, and Prince William Counties by Sector

There are 11 sectors in this analysis. The total sold volume across all sectors for 2021 was $8,046,479,080 and the total value of listed or under contract totals $207,253,519. We will now briefly review each sector.

Office

• 267 Properties were sold for an average price of $7,139,491, an average $/SF of $201.03, and an average Cap Rate of 7.43%.
• Sold to Asking Price averaged 93.56%.
• 18 are currently listed or under contract at an average price of $1,747,626, an average $/SF of $220.63, and an average Cap Rate of 8.14%.

Flex

• 70 Properties were sold for an average price of $10,845,822, an average $/SF of $282.81, and an average Cap Rate of 6.33%.
• Sold to Asking Price averaged 99.44%.
• 4 are currently listed or under contract at an average price of $6,106,566, an average $/SF of $376.34, and an average Cap Rate of 9.49%.

Industrial

• 64 Properties were sold for an average price of $6,072,343, an average $/SF of $178.09, and an average Cap Rate of 9.67%.
• Sold to Asking Price averaged 93.23%.
• 3 are currently listed or under contract at an average price of $1,951,000 and an average $/SF of $264.12.

General Retail

• 133 Properties were sold for an average price of $4,527,990, an average $/SF of $222.83, and an average Cap Rate of 6.01%.
• Sold to Asking Price averaged 94.89%.
• 16 are currently listed or under contract at an average price of $2,199,534, an average $/SF of $471.78, and an average Cap Rate of 5.52%.

Sports and Entertainment

• 1 Property was sold for $11,800,000, resulting in a $/SF of $1,456.25.
• There are no properties currently listed or under contract.

Multi-family

• 34 Properties were sold for an average price of $75,844,026, an average $/SF of $271.88, and an average Cap Rate of 4.17%.
• Sold to Asking Price averaged 87.68%.
• 2 are currently listed or under contract at an average price of $999,950, an average $/SF of $175.15, and an average Cap Rate of 3.86%.

Hospitality

• 9 Properties were sold for an average price of $17,950,857 and an average $/SF of 135.35.
• There are no properties currently listed or under contract.

Land

• 132 parcels were sold for an average price of $8,840,649 and an average price per acre of $468,033.
• Sold to Asking Price averaged 90.07%.
• 34 parcels are currently listed or under contract at an average price of $3,024,252 and an average price per acre of $554,404.

Healthcare

• 7 Properties were sold for an average price of $11,540,056 and an average $/SF of $172.93.
• There are no properties currently listed or under contract.

Specialty

• 31 Properties were sold for an average price of $12,592,717, an average $/SF of $267.36, and an average Cap Rate of 7.50%.
• There are no properties currently listed or under contract.

Mixed

• No properties in this sector were sold in 2021.
• 1 property is currently listed or under contract for $5,500,000 at a $/SF of $324.29. It has a rental building area of 16,960 SF.

2021 Lease Activity in Loudoun, Fairfax, and Prince William Counties

Before we look at the four sectors covered in our analysis, we will cover the overall lease picture across the three counties.

• Average Asking Rent: $21.95/SF
• Average Starting Rent; $26.64
• Average Effective Rent: $30.97/SF
• Average Months Free Rent: 3.3

General Office

• Gross Asking Rent: $29.99/SF
• Gross Starting Rent: $35.15/SF
• Gross Effective Rent: $36.47/SF
• Average Months Free Rent: 3.5

Flex

• Avg Asking Rent: $13.20
• Avg Starting Rent: $13.99
• Avg Effective Rent: $26.46
• Average Months free Rent: 2.3

Industrial

• Avg Asking Rent: $11.38/SF
• Avg Starting Rent: $12.48
• Avg Effective Rent: $11.29
• Average Months Free Rent: 2.5

Retail

• Avg NNN Asking Rent: $27.24
• Avg NNN Starting Rent: $23.72
• Avg NNN Effective Rent: $22.02
• Average Months Free Rent: 4.5

Final Comment

We have summarized the whole of 2021’s multi-billion dollar market for the three counties to give you a bird’s-eye view of sales and lease activity. You will have many questions and will want specific data on some of the sectors within a specific county. To have all your questions answered, and to get a comprehensive, detailed view as it relates to you as an investor, owner-user, or tenant, please leave your message here, and we will get straight back to you.

Note:  Information and data collected from CoStar, LoopNet, and other proprietary sources of Serafin Real Estate Inc.