Arlington commercial real estate tops N. Va. for cost in some areas, despite high vacancy rate

Despite high office vacancy rates, several of Arlington’s major commercial corridors have some of the highest commercial real estate prices in Northern Virginia, new data shows.

Rosslyn, Ballston, National Landing and Clarendon/Courthouse/Virginia Square were the only sub-corridors of Northern Virginia with asking rates above $40 per square foot in third-quarter figures reported last week by Savills Research & Data Services.

Rosslyn led the pack with a per-square-foot asking rate of $44.73, followed by Ballston at $41.89, National Landing at $41.29 and Clarendon/Courthouse/Virginia Square at $40.62.

The overall asking price for commercial space in Northern Virginia was $36.99 per square foot, up from $35.48 a year before. For Class A office space, the average asking price was $38.21, up from $36.55.

In terms of availability, the average Northern Virginia vacancy rate of 22.8% was down from 25.5% a year before. Rates for Arlington market sectors were a region-high 34.2% for Clarendon/Courthouse/Virginia Square, followed by 29.6% in Ballston, 25.7% in National Landing and 21.7% in Rosslyn.

A number of office-to-residential and office-to-hotel conversions approved by County Board members over the past year are helping to put a dent in the county’s historically high glut of commercial space.

Despite the efforts, many prospective tenants continue to focus on areas to the west, particularly in areas of Fairfax County.

The Reston/Herndon business corridor was the standout for office leasing across Northern Virginia in the third quarter, according to new data.

While total leasing volume regionwide dipped 25.8% year-over-year, the Reston/Herndon area posted its best performance in three years. It totaled about one-third of leasing activity in Northern Virginia as government contractors geared up after the Trump administration’s call for more defense spending.

The third-quarter report delivered a mix of data that paints a complicated but apparently stabilizing picture across Northern Virginia, analysts said:

“While leasing volume dropped 25% year-over-year to 1.8 million square feet, the underlying market fundamentals are actually strengthening. Availability just hit its lowest level since 2020 — the third consecutive quarterly decline — driven by office conversions and fewer new listings hitting the market.”

The report also underscored a “flight to quality,” with Class A properties capturing three-quarters of all leasing activity during the quarter.

Also year-over-year, subleasing inventory has fallen by about 1.5 million square feet as firms have grabbed up space when opportunities present themselves.

“Despite slower transaction velocity, these trends suggest the Northern Virginia market is finding its footing with tenants gravitating toward premium space,” Savills analysts said.

Savills analysts see three major positives in the current market environment:

• “Defense contractors will continue to be a major demand driver, with the current administration set on boosting military spending and modernization”
• “Recent interest rate cuts and potential further easing should bring increased liquidity to the investment market”
• “Market inventory should continue to contract, with several conversions underway or planned and few new projects in the pipeline”

Nine of the top 10 leasing agreements by square footage during the quarter occurred in either Reston, Herndon or Tysons, with the 10th in Loudoun County. The list was led by CACI, which inked a deal for just under 134,000 square feet at 11487 Sunset Hills Road.

Reston and Herndon benefited from easy access to a variety of transportation options, analysts said.

“Tenants favor locations along the Toll Road with strong transit access, particularly between the Wiehle-Reston East and Reston Town Center Metro stations,” they said.

Total commercial inventory, filled and empty, for the quarter across Northern Virginia was 151.1 million square feet, up from 150.3 million a year before, according to Savills.