Loudoun County is one of the fastest-growing areas in the Washington region and one of the fastest-growing in the United States. Recently, however, office rents and condominium prices have been decreasing in response to federal budget cuts and the repercussions for government contractors, which have a significant presence in Loudoun. Conversely, the apartment market is outperforming its neighbors, as vacancy remains low enough to push rents higher.
The Loudoun County office market has 16.3 million square feet of inventory. The amount of leased space fell by 98,000 square feet during the second quarter of 2013 and by 42,000 square feet overall in the first half of 2013. This compares to an increase of 333,000 leased square feet during all of 2012. The direct office vacancy rate edged up to 15.7 percent at mid-year 2013, from 15.3 percent at year-end 2012. The overall vacancy rate (including sublet space) was 16.0 percent at mid-year 2013, up from 15.6 percent at year-end 2012.
The average effective rent (after concessions such as free rent) in Loudoun County was $17.35 per square foot at mid-year 2013, down 1.1 percent from year-end 2012. This compares to a 3.3 percent decline during all of 2012. Given the elevated vacancy rate and limited demand, effective rents likely will continue to edge down during the remainder of 2013, as landlords offer generous concession packages to attract tenants. Of course, better buildings should outperform the submarket average. Overall, we expect leasing activity to gradually pick up during the balance of 2013, particularly as the private sector generates new jobs.
During the 12 months ending mid-year 2013, the high-end (Class A) low-rise apartment market in east Loudoun County experienced an increase in the average effective rent of 2.3 percent, while the stabilized vacancy rate (for properties no longer in the initial lease-up period) declined to 2.1 percent from 4.9 percent. The east Loudoun County Class A low-rise apartment market was one of only two submarkets that experienced effective rent growth during the 12 months ending mid-year 2013 in all of Northern Virginia. In fact, the overall Northern Virginia Class A low-rise apartment market experienced a 1.4 percent decrease in effective rents during the same period.
At mid-year 2013, the 36-month pipeline of new apartment supply in east Loudoun County totaled 2,359 units that were under construction and available or planned.
With a low stabilized vacancy rate, rents have been able to edge higher. However, with a significant number of units planned or under construction, it is likely that the east Loudoun County apartment market will become increasingly competitive in the period ahead.
The new condominium market in Loudoun and Prince William counties experienced a slight decrease in pricing during the 12 months ending mid-year 2013, with the average effective price falling by 0.7 percent to $170 per square foot. This compares to a 1.4 percent increase in the average effective price in Northern Virginia. Concessions remain slightly elevated, at 2.3 percent of the asking price. Unit volume, at 631 new units sold during the 12 months ending June 2013, is up 47 percent from 430 new units sold during the 12 months ending June 2012.
With a 36-month pipeline of 572 units as of mid-year 2013, the Loudoun and Prince William condominium market is likely to experience steady unit sales volume in the period ahead. However, as new projects open, selling older condominiums may require additional concessions.
Cassidy McCormick is Mid-Atlantic research director at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.