Tysons Corner is in the beginning stages of a transformation to a 21st century urban center. The Dulles Corridor Metrorail Project will bring Metrorail to Dulles International Airport and beyond. The Tysons Land Use Task Force has come up with a plan that, by the year 2050, would result in as many as 100,000 residents and 200,000 employees in Tysons Corner (compared with an estimated 17,000 residents and 126,400 employees today). These ambitious plans mean significant commercial and residential development is ahead.
Tysons Corner, with 28.1 million square feet of office space, is one of the largest suburban submarkets in the country and one of the most popular addresses in the Washington area. Net absorption of office space in the region (the change in leased space) in the second quarter of 2013 totaled positive 56,000 square feet, but negative 28,000 for the first half of 2013. This compares to negative 132,000 square feet during all of 2012 and the 10-year annual average absorption of positive 48,000 square feet. The direct office vacancy rate rose slightly to 14.1 percent as of the second quarter of 2013, from 14.0 percent at the end of 2012. The overall vacancy rate (with sublet space included) was 15.1 percent at mid-year 2013. Average effective office rents (after concessions) in Tysons Corner decreased 2.5 percent to $21.25 per square foot during the first half of 2013.
Given an elevated vacancy rate and limited demand, effective rents should continue to edge down during the balance of 2013, as landlords offer generous concession packages to attract tenants. New buildings, especially ones near the new Metrorail stations and high-quality retail, will see rent growth sooner than others.
During the past 12 months, the high-end (Class A) apartment market in Tysons Corner/Merrifield experienced a 3.3 percent decrease in average effective rent, while the overall vacancy rate increased to 8.6 percent from 3.8 percent one year earlier. The overall vacancy rate for Tysons increased partially because of the arrival of a new project, Avalon Park Crest, which added 354 units to the market. Effective rents for Class A high-rise apartments averaged $1,995 a month, compared with $2,062 per month a year earlier. Concessions currently represent about 0.5 percent of face rent in this segment.
The pipeline of new apartments in Tysons Corner is substantial. In the second quarter of 2013, there were three projects with 983 units currently under construction, but not yet being marketed. There are an additional seven projects with 2,102 units planned to deliver within the next 36 months.
With more than 3,000 new units in the 36-month development pipeline it is likely that the Tysons Corner apartment market will become increasingly competitive during the balance of 2013. However, once the new Metrorail stations open we believe there will be a significant uptick in apartment demand in Tysons Corner. In 2014 and beyond, we think Tysons Corner will remain competitive as new projects come on line and rents will likely remain stable.
There are currently no condominium-specific projects being marketed or planned to start within three years. However, there are a significant number of projects that may deliver as either apartments or condominiums. During the previous development boom in the mid-2000s Tysons added 1,240 condominium units.
Michael Donnelly is a senior associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.