SOUTHEAST SNAPSHOT, JANUARY 2007

Northern Virginia Industrial Market

In recent years, the Dulles submarket of northern Virginia has seen the majority of industrial development in the area. However, the pursuit of land in western Prince William County and the Winchester submarket has been the fastest growing trend in the northern Virginia industrial market. National and local players have purchased or are in the process of purchasing several sites in these submarkets.

Proximity to Dulles Airport, a rapidly expanding Loudoun County population and the availability of affordable land have been the drivers to the success of the Dulles submarket. Many developers would likely prefer the I-95 Corridor south of the Capital Beltway, but scarcity of land in this section limits opportunity. A few infill sites have seen small developments in recent years, but the great majority of development in the Dulles submarket has been focused in Dulles North.

The NorthWoods development, a 2.2 million-square-foot, master-planned industrial and flex park, is in the final planning and approval stages in Loudoun County. NorthWoods, conveniently located near Dulles Airport and major road networks, is the largest industrial development in Virginia and one of the largest in the Mid-Atlantic. This project will continue to make the Dulles submarket a leader for industrial development.

Distribution, light manufacturing, storage, freight forwarders, government contractors and the GSA are the primary users of space in the northern Virginia industrial market, but no single company or industry dominants the industrial space.

Coca-Cola Enterprises’ 80,000-square-foot lease is the largest lease closed to date in the northern Virginia industrial market. Rental rates in the region range from $6.50 to $8 for most facilities with a warm, lit finish. Vacancy rates remain in the 6 percent range with direct rates checking in at 6.3 percent and sublet rates at 6.4 percent. These rates have not eclipsed 10 percent in more than 10 years.

Three large industrial portfolios are anticipated to sell this year in the investment sales arena, which is highly unusual as there are very few industrial portfolios in northern Virginia. Prologis is selling their only real estate along the I-95 Corridor, two projects near the Capital Beltway, totaling more than 700,000 square feet. Both projects are likely candidates for future redevelopment to high-end office.

Dulles North will continue to be the hot spot for the immediate future, but western Prince William County and the I-81 Corridor, specifically near Winchester, will be the submarkets with the greatest development activity in the future as affordable land opportunities in Loudoun County and along the I-95 Corridor diminish.

Industrial product continues to be a solid performer in northern Virginia. Net absorption is in line with new development, and developers and investors continue to look for opportunities in this very desirable market.

— J. Caulley Deringer is senior vice president with Transwestern Commercial Services in Vienna, Virginia.

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