It might seem counterintuitive based on how the residential real-estate market is reacting to COVID, but Virginia’s larger and more urban areas seem to be weathering the downturn in the commercial-office market better than those in smaller corners of the commonwealth.
That said, Northern Virginia continues to face “obstacles” as the region, state, nation, world and known universe continue to try and make sense of what a post-pandemic economic environment will look like.
“Obstacles” is the word used by Lisa Sturtevant, chief economist for Virginia Realtors, who earlier this month laid out where the state’s office market is at present, and where it might be going.
The big-picture snapshot: Virginia’s net absorption of office space has been negative for five consecutive quarters, meaning more vacant space and, in some but not all cases, downward pressure on prices.
But as with all things real estate, it’s all about location, location, location. Hampton Roads, for instance, has been in positive territory in terms of increased office-space occupancy since the start of the pandemic, and Richmond has made “steady gains” for three quarters, Sturtevant said.
In Northern Virginia, the market for Class A (highest quality) office space is doing better than analysts might have expected.
“One explanation is that companies looking to bring workers back to the office post-COVID or planning expansions are looking for buildings with a wide range of amenities and flexible spaces to accommodate enhanced technologies or hybrid work,” Sturtevant said. “In addition, the businesses currently shopping for office space could be the ones with the best balance sheets and the most resources to commit to leased space.”
The data tend to bear out that Northern Virginia is showing some strength. The region represents 55 percent of Virginia’s office-space inventory, yet accounted for 67 percent of third-quarter leasing activity.
But that’s only half the story.
Northern Virginia is home to just under 229 million square feet of commercial office space, and even before the pandemic, some jurisdictions were grappling with high vacancy rates. In the current quarter, vacant space in the local area comprises just under 20 percent of all available space – a rate far above anywhere else in Virginia.
In early summer, it was expected that most businesses that had permitted workers to do their jobs remotely would be calling many of those employees back. But the arrival of the Delta variant impacted some of those plans.
Meanwhile, consumers are reacting to rising inflation and increases in COVID infections by pulling back on some kinds of spending, said Sturtevant, describing them collectively as “headwinds” that are slowing, but not derailing, an economic rebound in the Old Dominion.
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The full report, which also looks at retail and industrial real estate, can be found at www.virginiarealtors.org.