OFFICE MARKET TRENDS The Fairfax Center and Fairfax City submarkets made progress towards absorbing some of the elevated vacancy that has emerged since the pandemic, posting the first year of positive net absorption since 2019, allowing vacancy rates to decline moderately. While tenants in the broader Northern Virginia market are prioritizing transit-oriented nodes like Reston and the Silver Line Corridor, Fairfax is benefitting from a disproportionate share of redevelopments and conversions helping to reduce inventory and offset vacancy increases. Therefore, well-amenitized or relatively well-positioned buildings in Fairfax are beginning to see more activity as tenants in the surrounding area face fewer options for office space. Professional and business services, technology and finance tenants led leasing activity this quarter, accounting for 45% of total volume. Renewals grew to 58.4% of total volume, in continuation of the trend in Q3, driven by a number of factors, including capital constraints pushing more buildout costs to tenants. Meanwhile, the development pipeline remained at historic lows, with no new deliveries this quarter. Only two buildings NORTHERN VIRGINIA (FAIRFAX CENTER AND FAIRFAX CITY) • Despite softness in the broader market amid government downsizing in 2024, Fairfax saw conditions stabilize in 2024, with the first year of positive net absorption since 2019, driving a plateau and decline in overall vacancy rates. • The development pipeline remains at historical lows with no new deliveries this quarter. Only two buildings remain under construction and are expected to deliver within the next 12 months. • Adaptive reuse and mixed-use redevelopment of older office properties are expected to gain momentum, potentially reducing overall vacancy and revitalizing struggling submarkets. are under construction in Northern Virginia and both sit outside of Fairfax – OB5 at Reston Station and One Loudoun – amounting to 244,000 s.f. OUTLOOK Looking ahead, the Northern Virginia office market is poised for a gradual recovery, driven by the market’s strong technology and government contracting sectors. As companies finalize their return-to-office strategies, we anticipate increased leasing activity, particularly for highquality, amenity-rich spaces in mixed-use developments. The ongoing transformation of ageing office stock into mixed-use developments will likely accelerate, reshaping submarkets and creating new opportunities for both tenants and investors. With a large volume of expirations due in the next three years, low availability in trophy supply and very few deliveries in the pipeline, tenants will have much more pressure to renew leases over the short term. MUST'S SUBMARKETS Overall market statistics Forecast 2024 net absorption (s.f.) -2,199,963 Under construction (s.f.) 244,000 Total vacancy (%) 24.3% Sublease vacancy (s.f.) 1,602,112 Asking rent ($ p.s.f.) $36.67 Concessions Stable Net absorption and overall vacancy rates Gross leasing activity Rental rates and going-in yields Average cap rate (%) Cap rate Asking rent 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 9% 8% 7% 6% 30% 25% 20% 15% 10% 5% 0% $33 $32 $31 $30 $29 $28 $27 $26 $25 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2010 2014 2018 2012 2016 2020 2022 2024 Net absorption (m.s.f.) Total vacancy (%) Fairfax Center & Fairfax City Rest of Northen Virginia 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 13.4M 10.1M 10.5M 11.3M 9.5M 8.3M 8.3M 8.3M 5.7M 6.7M 0.3M 0.3M 0.8M 0.6M 0.4M 0.4M 0.6M 0.4M 0.2M 0.6M INDEPENDENT MARKET REPORT By JLL as at 31 December 2024 46 | MANULIFE US REIT
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