THE EVOLVING INVESTMENT LANDSCAPE
IN NORTHERN VIRGINIA
P R E S E NTE D B Y :A L E XANDE R ( S AN DY) P A U L , C R E , L A IS E NI OR M A N A GING D I RECTOR, N A T I ONAL R E S E ARCH
F E BRUARY 1 1 , 2 0 2 0
P R E P ARE D F O R :N A I O P A N NU AL F O RE CAS T E V E NT
2
Source: NKF Research; February 2020
NORTHERN VIRGINIA COMMERCIAL REAL ESTATE HEADLINESCHANGES IN OUR REGION ARE SHAPING THE INVESTMENT LANDSCAPE
Our regional economy is diversifying . . .
. . . consistent with changes in demographics . . .
. . . which are driving investment decisions.
3
2 0 1 0
Source: The Stephen S. Fuller Institute, NKF Research; February 2020
REGIONAL ECONOMY DIVERSIFYINGFEDERAL SHARE OF WASHINGTON AREA’S ECONOMY2010 VS. 2018 VS. 2030
2 0 1 8P r o j e c t e d
2 0 3 0
Total Federal39.8%
Other60.2%
Total Federal30.9%
Other69.1%
Total Federal26.5%
Other73.5%
4
-2.2%
19.3%
14.9%
-5% 0% 5% 10% 15% 20% 25%
Federal Government
High-Tech Professional Services
Total Payroll Employment
Note: High-Tech Professional Services comprises Professional, Scientific and Technical Services and Computer Systems Design and Related ServicesSource: U.S. Bureau of Labor Statistics, NKF Research; February 2020
J O B G R O W T H S I N C E 1 Q 2 0 1 0 ( T R O U G H O F G R E A T R E C E S S I O N )
ECONOMY DIVERSIFYING, WITH HIGH-WAGE JOBS DRIVING GROWTHGROWTH BY SELECTED SECTORS SINCE GREAT RECESSION WASHINGTON METRO AREA
Washington area created 52,600 jobs for the12 months ending in
December 2019
5Source: JobsEQ, NKF Research; February 2020
TE
CH
S
HA
RE
O
F
EM
PL
OY
ME
NT
23.7%
18.9%18.2%
16.9% 16.9%
14.2%
12.1% 11.9% 11.8%11.1%
10.1% 10.1% 10.1%9.2% 8.9%
7.3%
0%
5%
10%
15%
20%
25%S
F B
ay
Are
a
Se
att
le
Wa
sh
ing
ton
Au
sti
n
Bo
sto
n
De
nv
er
Da
lla
s
Atl
an
ta
Pit
tsb
urg
h
Ph
ila
de
lph
ia
Ph
oe
nix
LA
/OC
Ch
ica
go
Ne
w Y
ork
Ho
us
ton
Mia
mi
WASHINGTON HAS HIGH CONCENTRATION OF TECH JOBSHIGH-TECH JOBS AS SHARE OF TOTAL EMPLOYMENTMAJOR METRO AREAS | 2019
6
-30 0 30 60 90 120 150 180 210 240
Other Services
Federal Government
Information
Financial Services
Retail Trade
Education/Health
Leisure/Hospitality
State and Local Government
Construction
Professional/Business Services
P A Y R O L L J O B C H A N G E ( T H O U S A N D S )
261,000 jobs, or 69%, that create demand for office space and Class A multifamily units, higher than the long-term average of 60%
Source: The Stephen S. Fuller Institute, NKF Research; February 2020Note: Excludes the Transportation and Utilities sector
GROWTH PROJECTED IN HIGH-PAYING JOB SECTORSPROJECTED PAYROLL JOB CHANGE: PRINCIPAL SECTORSWASHINGTON METRO AREA | 2018 – 2030
Includes robust growth in tech sector
7
$0
$20
$40
$60
$80
$100
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
FE
DE
RA
L P
RO
CU
RE
ME
NT
S
PE
ND
IN
G I
N B
IL
LI
ON
S
Source: U.S. Census Bureau, Consolidated Federal Funds Report, USAspending.gov, The Stephen S. Fuller Institute; February 2020
Estimated total for 1980-2019 = $1.5 Trillion
FEDERAL PROCUREMENT SPENDINGWASHINGTON METRO AREA1980 – 2019
8
Source: ESRI, NKF Research; February 2020
HOUSEHOLD INCOME LIKELY TO RISE DUE IN PART TO DIVERSIFYING ECONOMYMEDIAN HOUSEHOLD INCOME FOR NORTHERN VIRGINIA2019 VS. 2024
$101
$128
$150
$136
$109
$146
$159
$151
$80
$90
$100
$110
$120
$130
$140
$150
$160
$170
25-34 35-44 45-54 55-64
2019 2024
ME
DI
AN
HO
US
EH
OL
D I
NC
OM
E
(T
HO
US
AN
DS
)
14% increase
9
Source: PwC Emerging Trends in Real Estate 2020, NKF Research; February 2020
SH
AR
E
OF
P
OP
UL
AT
IO
N
25
-4
4
YE
AR
S
OL
D
38% 37%34%
32% 31% 31% 31% 31% 30% 30% 30% 30% 30% 29%
0%
4%
8%
12%
16%
20%
24%
28%
32%
36%
40%
REGION’S CONCENTRATION OF YOUNG PEOPLE OUTPACES U.S. AND PEER CITIESSHARE OF POPULATION 25-44 YEARS OLDU.S. JURISDICTIONS WITH GREATEST SHARE
National Rate: 27%
10
SQ
UA
RE
F
EE
T
(M
IL
LI
ON
S)
-3
-2
-1
0
1
2
3
4
2012 2013 2014 2015 2016 2017 2018 2019
District of Columbia Suburban Maryland Northern Virginia
Source: NKF Research; February 2020
NET ABSORPTION IS ACCELERATING IN NORTHERN VIRGINIA WASHINGTON METRO AREA OFFICE MARKET2012 – 2019
11
0
1
2
3
4
5
Northern Virginia Suburban Maryland District of Columbia
Demand Development Pipeline
SQ
UA
RE
FE
ET
(M
IL
LI
ON
S)
Source: NKF Research; February 2020
Next 24 MonthsDemand: 5.0 million SF
New Supply: 5.3 million SF
OFFICE MARKET SUPPLY/DEMAND FORECASTWASHINGTON METRO AREA OFFICE MARKET24 MONTHS ENDING DECEMBER 2021
40% Preleased
59% Preleased
60% Preleased
12
10%
12%
14%
16%
18%
20%
22%
2013 2014 2015 2016 2017 2018 2019 2020 2021
Metro Area District of Columbia Suburban Maryland Northern Virginia
VA
CA
NC
Y R
AT
E
IN
CL
UD
IN
G
SU
BL
ET
S
PA
CE
NORTHERN VIRGINIA VACANCY RATE TO EDGE DOWNOFFICE MARKET VACANCY RATE PROJECTIONSWASHINGTON METRO AREA | 2013 – 2019 AND PROJECTIONS FOR YEAR-END 2021
Source: NKF Research; February 2020
16.1% 15.9%
18.3%17.1%
Northern Virginia’s average asking rent rose
2.1% in 2019
13Source: CoStar, NKF Research; February 2020
METRO-ADJACENT PROPERTIES OUTPERFORMING BROADER MARKETOFFICE VACANCY RATES IN NORTHERN VIRGINIA4Q 2019
VA
CA
NC
Y
RA
TE
9.8%
18.1% 18.3%
8%
10%
12%
14%
16%
18%
20%
Within 1/4-Mile Radiusof Silver Line Stations
Class A Fairfax County All Northern Virginia
14
Source: RealPage, NKF Research; February 2020
MULTIFAMILY MARKET CONTINUES TO DEFY EXPECTATIONSDELIVERIES, NET ABSORPTION, VACANCYWASHINGTON METRO AREA MULTIFAMILY MARKET | 2015 – 2019 AND PROJECTIONS 2020 – 2022
90%
91%
92%
93%
94%
95%
96%
97%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2015 2016 2017 2018 2019 2020 2021 2022
Deliveries Net Absorption Occupancy Rate (%)
DE
LI
VE
RI
ES
/
N
ET
AB
SO
RP
TI
ON
(
UN
IT
S)
OC
CU
PA
NC
Y
RA
TE
15
MILLENNIALS AND SENIORS ARE THE PRESENT AND FUTURE OF APARTMENT DEMANDCHANGE IN RENTER HOUSEHOLDS BY AGE GROUP WASHINGTON METRO AREA | 2009 - 2018
Source: U.S. Census Bureau, NKF Research; February 2020
14.3%
42.7%
0%
10%
20%
30%
40%
50%
Younger than 34 65 and Older
CH
AN
GE
IN
R
EN
TE
R H
OU
SE
HO
LD
S
A G E R A N G E
16
0
4
8
12
16
20
Northern Virginia Suburban Maryland District of Columbia
Demand Development Pipeline
UN
IT
S (
TH
OU
SA
ND
S)
Source: NKF Research; February 2020
Next 36 MonthsDemand: 35,103 units
New Supply: 40,023 units
MULTIFAMILY SUPPLY/DEMAND FORECASTWASHINGTON METRO AREA MULTIFAMILY MARKET36 MONTHS ENDING DECEMBER 2022
17
Source: Real Capital Analytics, NKF Research; February 2020
SALES VOLUME BY ASSET TYPENORTHERN VIRGINIA 2009 – 2019
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Office Multifamily
BI
LL
IO
NS
2019 sales volume totaled $8.0 billion, including $3.3 billion in office volume and $4.7 billion in multifamily volume
18
AMAZON’S ARRIVAL DRIVING SALES ACTIVITYRECENT SALES OF BUILDINGS IN NATIONAL LANDING
Source: CoStar, Real Capital Analytics, NKF Research; February 2020
PRICE PER UNIT
$426,966PRICE PER UNIT
$392,617PRICE PER SF
$298
AURA PENTAGON CITY
PARK AT PENTAGON ROW
NATIONAL GATEWAY II
NORTHERN VIRGINIA 2019 AVERAGE MULTIFAMILY PRICE PER UNIT = $274,650
PRICE PER SF
$344
PRESIDENTIAL TOWER
NORTHERN VIRGINIA 2019 AVERAGE OFFICE PRICE PER SF = $287
19Source: NKF Research; February 2020
In the market for 300,000 SF in Northern Virginia
At least 25,000 jobs585,000 SF of leased office space 4 million developable square feet
43,000 SF in Rosslyn75,000 SF at Reston Town Center
205,000 SF in Tysons
115,000 SF in Reston 670,000 SF in Herndon
47,000 SF in Tysons
IS NORTHERN VIRGINIA THE NEXT BIG TECH MARKET?NOTABLE TECHNOLOGY TENANT TRANSACTIONS 2017 - 2019
THE EVOLVING INVESTMENT LANDSCAPE
IN NORTHERN VIRGINIA
P R E S E NTE D B Y :A L E XANDE R ( S AN DY) P A U L , C R E , L A IS E NI OR M A N A GING D I RECTOR, N A T I ONAL R E S E ARCH
F E BRUARY 1 1 , 2 0 2 0
P R E P ARE D F O R :N A I O P A N NU AL F O RE CAS T E V E NT
