Why The 'Burbs Should Be Taken More Seriously

Northern Virginia’s sluggish real estate market has become a win for some investors betting on its recovery. Suburban office parks may not necessarily need to be near a Metro to get interest, as long as they have a certain secret ingredient—a strong industry cluster. 

The Route 28 corridor in Chantilly has had one of the lowest vacancy rates in the Northern Virginia office market at 17%.

Asking rents have also declined nearly 1% throughout 2015. But that didn’t stop two investors from scooping up nearly 773k SF of office space at Westfields (above) and Washington Technology Park for $87M combined, deals brokered by CBRE last month. 

The office parks are nowhere near Metro lines and not exactly in walking distance to any amenities like restaurants and retail. But they’re at the heart of Northern Virginia’s cybersecurity and tech hub, making up a major portion of the DC region’s tech workforce. The region’s biggest concentration of tech workers is in Northern Virginia at 69%, says Transwestern managing research director Elizabeth Norton.

The Dulles Tech corridor, dubbed by some as Silicon Valley East, extends from Tysons to Chantilly and is filled with government contractors doing IT work for federal agencies. The secret to Chantilly’s Route 28 corridor is the presence of large federal agencies like the National Reconnaissance Office (above), which has an annual $10B budget, and offices of the FBI and CIA.  

The corridor recently attracted the interest of two investors—Northridge at Westfields, a fully occupied, three-building office, warehouse and R&D complex sold to Strategic Capital Partners for $17.3M. The Indianapolis-based firm, which made the acquisition from its $500M JV with Berkshire Realty, will build a three-building complex on the 12 acres included in the deal. 

Washington Technology Park I & II was sold to UNICOM Global, a tech company, for $52.5M. The two buildings, on Conference Center Drive, have since been rebranded UNICOM Technology Park I & II. The Washington Post reported last year that Washington Technology Park I and II were appraised at $187.5M in 2007. 

Office valuations in non-metro suburban locations have been flat since 2009 at $182 per SF in 2015, according to Transwestern. Even suburban metro values have been around $300 per SF. DC valuations have climbed to $702 per SF. 

CBRE SVP Michael Blunt (above with his family), who brokered the Northridge at Westfields and Washington Technology Park deals, says it's an overreaction that all office properties need to be on a Metro line. “There’s a fair amount of capital that thinks the suburbs aren’t going anywhere,” he says. The draw really comes down to the federal agencies and other large companies located in the Chantilly hub.

Michael says he’s also seeing interest in strategically located suburban offices in North Rockville near Shady Grove Adventist Hospital, forming a life sciences hub. Once you get to the eastern side of 270, the interest wanes. There’s a similar hub around NIH in Bethesda that stretches into Chevy Chase, North Bethesda and Rockville. 

“You can be successful without a Metro stop if you have desired amenities,” Elizabeth (above) says. “Walkability and access to amenities are important, but there are select office buildings without these features that have been successful.”

Despite not having walkability and amenities like restaurants and retail, Michael says Strategic Capital Partners was interested in the single-story flex warehouse and data center product in the Westfields transaction. “Here’s this asset that’s within a half-mile ring from NRO and most of its tenants are doing business in some form or fashion in that cyber, homeland security business. There’s a need for it,” Michael says. 

UNICOM has over 37 subsidiary companies, some of which will be housed at Washington Technology Park, including UNICOM partners. “It speaks again to the importance of proximity to perpetual demand drivers,” Michael adds. 

Other suburban (non-Metro) office sales of two or more buildings per transaction between mid-2014 and the end of 2015: 

• Avion Business Park (116k SF) sold for $18.3M.
• 4440 and 4444 Brookfield Dr (47k SF) sold for $7.3M.
• Avion Business Park (321k SF; 24 acres) sold for $45.6M. 
• Brookfield Corporate Center (51.9 SF; 26 acres) sold for $6M.
• Cedar Hill I & III (103k SF) sold for $27.3M.
• Liberty Center (409k SF) sold for $101M. 
• 7600 Leesburg Pike (217k SF; 10 acres) sold for $36M.
• 10530 and 10550 Linden Lake Plaza (47k SF; 12 acres) sold for $6.7M.
• 6301 and 6303 Little River Turnpike (75k SF) sold for $10.1M.
• Verizon Ashburn Campus (1.8M SF; 135 acres) sold for $212.5M. 
• Loudoun Tech Center A-C (126k SF and 12 acres) sold for $11.7M.