Walmart Labs Backs Out Of Herndon Office Plans, Lists Building For Sublease

Walmart Labs is looking to sublease a full Herndon office building just six months after leasing it, a sign of trouble for the Northern Virginia office market.

The tenant does not plan to occupy its new 162K SF office space at 2245 Monroe St. NW and is putting it on the market for sublease, Transwestern Executive Vice President Caulley Deringer, who leases the building on behalf of the owner, confirmed to Bisnow.  

"They no longer have need for the space and this group will be working remotely," Deringer said. 

Walmart Labs, the retail giant's technology arm, retained CBRE to sublease the space. The tenant is still honoring the lease it signed with the landlord in April, Deringer said. 

"Walmart has made it clear to us they would be standing behind their obligations of the lease, which is 11 years long," Deringer said. "We're not concerned about that. They've been cooperative and open."

Walmart didn't respond to requests for comment, and CBRE declined to comment.

The 162K SF building, constructed in 2002, is owned by Barings Real Estate. It was previously occupied by Lockheed Martin. After the defense contractor vacated the building, Barings in 2018 launched a multimillion-dollar renovation of the property. 

Walmart's decision to put its space on the sublease market comes as sublease availability is rising throughout the D.C. market and the country, a sign of a weak office market that typically occurs during an economic downturn. Tenants put roughly 500K SF on the D.C.-area sublease market between March and Sept. 30, according to Savills, bringing the market's sublease availability to the highest level ever recorded. 

For Northern Virginia, Q2 leases with Walmart Labs and Microsoft had signaled that the technology sector could help the office market remain stable through the downturn. But then Northern Virginia recorded 1.4M SF of negative absorption in Q3, according to JLL. Walmart Labs deciding not to occupy its space is another bad sign for the market, JLL Senior Research Director Michael Hartnett said. 

"Walmart Labs and Microsoft were the two stars of the year, Northern Virginia was weathering the storm because of those deals, everyone was saying, 'Look how great the Toll Road is.' It was one of the highest markets in the country,'" Hartnett said.

"Walmart Labs decided even though they just signed their deal to sublease the whole building," Hartnett added. "That’s a real-time example of companies pushing pause and thinking about their work-from-home strategy before they take new space … I think this could signal a potential wave of sublease space coming to the market."