The Washington, D.C., metropolitan industrial market, spreading from Frederick County, Maryland to the north, Prince William County, Virginia to the south and as far west as Loudoun County, Virginia is ideally situated between I-95 and I-81 — major transportation corridors that allow shipments to easily reach much of the country. The industrial market has improved more quickly than other sectors and fairly dramatically to the point where much of the region can be described as land-constrained and under-supplied. Certain industrial sub-segments, such as data centers, have impacted the availability of warehouse and distribution space in key locations for optimal supply chain design.
As of the third quarter of 2016, the area’s industrial market totaled 190 million square feet (inclusive of flex space), divided almost equally between the markets of Suburban Maryland (90.6 million square feet) and Northern Virginia (90.2 million square feet). The District of Columbia comprised 9.2 million square feet, and 1.5 million square feet was under construction region-wide. Approximately 4.2 million square feet has been absorbed year-to-date, and vacancy was 7.9 percent — a 250-basis point decrease from 10.4 percent reported as recently as year-end 2013. In comparison, the office market has ranged from 14 to 14.9 percent vacant during the same time period.
Jessica Mistrik, Avison Young
While both the Virginia and Maryland suburban markets display strong demand, each has some unique drivers. Northern Virginia (7.4 percent vacant) had roughly 1 million square feet under construction, with the majority located outside the Capital Beltway in Loudoun County. The surging demand for data centers has supported the industrial market’s success. Loudoun County’s so-called “Data Center Alley” boasts a sizable existing inventory of facilities and has many more in the pipeline. It is home to centers for Amazon, Facebook, Google and Microsoft, and 75 percent of the world’s internet traffic is reported to pass through Loudoun’s digital infrastructure.
Suburban Maryland’s inventory (8.3 percent vacant) and construction pipeline is concentrated in Prince George’s County due to access to the I-95 Corridor, as well as being the closest industrial center to the District of Columbia. Notable recent leasing activity for the county includes Washington Food and Supply of Maryland taking 136,000 square feet at 6300 Columbia Park Road, U.S. Business Interiors (USBI) renewing 102,000 square feet at 8800 Lottsford Road and the U.S. General Services Administration (GSA) committing to an additional 96,000 square feet at 1503-1509 Cabin Branch Drive.
Regionally, as a byproduct of the increasing urban lifestyle with smaller living spaces, as well as the functional obsolescence of older industrial properties and the current oversupply of office space, we are beginning to see more conversions to alternate uses including self storage. For instance, in the midst of an established office park in Suburban Maryland’s North Rockville submarket, the 1970s-era office building at 4 Research Place was recently redeveloped to be a self storage facility.
The adjacent Greater Baltimore market is a continuation of the I-95 Corridor and provides access to another international airport and a shipping port, further connecting Washington to markets in the Northeast. Industrial properties are significant in Baltimore, and when included with Washington, the total Baltimore-Washington industrial inventory approaches 400 million square feet, with an 8.3 percent vacancy rate as of third-quarter 2016.
E-commerce and same-day delivery models continue to grow despite the tightening inventory in the Washington region. Access to the I-95 Corridor remains the target area for developers due to its convenient access to both the D.C. and Baltimore markets, but as prime land sites continue to be absorbed, construction has moved toward the outer rings of transportation.
New e-commerce facilities must now provide larger footprints and state-of-the-art facilities in order to accommodate the expedited ground and air shipping often associated with e-commerce companies. For example, the 572,000-square-foot Perryman Logistics Center in Aberdeen, Md., was recently fully leased by XPO Logistics, a large supply chain service company. And Fauquier County, Va., which is just outside the Northern Virginia market, recently landed internet service provider OVH’s North American data center headquarters.
Year-to-date, the region’s industrial sales volume has reached approximately $970 million — a 1 percent increase year-over-year, bolstered by data center and portfolio trades. Demand and scarcity of supply should support strong sales values as we go into 2017.
— By Jessica Mistrik, Research Manager, Avison Young. This article originally appeared in the November 2016 issue of Southeast Real Estate Business.