WASHINGTON, DC-Northern Virginia is getting slammed by a double whammy of government related events—BRAC and the fiscal cliff—which will likely lead to lackluster growth for 2013, according to a new analysis by Cushman & Wakefield. The takeaway from the report is that next year will continue to be a tense one for the submarket—but in 2014 the sun will come out.

Northern Virginia, of course, has been well aware of the changes introduced by the Base Realignment and Closure Act and has been taking steps to reposition certain submarkets such as Crystal City. However, the fiscal cliff threw a wrench in some of these plans.

For example, the Springfield/Annandale/Bailey's submarket was once expected to benefit from government contractors looking to locate closer to Fort Belvoir. The fiscal cliff, however, hurt the submarket, the report said. 2014 will be better, it said, with a healthier economic forecast, including strong job growth, minimal new construction and less BRAC space being vacated.

The report, authored by Paula Munger, focused on three office markets in Northern Virginia. It found that:

Crystal City, as the hardest-hit area in Northern Virginia, "faces a more challenging road to recovery." Its overall office vacancy rate is roughly 19% – about 10.8% points higher than it was a year ago in the third quarter. C&W forecasts the vacancy rate will worsen in 2013 before beginning a slow and steady recovery. Also, properties undergoing renovations or conversions also will help reduce vacancies after 2014.

The Rosslyn-Ballston Corridor experienced less of an impact from BRAC, but its vacancy rate still increased by 4.6% over one year from the third quarter in 2011 to the third quarter of 2012.

In the Springfield/Annandale/Bailey submarket, BRAC move-outs, coupled with some new buildings sitting vacant, have caused vacancy rates to rise, with the overall vacancy rate hitting 25.2% in the third quarter of 2012, up 12.3% from the third quarter of 2011. "Like the rest of the Northern Virginia market, demand is expected to strengthen in 2014, but older properties will continue to struggle without significant reinvestment," the report said.

In general Cushman & Wakefield researchers see some rough times ahead for the area, predicting a "difficult" 12-15 months, especially for Crystal City and the Rosslyn-Ballston market.

Instant Insights /

C&W: 2013 Will Be Difficult for Northern Virginia

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