LOUDOUN, VA—Northern Virginia's Route 28 submarket has not had an easy time of it since the recession and even before, when vacancy rates of 21% plus were a fact of life. Of late, though, there have been signs that the office market is beginning to rejuvenate.

Chambers Street Properties has put the former AOL headquarters building on the market after having signed on Comcast for 30,000 square feet. The whisper asking price is $165 million for the four-building, 696,377-square foot complex.

An institutional investor just snapped up an office in the area with an eye on the future Loudoun Gateway metro station.

Park Stone Place, a 75,838-square-foot building, four-story office building in the Westfields Business Park trades for $21 million, or $237 per square foot. The building is fully leased to Accenture Federal Services, which was the appeal for EPIC US LLC, according to the Avison Young brokers who represented the seller, a local investor. "The long-term stability of the tenancy, the building quality and the superb location in Westfields Business Park contributed to the project's aggressive cap rate and sales price," says principal Chip Ryan.

Deals such as these will continue in 2016 and could well accelerate, according to JLL's Bill Prutting Jr., who recently told GlobeSt.com that he expects to see robust investment sales in Northern Virginia's suburban office markets in 2016 -- including Route 28.

In general, this long awaited push into the suburban office markets is due to just simple demand and supply. Yields have gotten very aggressive for Downtown DC office assets and investors are realizing they can do better in the suburbs.

But Route 28, in particular, has all the elements of a sleeper submarket ready for a break out year, Prutting said -- largely due to its strong base of cyber security companies. As it happens, cyber defense and security is one of the few areas where the federal government is freely spending.

"Industries such as data intelligence, cyber security, telecom and data centers are growing in this market and will stabilize the area," Prutting said. "I think Route 28 could well receive billions of dollars in investment in infrastructure and acquisitions. We are starting to see that already."

The submarket also has CISA on its side now, or rather, the Cybersecurity Information Sharing Act, which Congress passed as part of its Omnibus bill to fund the government for the next fiscal period. Decried by privacy advocates and many consumer tech companies, CISA allows companies to report suspected illicit activity on their networks without fear of being sued. That measure alone will require infrastructure investment on the part of the government -- some of which could well be destined for the Route 28 submarket.

Wherever it lands, the local real estate market is excited about the increased investment. Stephen E. Budorick, the EVP and COO of the Columbia, MD-based Corporte Office Properties Trust told listeners in the REIT's recent earnings call that the non-stop cyber incursions will benefit its portfolio in general, never mind the specifics of CISA.

The recently-passed federal budget creates two years of "defense spending clarity for the current fiscal year," he noted, with defense spending increasing by 5 percent -- or a $25 billion increase over a base of about $496 billion current base -- in 2016 followed by another 3% increase in 2017.

It's a big jump compared to the flat spending of the last three years, Budorick said.

"So, we think that the combination of the budget agreement and increasing contract awards gives us confidence, we will see growth in our customer segment and in space needs later this year and into next year."

Instant Insights /

Why 2016 Could be Route 28's Break Out Year For Office

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