The Northern Virginia office market continued to tighten in the third quarter, as increasing demand from artificial intelligence, technology and defence companies supported overall weaker leasing activity. The market recorded a positive net absorption of 672,378 square feet during the quarter, offsetting losses from the first half of the year, which were due to market clean-up from buildings being withdrawn. This is according to a report by JLL.
The National Science Foundation's relocation of 380,000 square feet to 401 Dulany Street contributed significantly to this increase. The office vacancy rate in Northern Virginia fell for the sixth consecutive quarter to 21.7 percent. The total available space dropped to 33.6 million square feet, the lowest level in a decade and 25.5 percent below the peak of 45.1 million square feet in 2023.
Demand and Supply Dynamics
Leasing activity slowed to just 1.3 million square feet during the quarter, with no deals over 100,000 square feet recorded. However, artificial intelligence, technology and defence companies secured over 300,000 square feet of new net space. Defence spending and technology investments are expected to continue to foster this upward trend.
Relocations and new leases have accounted for 58 percent of total lettings so far in 2026, representing a reversal of the renewal-focused era from 2021 to 2023. According to JLL, supply levels are beginning to strengthen rental prices. Direct asking rents for Class A space reached $42.51 per square foot per annum, while overall direct asking rents averaged $38.13.
Outlook and Future Development
JLL's longer-term data shows that asking rents for Trophy, Class A and Class B properties have increased since 2022, while rents for Class C space have slightly decreased. New construction projects remain virtually non-existent, with only approximately 34,000 square feet under development. At the same time, more than 10 million square feet of existing office space has been proposed for repurposing or redevelopment.
According to JLL, these dynamics will continue to lead to a tightening of the lower market segment, while the limited supply of Trophy properties will increasingly direct demand towards Class A assets. The market thus remains subject to significant change, characterised by technological and defence-related needs, as well as an altered supply structure.
