JBG Smith, the largest commercial landlord in the Northern Virginia area that is now called National Landing, expects a wave of tenants not renewing their leases by the end of next year.
National Landing includes the Arlington neighborhoods of Crystal City and Pentagon City.
JBG Smith reports 1.8 million square feet of office leases coming up for renewal across 72 leases by the end of 2024. It says based on tenant discussions, it expects 1.2 million square feet of that will not be renewed, which would be a retention rate of just 33%.
A good portion of the expiring leases are office buildings in Crystal City that had been leased by Amazon while the first phase of its HQ2 was being developed in Pentagon City. Minus the impact of those non-renewed Amazon leases, JBG Smith expects a lease retention rate in National Landing between now and the end of 2024 of 50% — compared to is long-term tenant retention rate of 70%.
“Our efforts to re-lease certain spaces will be targeted toward buildings with long-term viability,” JBG Smith Chief Executive Matthew Kelly said in a letter to shareholders. “We expect to repurpose older, obsolete and vacant buildings for redevelopment, conversion to multifamily or another specialty use, ultimately reducing our competitive inventory at National Landing.”
A 50% retention rate for JBG Smith in National Landing is not that far off from what is expected throughout the D.C. metro area. JLL reports renewal rates marketwide fell to 52% in the second quarter.
More workers appear to have returned to offices in the National Landing area than in the D.C. region as a whole. Midweek physical occupancy across JBG Smith’s National Landing buildings is running at about 70% of pre-pandemic levels. The share of workers who’ve returned to their offices in the D.C. metro remains just under 50%, according to building security system company Kastle Systems.
During the second quarter, CBRE reported leasing activity in Northern Virginia was down nearly 30% from pre-pandemic levels.
JBG Smith continues to develop in the region. It ended the quarter with two apartment buildings under construction, and 20 projects in some stage of development.
In May, the company submitted plans to Arlington County for a 370-unit apartment community at Crystal Drive by Airport Access Road. It is also redeveloping Crystal City Water Park, with an outdoor food hall, performance stage and formal restaurant.
