By Sydney Kodama | skodama@alextimes.com
While Potomac Yard is in dire need of additional office space, the city’s overall vacancy rate still hovers at close to 20% – and would be even higher if the city hadn’t been able to retain the National Science Foundation – Alexandria Economic Development Partnership Vice President of Real Estate Christina Mindrup told City Council at Tuesday’s meeting.
While Mindrup said the overall office vacancy rate has fallen year-over-year, a drop that she described as “progress,” she said the total lack of vacancies in Potomac Yard is a problem, as owners who want their businesses to be near the new Virginia Tech campus cannot be accommodated.
Mindrup and Marian Marquez, AEDP senior vice president, delivered the State of the Economy to Council. City Manager Jim Parajon began State of the Economy presentations in September 2025.
As of June, the city’s office vacancy rate had fallen to 18.8% from 21.6% in June 2025, according to AEDP’s mid-year report. Most of that decline came in 2025: The office vacancy rate has only declined by 0.1% – from 18.9% to 18.8% – so far in 2026, according to AEDP’s year-end market report.
Mindrup and the report said the city’s retention of the National Science Foundation helped Alexandria avoid a jump up in the vacancy rate.
The National Science Foundation moved into a former U.S. Patent and Trademark Office with more than 386,600 square feet in August 2025, according to the report. The city retained the National Science Foundation after the U.S. Department of Housing and Urban Development announced its plans to move into the NSF headquarters in Carlyle.
HUD will finish moving into the NSF’s former headquarters by the end of the year, Marquez said, which she expects will stimulate economic growth.
“We are still waiting to see the full effect in terms of foot traffic and activity on the ground floor around there, but we are anticipating that there will be [an impact] once they get fully occupied in terms of economic activity and hopefully some other contracting elements to come into the neighborhood,” she said.
AEDP’s report also attributes the nearly 3% decline in the office vacancy rate to office-to-residential conversions, including at the more than 600,000-square-foot building at 5001 Eisenhower Ave.
Mindrup acknowledged that the vacancy rate is falling slowly but has dipped below Northern Virginia’s office vacancy rate of 20.1%.
However, Potomac Yard’s specific office vacancy rate of zero harms the city’s economy, Vice Mayor Sarah Bagley noted.
Mindrup told Council that the city is unable to accommodate demands for office space in Potomac Yard, specifically space near the Virginia Tech Innovation Campus.
“Most importantly, Potomac Yard continues to have increased demand from tenants desiring office space that is proximate to Virginia [Tech], and unfortunately, there are no new office options available to place them,” she said. “We continue to lose highly desirable businesses to neighboring counties because there’s no new trophy office space available in the coming year.”
Bagley requested more information on what specifically is in demand in Potomac Yard.
“We’d like to see a reasonable vacancy rate indicating possibility, indicating movement,” Bagley said.
Marquez acknowledged that the city is currently struggling to get office space built for businesses in Potomac Yard.
“We certainly have a list of prospects that want to be in Potomac Yard, proximate to Virginia Tech, [that] we’ve had to essentially turn away or we’ve lost due to the fact that we don’t have anywhere to put them,” she said.
Marquez said companies want to be in Potomac Yard but they don’t necessarily want as much square footage as in the past. As a result, it’s difficult for the city to accumulate the square footage commitments required to justify new construction.
Marquez noted later that 100,000 square feet of preleased space, or more, is required “to jumpstart construction on any big building in Potomac Yard.”
City Councilor John Chapman also expressed concerns that Potomac Yard, planned as a “high-density commercial” area, cannot meet the demands of more companies.
“I am struggling with where we are with Potomac Yard … dating back to when we were talking about the Metro and … the reason for putting a Metro [stop] there and investing,” he said. “A lot of that had to do with kind of priming the pump for commercial real estate in use there. I think the question I would have, at least to me, is where did we go wrong?”
Marquez responded that AEDP is continuing to maintain Potomac Yard as a commercial area.
“We are working very hard to get commercial users there,” she said. “What we’re seeing, and we know from the projects that we brought forward, is mixed-use development is going to be where it’s at, and that whole site is never, of course, going to be all commercial and office. But right now, we are actively working at [preserving] commercial.”
Mindrup noted that, while Potomac Yard faces the issue of more demand than it can accommodate, areas like Old Town and Carlyle are seeing slow and steady progress in reducing their area-specific office vacancy rates.
“Carlyle by no means is a market that’s not seeing a lot of activity,” Mindrup said. “… All the spec suites [offices built before leases are signed] in our [AEDP’s] building are gone, and so they’re going ahead and starting with more.
“The same is happening around the Old Town King Street Metro station,” she added. “We’ve heard from several brokers that those suites are all gone too. That’s all good news. … The difference is that the chunks of space that they’re taking are smaller than what they once were, right? So it’s just a slower recovery than we – than anyone – would anticipate.”
Commercial downsizing is a present trend throughout AEDP’s mid-year report.
“Net absorption remained negative, at approximately 160,000 square feet,” Mindrup said. “In other words, while the market is improving, tenants are still right-sizing and returning office space to the market.”
A negative net absorption figure means commercial tenants are moving out or downsizing and taking up less office space across the city.
The net absorption has been negative in Alexandria since 2023. The net absorption was -29,313 square feet in June 2025, -113,137 square feet in December 2025 and -160,400 square feet in June. Also as of June, Northern Virginia had a positive net absorption of 302,274.
2024 was the city’s worst year for net absorption at a -1,035,822 square feet.
“Demand is increasingly concentrated in buildings that offer quality amenities, access and a strong sense of place, and landlords are actively in the planning mode for building out more speculatively pre-built office space … to meet that market demand,” Mindrup said.
Mindrup said coworking space is in demand but it can be difficult to convert existing office space into that coworking space.
“A lot of the office spaces that are considered obsolete or that the market does not want are these special-purpose, single-tenant [offices],” she said. “… You would have to invest a significant amount of money into it to repurpose that. And in some ways, and I’m not a construction person, but it’s almost cheaper to tear it down and rebuild it than it is to try to invest money in it.”
Marquez also told Council that the city has had and continues to have economic wins in line with the goals of its first economic development plan in almost 20 years, ALX Forward.
“The new Inova campus on our West End is on track with its topping out earlier this year, and we supported the Potomac River Generating Station redevelopment as it advanced through major approvals and a $135 million infrastructure package.
“These are long-term catalytic projects that are going to transform the neighborhoods in the city and spur economic development, and we are working hard with AEDP to attract the commercial tenants to both of these exciting catalyst sites,” Marquez continued.
Marquez noted that Alexandria still has economic wins despite economic struggles across the region. Though workers in the Washington, D.C., area lost 54,500 federal jobs between May 2025 and May of this year, Alexandria’s federal workforce has remained stable, retaining about 9,000 federal jobs since 2023.
“The lesson from this year is that it has been challenging in many ways in the region, but despite that, we’ve had a very successful year, thanks to the guidance and support that we’ve been given from Council, and I think, with the right tools and support in place,” she said.
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