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Federal Government and Contractors Continue to Account for Largest D.C. Leases

CoStar Market Insights: Some Worry D.C. is Overly Reliant on One Sector
September 5, 2018
Rendering of the office tower preleased to Fannie Mae in Reston, Virginia.



Although 2018 has been slow in terms of absorption compared with the past few years, one thing remains the same: Much of the future demand for office space is coming from the federal government and its contractors. This includes the four largest leases signed so far this year, which comprise 1.7 million square feet.

The largest, by far, was Fannie Mae's 850,000-square-foot lease at Boston Properties’ Reston Gateway. This comes on the heels of the GSE’s move from its former headquarters on Wisconsin Avenue NW to Midtown Center in Washington, D.C.’s East End submarket. Another notable lease was USAID's lease for 348,173 square feet at 500 D St. SW. The agency will be consolidating from various offices in D.C. and northern Virginia.

Not to be overlooked are government contractors. Leidos, a defense/IT contractor, signed a 276,105-square-foot lease in Reston where it will be consolidating from three nearby buildings. Then there’s Appian, a cloud computing contractor that will be taking 205,000 square feet in the former USA Today tower.

With so much demand coming from one sector, it raises the question: Is the D.C. office market overly reliant on one source for office demand?

In short, the answer may be yes. Currently, 25 new leases bigger than 50,000 square feet have been signed this year, accounting for nearly 3.7 million square feet. Of those, eight -- which account for roughly 2.2 million square feet -- were for the federal government or contractors that service the federal government, meaning that about 60 percent of the space in new leases signed this year services one entity, albeit a big one.

The metro’s dependence on the public sector isn’t for lack of trying, though. Washington, D.C. continues to pursue the ever-elusive tech industry, one that is not solely reliant on government contracts. And there are reasons to be optimistic that it will continue to diversify the tenant base. For example, Facebook more than doubled its footprint when it moved to Terrell Place in the East End submarket, the same building where Yelp opened its first east coast office. In northern Virginia, Amazon Web Services took 400,000 square feet for its east coast headquarters in Herndon.

Silicon Valley may continue its migration east. Amazon is considering three cities in the D.C. area for its HQ2. Furthermore, Facebook is rumored to be seeking between 75,000 and 85,000 square feet in Tysons, and Apple is looking to open an east coast campus and is considering sites in northern Virginia and North Carolina.

This isn’t to say the D.C.-area’s reliance on the federal government will disappear, nor will it fade anytime soon. However, a diverse economy is a healthy economy and would continue to make D.C. an appealing metro for tenants and investors alike.


CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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