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News release

WASHINGTON, D.C.

Divided Congress, Rising Budget Deficit And Uncertainties In Government Leadership Causing Federal Leasing Slowdown

New report by Jones Lang LaSalle illustrates that consolidations and renewals were the predominant leasing trend in Washington, DC throughout 2011 and will be through 2012


WASHINGTON, D.C., Nov. 17, 2011 – Political and governmental gridlock, federal budget cuts and an emphasis on space efficiency contributed to the slowing of federal lease activity in Washington, DC and across the country according to the annual Federal Perspective report released today by Jones Lang LaSalle. The report, which analyzes government activity in the commercial real estate market, says that the U.S. General Services Administration (GSA) renewed its focus on creating efficiencies and this will continue to impact the market in 2012.

“If you already have the government as a tenant, that is good news for you as we can expect a lot of renewals in the coming 12 – 18 months,” added Joe Brennan, Managing Director, Jones Lang LaSalle. “On the flip side, if you have a building and are looking for new federal tenants the picture is not so bright.”

Consolidations and renewals accounted for more than 80 percent of all federal transactions in Washington, D.C. during 2011. While it is unlikely the federal government will shrink its presence in D.C. significantly, continued consolidations and budget cuts are expected to prevent growth over the next 12 to 24 months. As the 2012 election cycle begins and uncertainties abound, more short-term renewals are likely as agencies adopt a “wait-and-see” approach.

“As a result of pressures to slow spending, many large federal deals have been delayed or cancelled,” said Scott Homa, Vice President Research, Jones Lang LaSalle. “This in turn is likely to have a domino effect with decreased demand from government contractors.”

The impact of the federal pullback were felt throughout the rest of the Metro D.C. region, including:

• Northern Virginia (Outside the Beltway)

Despite the relocation of the Defense Information Agency (DIA), which vacated nearly 400,000-square-feet, buildings outside the beltway in Northern Virginia continue to have a large government presence. Looking ahead, the National Geospatial Intelligence Agency’s 2.4 million square-foot relocation in 2012 will make Springfield the epicenter of future federal activity. The FBI’s 182,035-square-foot lease at Mission Ridge in Chantilly, VA marked the largest lease of the year in the Outside the Beltway market.

• Northern Virginia (Inside the Beltway)

The federal market Inside the Beltway remained strong despite looming BRAC initiatives that threaten to shift roughly 18,000 employees to outlying markets over the next five years. Fueled by the State Department’s 176,000-square-foot renewal and expansion and the Federal Deposit Insurance Corporation’s (FDIC) 72,000-square-foot expansion, Inside the Beltway markets in Arlington and Alexandria experienced an increase in federally leased space in 2011.

The next few years will be a transformational period for the market, as government relocations from Class B and C properties encourage landlords to revitalize older assets and develop more retail space.

• Montgomery County

The federal landscape in Montgomery County is dominated by questions related to the Department of Health and Human Services headquarters requirement.  The federal government solidified its presence along the Rockville Pike as the Department of Health and Human Services renewed for 935,386-square-feet at Fishers Lane in Rockville. Similarly, the National Institute of Allergy and Infectious Diseases also headed to Fishers Lane, leaving Rock Spring Park for a 500,000-square-foot build-to-suit property. While these high-profile deals dominated the headlines, straightforward renewals will comprise the majority of Suburban Maryland activity over the next 18 to 24 months.

• Prince George’s County

Prince George’s County struggled to compete with Montgomery County for federal office leasing throughout 2011 and languished in terms of its ability to attract federal tenancies.  After losing a potential tenant in the Department of Health and Human Services, federal activity in Prince George’s County remained stagnant. However, the approval of a new $50 million economic development fund and a strong push for transit-oriented development are likely to have a positive impact on the region in the near future.

• Baltimore

BRAC relocations and the Social Security Administration’s (SSA) 538,000-square-foot build-to-suit property drove federal leasing activity in the Baltimore region during 2011. The SSA’s new 20-year lease (the largest single office lease in the city’s history), valued at $428 million and expected to be completed in 2014, will shift 1,500 federal employees to the northwest region of the city.

BRAC activity at Ford Meade and Aberdeen Proving Ground continued to drive economic growth, adding more than 12,000 jobs. Demand for office space in neighboring submarkets is expected to grow over the next few years as government contractors flock to the region.

“There are a significant number of leases rolling in the next five years which will create real estate opportunities,” added Brennan.  “We will see a restacking of the federal portfolio.  The deal sizes might change but there will still be deals – this is active real estate where transactions will continue – creating opportunities for leasing, investment sales and construction.”

Facts about the GSA’s lease portfolio:
  • 194 million square feet nationally
  • 57 million square feet of GSA leased space in the Washington, D.C. region
  • 96.9 percent of the portfolio is expected to renew
  • 3.1 percent is expected to terminate
  • Average length of GSA tenancy 32.2 years
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $2.9 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47.9 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.