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Defense spending would hit highest levels since 2011, but depends on modification to budget cap

  • ​With a continuing resolution (CR) to fund the government expiring on December 8th, Congress is working through legislation to approve a FY 2018 budget. On Thursday, the House will vote on a Senate-approved budget resolution that includes significant spending increases to the Department of Defense. While the final figures are still being negotiated, Defense will likely see a 10% increase to its base budget, in line with President Trump’s proposal. 
  • Such a boost would jumpstart leasing activity in Northern Virginia, which has experienced 5.4 m.s.f. of negative net absorption since 2012, driven by limited growth among a tenant base that is still largely comprised of government contractors. 2017 is on pace to finish with the fewest contractor relocations or new leases > 20,000 at least a decade –a total of six YTD vs. a peak of 40 in 2010.
  • However, the 2011 Budget Control Act prevents such a spending increase from taking effect. Lawmakers would have to suspend or revise the law’s $549 billion cap in the defense base budget, a measure that led to sequestration and drove up vacancy in the market. Democrats will likely support a deal to revise the cap and permit the increase to Defense if it is paired with a pullback in proposed cuts to non-Defense programs, leading to a win-win for the overall DC market. ​

Source: JLL Research​

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