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Cybersecurity is evolving into a key growth trigger regionally

While regional growth outside of flexible space has been limited the past few years, one area that has grown tremendously and continues to show significant growth potential is cybersecurity: cybersecurity-related federal contract awards have grown 135% since 2010.

A large percentage of both regional cybersecurity-related federal government contracts and venture capital activity have flowed to Northern Virginia. However, two abnormally large venture capital fundraising rounds have inflated Maryland’s totals:

  • Tenable raised $250 million in 2015 in a Series B round
  • Most recently in 2018, IronNet raised $78 million in Series B round

Despite those two raises, the depth of activity in Northern Virginia has been far greater, with 108 funding rounds landing in Northern Virginia-based companies since 2010, compared to 67 in Maryland.

Northern Virginia’s cybersecurity venture capital fundraising volume has risen steadily since 2012, which
has coincided with an increasing share of regional federal government cybersecurity contract awards.
Maryland’s dependence on a handful of large fundraising rounds, however, has left cybersecurity venture capital activity inconsistent.

The potential impact on the Maryland office market from Suburban Maryland to Baltimore City is large: the area’s largest cybersecurity success story, Tenable, recently preleased 150,000 s.f. of Class A new construction in Downtown Columbia. Today, however, the footprint of cybersecurity venture capital funded startups in Maryland is approximately 425,000 s.f. with a median tenant size of only 3,650 s.f. In order to grow and attract venture capital investment, Maryland’s cybersecurity industry will need to mature from service-oriented companies catering toward government customers, to cybersecurity startups that are developing products and platforms for commercial uses. Local and state government programs, including the Maryland Cybersecurity Investment Incentive Tax Credit, along with private industry efforts, such as DataTribe, a cybersecurity incubator, will help Maryland make the transition to developing platform-based cybersecurity companies that will generate greater, and more consistent venture capital fundraising. As the industry continues to mature locally, cybersecurity will have the potential to increasingly impact commercial real estate demand in a elevated way.

That said, Northern Virginia will remain the cybersecurity hub for not just the region but the entire U.S., led by the federal government’s increased focus on cybersecurity warfare. Of the total U.S. cybersecurity awards in fiscal year (FY) 2017, Northern Virginia accounted for 30%, a larger share than nearly every other state combined. Within the market, five vendors account for 49% of awards, led by four regional-based companies based outside the beltway in Northern Virginia. In FY 2019, federal agencies plan to spend $15 billion on unclassified cybersecurity, a $580 million increase over FY 2018. Looking ahead, as the federal government continues to focus on information technology (IT) modernization and security, the battle for cybersecurity awards will only intensify as the top five vendors in Northern Virginia since 2015 have made 22 IT-specific acquisitions, including seven by two companies alone. On the real estate side, some of these industry leaders will begin to diversify their real estate footprint from exclusively outside the beltway to inside the beltway particularly to the RB Corridor as they look to attract both boomer talent who prefer outside the beltway and millennial talent attracted to the city.


Source: JLL Research

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