Five Submarkets That Could Benefit From The Federal Budget Deal
Congress reached a bipartisan deal this week to avoid a government shutdown and fund the government through Sept. 30. Another budget showdown will occur in the fall, but the pact reached this week could be extended if no deal is reached and could become the baseline for future budgets. Local DC office stakeholders are breathing a sigh of relief that the sharp cuts President Donald Trump proposed were not adopted by Congress. These five office submarkets in particular stand to benefit from the new federal budget.
1. Bethesda
Perhaps the biggest surprise winner from the new budget deal was the National Institutes of Health. Trump had proposed cutting $7B from the NIH over the next two years, reducing the agency's budget by 20%. But Congress had other ideas, instead giving the agency a $2B boost from last year.
The massive NIH campus in Bethesda serves as an anchor for the area and attracts private companies that want to do business with the agency. The additional funding could allow it to support more contractors and boost office demand in the surrounding area, Montgomery County Economic Development Corp. president David Petr said.
"We see tremendous upside out of the NIH spending," Petr said. "It keeps workers employed and gives us opportunities for other businesses that want to be proximate to NIH to do business with them."
2. Crystal City
The bill increases spending for the Department of Defense by $19.9B over FY16, well short of the $54B Trump had proposed but still a major boost for the military.
Defense contractors in Arlington stand to benefit from the additional funding with more DOD grants. Eastern Foundry managing partner Geoff Orazem, whose incubator brings together defense contractor startups, said his members were closely watching the budget negotiations as many of their potential grants depended on DOD increases.
One of those companies, Worden Technology Solutions, contracts with the DOD to modernize its technological system. Managing partner Christopher Worden said he hopes to grow enough to lease Arlington office space outside of the incubator and is heartened by the increase in defense spending.
"I feel like there’s a big chance for us to get that growth and get those contracts to be able to become a stronger, established company over the next few years," Worden said. "If there is going to be money pouring into DOD, that is good for us."
3. Prince George's County/Branch Avenue
The Department of Homeland Security will get a $1.45B increase to help boost border security and immigration enforcement, one of Trump's top priorities.
The Branch Avenue Metro station area in Prince George's County was selected last year as the new home for U.S. Citizenship and Immigration Services, which will get a new, 600K SF office. The lease is still being finalized, but Prince George's County economic development official David Iannucci said he hopes the funding boost will help the project move forward.
"If there is any one federal government agency that is favored under Trump, CIS might be it," Iannuci said. "He has already identified 15,000 new jobs for that agency as part of his border security focus, so that type of agency is very likely to grow."
The Branch Avenue area is also slated for more multifamily development, which would be boosted by the addition of CIS employees to the neighborhood.
4. Fort Meade Area
The cybersecurity industry has become a major area of focus following a series of high-profile hacks. Part of the overall DOD spending increase, cybersecurity efforts will get an additional $183M.
"While it is not a super-significant increase, it is an indication of an ongoing focus of the new administration on cybersecurity and IT infrastructure," CBRE Baltimore/Washington research manager Wei Xie said. "Once we see the budget for fiscal year 2018, I wouldn’t be surprised if we continue to see increases."
CBRE senior associate Jon Hall, who specializes in Maryland cybersecurity deals, said he expects to see robust leasing activity in the Anne Arundel County and Howard County submarkets within a short drive of the National Security Agency HQ in Fort Meade.
"If you’re contracting with cyber command at NSA, you need to be within a 10-mile radius of Fort Meade," Hall said.
5. Dulles Toll Road
Office demand along the Dulles Toll Road is also likely to see a boost from the increase in defense spending. The corridor benefits from its proximity to Dulles International Airport and will have better access to DC in 2020 with the completion of Phase 2 of the Silver Line, which has sparked a ton of development.
"Probably the submarket with [the] biggest benefit will be the Dulles Toll Road," CBRE senior associate John Redeker, a NoVa cybersecurity specialist, said of the DOD spending. "It has Silver Line Phase 2 delivering, and you’ve got a good base of existing federal contractors and new cybersecurity companies moving within proximity. They want to be near thought leaders within the industry."
JLL director of U.S. office research Scott Homa also expects the boost in defense spending to be a catalyst for office demand along the Toll Road.
"Although not as robust as the president’s original request, the increased funding is sure to stimulate leasing activity in Northern Virginia, particularly those submarkets located along the Silver Line," Homa said.
