Brokers Worry About NIH's Need for Space

Agency Is a Top Tenant in Montgomery, But Budget Limits Future Expansion

When the National Institutes of Health moved from the District to Bethesda in the 1930s, its budgets helped fuel a slow transformation of rural Montgomery County. That change accelerated in 1998, when Congress doubled federal funding for medical research over five years, creating jobs for thousands of scientists, supporting scores of biotech firms and increasing demand for new offices and services for the NIH.

Now those days of a double-digit increases are over.

This year the NIH budget grew by 3 percent to $27.8 billion, and congressional staff members and NIH officials say budget increases in coming years will be modest -- no more than 6 percent, compared with 16 percent in the mid-to-late 1990s.

"With a burgeoning budget deficit and competing pressures for money for homeland security, it leaves everyone else fighting for the scraps," said John Scofield, a spokesman for the House Appropriations Committee.

The impact on the county, so far, has been uneven. Biotech executives say they are worried but not bleeding. EMMES Corp. of Rockville, a biotech statistics company that gets 80 percent of its business from the NIH, moved into a bigger building three years ago when NIH budgets were still growing fast. But now the company is taking a "very conservative, very careful" approach to its future, said Michael J. Grady, EMMES's vice president of finance. "Our growth depends on [the NIH's] ability to support research trials."

"NIH has a huge impact on the Maryland economy," said Phillip A. Singerman, executive director of Maryland Technology Development Corporation. "NIH's budget doubled over the last eight years. Now, it's leveled off and may be declining a bit. . . . There is a general concern that demand in the federal budget will keep [NIH funding] flat or lead it to be cut." So far, companies have not been forced to cut back on research, he said.

Commercial real estate brokers, however, said that as a result of the budget slowdown, there are an unexpectedly large number of empty buildings in Montgomery County, including a 125,000-square-foot building in Rockville that has been empty since Manugistics Group Inc., a software company, moved out almost two years ago.

"Many thought it was a foregone conclusion that NIH would go there," said David I. Machlin, a first vice president at brokerage CB Richard Ellis Group Inc. "It's still empty."

During the 1990s, it seemed like the NIH was ready to take any major office space that came onto the market, brokers said. Even during a downturn in the early 1990s, when companies put several million square feet of office space back on the market, it was absorbed by the NIH and local companies, said Phillip McCarthy, a senior vice president at Transwestern Commercial Services.

"Any piece of space that became available, you could assume you'd lease it to NIH," McCarthy said.