Defense Leasing Remains Strong in Northern Virginia

After the Sept. 11, 2001, attacks, the federal government and its defense contractors began scarfing up new office space in the Washington area.

Today, their appetites have diminished.

With budget constraints and the Iraq war -- and some of the initial hunger sated -- the government has become far more restrained. The defense industry meanwhile continues to expand its presence, particularly in Northern Virginia, but at a more modest clip than before, real estate experts say.

"The post-9/11 impact in the Northern Virginia office market has been enormous," said Herb Mansinne, national director at Jones Lang LaSalle, a commercial real estate firm. "We're not building bombs here, but we're certainly architecting the war here. That's manifested itself into more leasing in the market."

In the past year or so, defense contractor Lockheed Martin was moving into a 145,000-square-foot building in Chantilly, Northrop Grumman broke ground on a 112,000-square-foot building in Chantilly, and contractor Serco was planning to move into a 85,000-square-foot space in Reston.

In government circles, the FBI's Washington office is upgrading to a 200,000-square-foot satellite office in Prince William County from a 98,000-square-foot building in Tysons Corner, driven by a need for more space and new security standards. Also, the CIA is building a 1 million-square-foot facility in the Chantilly area.

Before the 2001 attacks, the market was ailing. Northern Virginia was hit particularly hard by the high-tech bust -- its vacancy rate soared from 4.5 percent in 2000 to almost 20 percent in 2002, according to Jones Lang LaSalle. No question, real estate experts say, the government-prompted push for more office space after the attacks has contributed to the health of the market. The vacancy rate in Northern Virginia is about 10.5 percent.

"There was huge attention being paid to anti-terrorism, to homeland security, to intelligence agencies as well as the [National Institutes of Health] and bioterrorism," said Timothy C. Hutchens, executive vice president of government leasing for CB Richard Ellis, a commercial real estate firm.

While Northern Virginia was a big beneficiary, the rest of the Washington area also got a boost.

After the anthrax attacks of 2001, for example, the National Institutes of Health contracted out bioterrorism research to private companies. That led to more space leased, particularly in Montgomery County, real estate experts said.

After its creation in 2003, the Department of Homeland Security leased well more than 1 million square feet of new space in the area, including 556,000 square feet for its offices in Northwest Washington.

But by 2005, growth in most federal agencies had slowed significantly.