At four of the region's largest real estate brokerages, more than half the tenants looking for large chunks of space are government agencies or their contractors, and brokers said the increased competition for space among companies in the booming defense and security industries could mean higher rents.
Among the 10 largest tenants looking for space over 100,000 square feet:
* Government agencies like the Defense Department's Missile Defense Agency, which is seeking 1 million square feet in Northern Virginia to consolidate 2,500 workers now spread over four offices in the region. The Coast Guard is also looking for half a million square feet and the Department of Defense for 471,000 square feet in Northern Virginia; and the Justice Department is searching for roughly half a million square feet in the District.
* Contractor SRA International Inc. , which makes software for such government clients as the Food and Drug Administration, the Department of Defense and the Internal Revenue Service, is looking for 300,000 square feet in the Rosslyn, Ballston and Crystal City areas.
* BAE Systems North America Inc., a designer and maker of military aircraft, submarines and radar, needs 200,000 square feet in Fairfax.
* General Dynamics Corp., which makes warships and planes, is looking for up to 200,000 square feet to consolidate some of its offices in the region.
The information comes from brokerages Cushman & Wakefield Inc., Spaulding & Slye Colliers, Staubach Co. and Trammell Crow Co.
After the Sept. 11, 2001, terrorist attacks, the defense and security industries boomed as government spending in these areas rose.
The surprise in the list of the 10 largest tenants seeking space, said Brian McVay, senior managing director of Cushman & Wakefield, is the predominance of the General Services Administration, the real estate agency for the federal government.
"I would have expected more law firms, but most of them that were looking for big blocks of space have already signed up," McVay said. Typically, there are more law firms and associations on the list.
Now there are only three: Williams & Connolly LLP and Akin Gump Strauss Hauer & Feld LLP are looking for 300,000 square feet each in the District; and Patton Boggs LLP needs 200,000 square feet in the District.
Because so many tenants need large chunks, the race for space is on. Tenants are having to search years in advance of when their leases expire. The recession and the tech crash a few years ago slowed construction, and thus there now aren't many new buildings coming online.
In the District, there are only nine buildings with more than 100,000 square feet available; Maryland has six; and Northern Virginia has 22, according to Cushman & Wakefield.
"It's simply more competitive to find large blocks of space, whereas if you're looking for smaller chunks, say around 50,000 or so, you've got 30 to 40 options" in each market, McVay said.
And the buildings that could handle large tenants are getting gobbled up. Accounting and consulting giant Ernst & Young L.L.P.'s national tax practice took half the space in a new building that Louis Dreyfus, a real estate subsidiary of a French holding company, will develop at 11th and I streets NW. Just a block away, developer Boston Properties Inc. has leased more than three-fourths of its building. And in Rosslyn, Corporate Executive Board Co. is likely to take a big chunk of the 630,000 square foot Waterview project, which JBG Cos. of Chevy Chase will build. The company provides business research and analysis to executives. It has been growing rapidly and its 1,200 employees are spread out in four offices in the District.
"The large tenants are getting out there early because if you want a good location, it's becoming more and more difficult to find a Class A location," said Thomas M. Fulcher Jr., executive vice president at Studley. Fulcher said one of his company's clients -- whom he declined to name because they haven't signed a deal -- is looking for 70,000 square feet in the District and started out with 65 options. But because it wanted features like being on the East side of the White House and lots of windows, its choices got knocked down to only seven buildings in the Capitol Hill, Southwest and West End neighborhoods.
With the limited options for space in the District, rents are getting into the $60 a square foot range -- far more than the $40 landlords were getting in the mid-1990s. In Northern Virginia, rates have jumped to $25 per square foot from $17 a decade ago.
"In the '90s, if someone was paying over $40 [per square foot], we thought they were getting killed," Fulcher said. "Now, if you're a large tenant, you're having to pay a premium."
Defense contracting giant Northrop Grumman Corp. signed a lease for 104,000 square feet at 2691 Technology Drive in Annapolis. The building is part of a 12-building office park, totaling 1.3 million square feet, that Corporate Office Properties Trust, a real estate investment trust in Columbia, is developing.
Dana Hedgpeth writes about commercial real estate and economic development. Her e-mail address is firstname.lastname@example.org.