Federal government is behind a boom in new leased office space in Washington, D.C.

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How hot is the Washington, D.C. office market? Hot enough to add more than 4.2 million square feet of new leased space, from Oct. 1, 2009 through Sept. 30, 2010. With the rest of the country growing by only 1.3 million square feet in space during that period, Washington accounted for more than 75 percent of the net absorption.

That’s one of the nuggets in a report by Jones Lang LaSalle. In its U.S. Federal Perspective Update, the commercial real estate company says unprecedented levels of government spending and expansion fueled the growth in leased space, with the government taking 3.5 million square feet. This helped stabilize the Washington region office market in 2010.

However, the report says a decisive shift in the balance of power could slow spending in 2011.  “We have seen unparalleled levels of leasing by the federal government in the past 12 months, but don’t be surprised if that growth comes to a halt in 2011 in response to the call for greater austerity and the changing dynamic on Capitol Hill,” said Joseph Brennan, managing director, Jones Lang LaSalle’s Government Investor Services Group.

“The Republicans have called for $100 billion in cuts to nondiscretionary spending,” Brennan said in a statement. The continuing implementation of the Base Realignment and Closure Act, President Obama’s memo asking federal agencies to downsize their real estate portfolios and cuts in defense spending also are expected to impact the Washington market next year.

In recent months, federal government demand bolstered activity in close-in submarkets such as Bethesda, Md., Rosslyn-Ballston and the D.C. areas of Southeast, Southwest and NoMa (North of Massachusetts Avenue) . 

In Washington, Jones Lang LaSalle is seeing leverage shift back to landlords. The growing scarcity of well-located, quality properties and the lack of new projects in the pipeline are expected to tighten up the market as it heads into the New Year.


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