WASHINGTON, DC–Let's not sugarcoat it: the federal government's decision to scrap plans to build a new FBI headquarters in either central Springfield or one of two locations in Prince George's County, Md., is a painful one for the region. Not only does it lose out on some much needed new absorption but it also casts doubt on GSA's novel strategy of trading the FBI's current headquarters to the winning bidder.

It also comes at an unfortunate time. While overall leasing activity for Northern Virginia rose 41% quarter-over-quarter in Q2 and the suburban Maryland office market posted 56,000 square feet of positive net absorption, that was despite federal government leasing activity, not because of it.

In Northern Virginia, the technology sector was the main driver behind the 2.4 million square feet registered in Q2, according to CBRE. It accounted for 36% of the total volume, followed by the aerospace and defense sector which contributed 18% of the overall leased space.

Meanwhile, it wrote:

The government and defense sectors continue to give back, adding 881,000 square feet of vacancy to the market in Q2 2017 and 1.1 million square feet throughout the first half of the year. The Department of Defense vacated 615,000 square feet at 200 Stovall Street, offsetting growth from a 401,000-square foot net new lease signed by a Fortune 500 technology company in Herndon. Subsequently, overall market vacancy rose 30 basis points to an all-time high of 20.1%.

Prince George's County, ironically enough, did experience a boost in the market with the announcement of Kaiser Permanente's 173,000-square foot build-to-suit lease in the Lanham/Landover area.

CBRE points out that in the past 24 months, Prince George's County has undergone a resurgence, with three other tenants [see infographic] taking more than 450,000 square feet in the market. Officials there were surely hoping for No. 4.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.