The aerospace and defense (A&D) industry continues to play a pivotal role in shaping the economy and real estate activity across the Washington, D.C. metro area. As the hub for America’s largest defense contractors and the focal point of significant Department of Defense (DoD) expenditures, the region remains a cornerstone for defense-related activities.
A&D: The Backbone of Regional Spending
In FY 2023, the DoD spent an impressive $106.7 billion on grants, contracts, and payroll across the Washington, D.C. metro area, marking a 6.3% year-over-year increase. This spending accounted for 17.5% of national defense expenditures, underscoring the region’s critical importance to the U.S. defense strategy.
Among the three states comprising the metro area, Virginia leads the charge:
- Defense spending grew by 9.3% year-over-year, totaling $68.5 billion, placing the state second nationwide for total defense dollars spent.
- Virginia ranks first in defense spending as a percentage of GDP, with a staggering 9.7% of its state economy tied to defense activities.
Meanwhile, Washington, D.C. and Maryland also rank highly, at sixth and seventh, respectively, for defense spending as a share of state GDP.
Real Estate Impacts of the A&D Industry
The A&D sector’s robust activity directly influences the real estate market, driving leasing and development trends throughout the Washington metro.
Leasing Activity
Year-to-date in 2024, A&D tenants have leased 1.1 million sq. ft. of space across the metro, with 75% of this activity concentrated in Northern Virginia.
- Although overall leasing levels have softened slightly, current volumes are only 13% below the long-term annual average, reflecting a steady demand for high-quality spaces.
- Positive absorption in Northern Virginia is a bright spot, with 122,000 sq. ft. of occupancy gains recorded through Q3 2024.
Long-Term Implications
As defense budgets expand and the A&D sector grows, demand for strategically located real estate is expected to remain strong. Northern Virginia, in particular, benefits from its proximity to the Pentagon, defense contractor headquarters, and a highly skilled workforce, positioning it as the epicenter of defense-related real estate activity.
The Road Ahead
The continued prominence of the A&D industry in Greater Washington underscores its vital role in the region’s economy and real estate landscape. While leasing volumes have dipped slightly, steady absorption and robust defense spending signal resilience. With Virginia, D.C., and Maryland ranking among the top states for defense spending as a share of GDP, the region is poised for sustained growth.
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