Mid-Atlantic Research Reflections 2021 - Aerospace & Defense Sector

U.S. defense spending totaled $593.9 billion in fiscal year 2020, up a robust 8% from the prior year. Most defense dollars (74%) were spent on contracts for products and services, which totaled $439.4 billion—up 9% year-over-year. A leading defense market and home to the Pentagon (Department of Defense headquarters), Virginia ranks second nationally in FY2020 defense spending at $64.3 billion (trailing only Texas), while ranking first in defense spending as percentage of state GPD (11.3%). Maryland also remains a key defense hub, ranking fourth in both categories. Defense contract spending has been on a steady rise in Virginia, up 10% year-over-year and 54% from FY2015, with Fairfax county being the nation’s second largest recipient of defense contract dollars.

Following a quiet 2020, aerospace and defense leasing rebounded to 1.4 million sq. ft. year-to-date across the region—on pace to exceed the recent peak in 2017. Northern Virginia has captured 82% of the activity (1.1 million sq. ft.), driven by several large renewals by major defense contractors such as Raytheon, Lockheed Martin, Airbus and Boeing. While overall office leasing momentum slowed notably during the pandemic, aerospace and defense firms have remained active, in part due to the mission critical nature of the industry. As much as 21% of all year-to-date transactions in Northern Virginia has been contributed by defense companies, up significantly from their historical share of 8% (2010-2019).