The U.S. government is pouring tens of billions of dollars into the Navy to build more ships and naval technology, and a D.C. office submarket stands to benefit.
Government contractors have historically located in Northern Virginia, but landlords and local officials in the District are seeing increasing office demand from that sector, particularly in the Southeast D.C. district, which is anchored by the Washington Navy Yard and the Department of Transportation.
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DC's Navy Yard, seen from the roof of the Maren apartment building
“What we're seeing is an incredible influx of new Navy contractors, defense technology contractors, coming to the Navy Yard because the Navy requires them to be close,” John Mason, CEO of Garfield Investments, said last week Bisnows The Developing Southeast DC event will take place at Capital Turnaround.
Garfield purchased an office building at 300 M St. SE in the Navy Yard neighborhood in June for $28 million. The building was 53% occupied at the time of the sale, and Mason said at the time that his strategy was to take advantage of increased demand from defense contractors. In August, Garfield entered into a $22,000 lease with marine contractor Reliability & Performance Technologies.
Other contractors set to move into the neighborhood in the last year include Blue Water Autonomy, a Boston startup that builds autonomous ships for the Navy and opened an office in an unspecified Navy Yard building in August, and Saalex Corp., which moved its headquarters from California to the D.C. Navy Yard and signed a 2,300 SF lease at 1 M St. SE completed.
Mason told Bisnow On Wednesday, he announced that his team is in discussions with several other defense contractors about leasing space in the building. However, he refused to reveal their names as the contracts have not yet been finalized.
“A number of Navy-allied defense contractors are in the market looking for space,” he said.
Since much of the demand Mason is seeing still comes from companies viewing space and negotiating leases, that has yet to be reflected in the neighborhood's office data. Cushman & Wakefield's third-quarter report shows that the Capitol Riverfront submarket, which includes the Navy Yard, has a 25% vacancy rate and less than 100,000 SF of leases signed in the first nine months of this year.
According to JLL's third quarter report, the defense industry is a growing market segment.
“Technology companies, including defense technology companies, have driven the expansion trend,” the report said.
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Emeka Moneme of Capitol Riverfront BID, John Mason of Garfield Investments, DC Deputy Mayor Nina Albert, Sohael Chowfla of Redbrick LMD, Sonny Masso of the Navy Museum Development Foundation and Scott Kratz of 11th Street Bridge Park.
This increase in demand from potential defense contractors is due in part to increased federal funding. The One Big Beautiful Bill Act, signed into law in July, allocated $29.2 billion for Navy shipbuilding programs as well as additional money for developing new technologies.
While the government shutdown has created uncertainty in the contracting sector, President Donald Trump told a group of Navy sailors on Sunday that they would continue to receive paychecks during the shutdown. He said he plans to use an increase in military spending to expand the fleet with more than a dozen new ships.
A significant portion of that spending will benefit the Washington Navy Yard, Mason said, which will lead to an expansion of office demand in the region.
Mason said he has seen not only Navy contractors, but also companies working with the Federal Aviation Administration begin looking for space in the Navy Yard district. The Department of Transportation announced in August that it would relocate FAA employees from the agency's headquarters in Southwest D.C. – which the administration has been considering divesting – to the larger DOT headquarters building in the Navy Yard.
“We have been contacted by FAA contractors about space,” Mason said.
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Mike Ponticelli of Bisnow, Maia Shanklin Roberts of Preservation of Affordable Housing, Brian Earle of ZGF, John Kilborne of Redbrick LMD, Malcolm Haith of Jair Lynch Real Estate Partners and Bob Murphy of MRP Realty.
Mason said he sees government contractors as a long-term demand driver for the area and would like to acquire more office buildings there if they come up for sale.
The Washington DC government is also looking to increase office demand from defense contractors, said Deputy Mayor for Planning and Economic Development Nina Albert Bisnows Event.
“These are the growth opportunities: technology and particularly defense technology,” she said.
“The district has always punched below its weight class and we haven't had our fair share and we've ceded a lot of that to Virginia and Maryland,” she added. “What we’re doing now is we’re intentionally entering this space.”
Albert highlighted Station DC, a technology hub that a Texas-based entrepreneur opened in the Union Market neighborhood last year with $2 million in DC financing. The 10K SF space is designed to connect technology startups with government leaders and venture capitalists, and Albert said its initial focus was on defense technology.
“The demand is there,” said Albert. “People want to be in Washington, DC.”