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For more on the financial crisis, check out GlobeSt.com’s Webinar, “Wall Street In a Freefall—The Winners and Losers.”

WASHINGTON, DC-Election years are never pretty for the DC area to begin with. The government tends to retrench in anticipation of a possible–or in this year’s case, certain–administration change. Then there is the question of which party will be voted in–and how that will affect the local area’s space needs. Conventional wisdom is that a Republican administration would favor defense spending–and hence Northern Virginia would benefit. A Democratic president would favor biotech and healthcare; which would favor Maryland real estate.

This year, though, the financial crisis has swamped the defense spending-versus-healthcare scenario. Indeed, it almost doesn’t matter who wins, at least from this particular perspective. “We all know where the government money is going to flow,” David McGarry, managing director of the Mid-Atlantic Region for Jones Lang LaSalle, tells GlobeSt.com. “Treasury, the FDIC and any other agencies recruited to deal with this crisis.”

McGarry says there are back-of-the-envelop calculations that the government is going to need between 500,000 sf to one-million sf of additional space to handle the crisis. Ballston, Rosslyn and the District are the likely submarkets to benefit, he says.

In the private sector, of course, there has been a move to retrench, in anticipation of a severe economic downturn. “There is a sense among a lot of tenants that if they don’t have to do anything right now, then they won’t,” McGarry says. Renewals have nearly doubled over the past eight months, JLL has found, with shorter-term renewals–three-to-five years–most common. It also reports that sublease space has increased approximately 8.7% over the past 12 months.

The good news for the DC area is that, unlike such cities as New York, the implosion of the financial sector will have only a limited impact on space usage here, Kevin Thorpe, vice president and director of market research for Cassidy & Pinkard Colliers, tells GlobeSt.com.

“Lehman Bros., Merrill Lynch and so on–they occupy a combined 500,000 sf of office space.” Thorpe also believes the government is going to expand to handle the crisis. “I think eventually what we will see is a new regulatory agency established. Also I think it is likely that existing agencies, such as the Department of Treasury, will grow.”

The growth in occupancy is difficult to quantify, but Thorpe isn’t talking about a huge jump. “I think 2009 will look a lot like 2008 in terms of occupancy–meaning that it will not be a terrible year but not a robust one either.”

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