The Gate, St. John Properties’ development at Aberdeen Proving Ground, has seen strong demand from government contractors who want to locate near their clients. Photo courtesy of St. John Properties Inc.
A year that included DOGE cuts, shifting funding levels, a federal back-to-office order and delayed contracting during the government shutdown rattled Maryland’s historically large CRE market for government agencies and contractors. As 2026 began, however, the market seemed to settle into a new normal with some soft submarkets, some promising ones and an uptick in leasing activity.
“There was no volume last year,” said Kate Jordan, Principal, Lee & Associates | Maryland. “Companies were dealing with so much uncertainty about policy and budget changes. And then there was the government shutdown. Some contractors had been awarded a contract but it hadn’t been funded yet, so they couldn’t take space because they didn’t have the money to pay for it. It was paralysis.”
But that was last year.
“The first seven weeks of this year were a complete 180,” Jordan said. “It feels like business as usual in the contractor world again. I am optimistic about a robust return of that market.”
A story of submarkets
That emerging new normal is having different impacts across Maryland.
“This is a submarket by submarket conversation,” said Matt Lenihan, Executive Vice President of Leasing at St. John Properties, Inc.
A slowdown in federal contracting for healthcare and Social Security services has continued to weaken the Woodlawn market.
“The market around Fort Meade seems pretty steady from the standpoint of intelligence and defense contractors,” Lenihan said. “Anywhere within a 10-mile radius of Fort Meade, there is large demand for space by contractors, so we have a large presence of government contractors in Maple Lawn, our projects around BWI, and Annapolis Junction.”
Near Aberdeen Proving Ground (APG), office demand is soft but contractors are seeking laboratory and manufacturing space in flex buildings. The GATE at Aberdeen Proving Ground, St. John Properties’ development inside APG’s fenceline, offers flex space, providing both operational and locational benefits to contractors, said Michael Tait, Leasing Agent at St. John Properties.
“There is the security of being inside the fenceline which is especially important to contractors working on sensitive projects,” Lenihan said. “You also have secure communications systems that connect to government networks. That’s really attractive to contractors.”
“The location also puts government contractors in close proximity to their customers,” Tait said. “There are companies within our portfolio who are working directly on military equipment. This location allows the customer to securely and easily come in to check on the status of projects.”
Lexington Exchange – St. John Properties’ development of 600,000 square feet of flex/R&D and retail space five miles from Patuxent Naval Air Station – is also seeing growing interest from government contractors, Tait said.
Tight budgets, short leases
Meeting the needs of government agencies and contractors, however, remains challenging.
When the lease on a federal service center came up for renewal recently, Lee & Associates and the landlord found themselves in the midst of tough negotiations.
“The GSA [General Services Administration] kept saying, please sharpen your pencil more,” Jordan said.
While CRE demand from government contractors is strong in some submarkets, landlords have to deal with the reality that contractors often need shorter leases. Photo courtesy of St. John Properties Inc.
The lease was renewed, but only after the landlord made significant concessions.
To serve government contractors on any property, commercial real estate companies must also deal with the challenge of lease terms.
“Contractors are understandably apprehensive about making firm lease commitments because a lot of times their funding is beholden to a government contract which may or may not have any long-term certainty,” Lenihan said. “But as a landlord, the value of your buildings is impacted by how long your tenants are committed.”
Flexibility is key to addressing that challenge, he said. St. John Properties has a number of different tools at their disposal to help support in this effort. For example, the company provides tenants who need to leave one space with the option of moving into another St. John Properties building.
“We have been able to do more and more of those arrangements, especially as our footprint is expanding across the country,” he said. “Clients appreciate that flexibility.”
Companies featured in this article: Lee & Associates | Maryland, St. John Properties Inc.