(From left to right) Brendan Gill, Kristi Smith and Ben Nichols. Photos courtesy of Howard Hughes Communities.
2025 has been an extremely tumultuous year for the business and real estate communities — especially for those operating near our Nation’s Capital, given the on-again, off-again tariffs policy, the federal government shutdown and worker layoffs, elevated construction pricing, and inflation and interest rates fluctuations.
Despite these challenging headwinds, Brendan Gill, President, MacKenzie Ventures; Ben Nichols, President and CEO, Harkins Builders; and Kristi Smith, President, Maryland Region, Howard Hughes Communities remain optimistic about the existing fundamentals in the greater Maryland area and are hopeful for an improved economic and commercial real estate climate in 2026.
After a slow start, 2025 approaches normalcy
Kristi: “Leasing activity remained consistently strong in our Maryland portfolio throughout the year, as opposed to being front-weighted or back loaded, although we detected delays in real estate decision making at the outset due to administration change and economic and policy uncertainties. We experienced some slight activity pauses as tenants considered their positions and determined the impact of certain situations, but overall leasing results matched our optimistic expectations for 2025.”
Brendan: “Real estate development in Maryland remains increasingly challenging due to the rising cost of land and construction costs, the increased difficulty in acquiring permits, and new regulations directed at our industry. While every year presents its own unique situations, we are fortunate that the Maryland economy remains consistently robust and diverse. Although 2025 started off a bit slowly, possibly due to the unknowns of the new administration and slower real estate decision-making, activity rose to the level of previous years, buoyed by an extremely active third quarter.”
Ben: “Looking at the recent three-year period, 2023 was extremely active, last year was slightly below expectations and 2025 was relatively stable. Concerns about the slow start to the year were allayed as 2025 progressed and businesses gained more confidence about the direction of the economy. We experienced significantly less volatility from a lead-time and labor perspective and anticipated ICE raids never materialized or impacted our work flow, thankfully.”
D.C.’s proximity continues to pay dividends
Kristi: “As with every administration change, there is a bit of reshuffling and shifting of priorities that brings uncertainty. But so far this year, things seem to have evened out here on the office leasing front. The central Maryland commercial real estate market continues to benefit from its location near the federal government, including Fort Meade. As it relates to government-related demand, the Columbia office market tends to move more in step with defense-related government activity rather than broader government trends.
Brendan: “Real estate decisions were delayed as companies tried to interpret the policy changes emanating out of Washington, D.C. and its impact on their business, but that has subsided and 2025 hit its stride starting mid-year. The long tentacles of the federal government continue to positively impact Maryland-area businesses including the commercial real estate community.”
Ben: “Everything eventually comes to center. True, there was some volatility in the short-term but there is a distinct advantage to be near Washington, D.C. when taking a long view. Our company had a robust year with 11 new federal contracting awards, as benefited from the infrastructure bill and the CHIPS and Science Act, which both took effect several years ago. Despite the federal shutdown, all but two of these contracts are still proceeding.”
Tracking fundamentals
Kristi: “We closely track the activity and pace of new multifamily developments and, from our perspective, that picture is looking extremely promising with the anticipation of a depressed supply side. Another metric we monitor is rental rate growth for commercial office and multifamily product to detect trends and movements. We believe the office market is showing signs of stabilization. Interest rates are a key variable, especially in relation to getting new projects started, and many are expecting good news on this front soon which will be welcome.”
Brendan: “The tricky thing with statistics is that they are always backwards looking, so we depend more heavily on listening to input at our company roundtables, and gathering input from those working in the trenches. We seek intelligence from tenants and other stakeholders to understand what they are experiencing in live time and ask for their perspectives. Our team started tracking current availability rates this year, which considers the total amount of space on the market including sublet. We also determine whether tenants are thinking about giving up a certain amount of space. We learned — about 18 months ago — that the industrial market was showing signs of softness which came to fruition. It is showing stability now, though.”
Ben: “When the fed starts forecasting a declining interest rate environment, it jumpstarts a surge in customer activity. Those construction assignments we are discussing now might not be ready to start next year, but I believe 2027 will be extremely robust once all those deals make it through the pipeline.”
Flight to quality extends to office environment
Kristi: “Our company invests considerable resources to provide the best possible tenant experience and this extends beyond the building itself. Important factors that move the needle include nearby amenities — most specifically restaurants to conduct business or socialize after work. We also layer in event programming such as farmer’s markets and food trucks to curate an attractive workplace environment. This activation is noticed by our tenants and impacts leasing decisions.”
Brendan: “Class B and C buildings were always commodity assets with tenants who were highly susceptible to remote work, which played out during the pandemic. Call centers are the perfect example. It has become extremely difficult for this asset class to compete with Class A buildings and, as tenants downsize, companies can afford to pay a higher rent for leasing a reduced amount of space. We see certain older building stock being torn down or retrofitted to accommodate new uses, including retail and multifamily.”
Ben: “Take the environment we are sitting in right now in downtown Columbia. There are more than 30 different places to have lunch and employees gravitate to this type of energetic environment. If employers can win the battle of luring people back into the office, they will see tremendous culture and collaboration benefits and outcompete other companies. This all starts with the environment developers and tenants are curating.”
Looking ahead to 2026
Kristi: “Howard Hughes Communities takes a long-term approach to its real estate holdings and is not influenced by short-term fluctuations. We hold our assets long-term and do not have an official timeclock dictating when to develop a new building so we can remain flexible and patient. Given our extensive land holdings, we can determine the proper timing to proceed with new development, as well as adapt to demand and particular product type. We’re encouraged by the momentum building as we head into 2026.”
Brendan: “When it comes to real estate, there are tremendous differences between asset classes and specific submarkets. Interest rates appear to be heading down, which will unleash activity, retail remains strong, industrial has proven to be resilient and Class A office is slowly leasing up. As Class A rents get more expensive, some tenants may turn their attention to Class B product.”
Ben: “2026 feels like a transition year mirroring the current environment but we foresee brisk conditions in 2027 and 2028 based on our conversations. With increased activity comes higher materials and labor pricing, so developers may do well to get ahead of that deal flow and initiate projects a bit earlier.”