Procurement Spending in the DC Region: Effects on the Economy, Employment & Commercial Real Estate

1. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Procurement Generates up to 4.7M Square Feet in Office
Demand by 2014
Federal procurement spending – the amount of funds the federal government spends on
private sector contracts – plays a significant role in the DC area economy. From 2001 to
2009, procurement spending accounted for an average 16.5 percent of DC area real gross
regional product (GRP). Procurement spending helped the region to weather the recent
economic downturn. The latest available figures show that DC region procurement spending
totaled $96.9 billion in 2009, thus representing 26.3 percent of real GRP for that year.
During 2010, DC area real GRP grew at a 5.9 percent rate – over twice the national GDP
growth rate. This type of economic growth is key in driving employment and commercial real
estate demand. Cassidy Turley Research forecasts the DC metro to add 158,000 non-farm
jobs through 2014. Assuming 10 to 15 percent of those jobs are related to procurement
contracts, DC metro could see between 3.2 million to 4.7 million square feet in office
demand through 2014 from procurement spending.
Procurement Contributes to GRP
DC Metro
$120 30%
$100 25%
Total Procurement ($ billions)
$80 20%
$60 15%
$40 10%
$20 5%
$0 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009
DC Metro Procurement % of DC Metro GRP
Source: Consolidated Report on Federal Funds, Bureau of Economic Analysis
DC Metro Procurement Consistently Increases
Defense & Non-Defense Procurement
Researcher’s information:
$100
$90
Cassidy Turley $80
$70
$60
$ Billions
Jeffrey Kottmeier $50
Director of Research $40
2101 L Street, NW $30
$20
Suite 700 $10
Washington, DC 20037 $0
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Tel: 202-463-2100
Defense Procurement Non-Defense Procurement
Source: Consolidated Report on Federal Funds, Moody’s Economy.com
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2. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
DC Procurement
With an increased focus on federal debt reduction, there is always What Happens in DC Stays in DC
the possibility that private sector contracts will decrease over the next DC Metro Procurement % of US Total
few years. Though, DC region procurement spending has increased
every single year for the past 20 years. In fact, DC region procurement 20%
18%
spending has grown 11 percent annually, more than double the national 16%
rate. 14%
12%
What happens in DC stays in DC. As the amount of federal procurement 10%
8%
contracts increased for the nation, a larger percentage of these contracts 6%
has shifted to the DC region. Over the past 25 years, the DC region 4%
captured an average of 11.3 percent of all procurement spending in the 2%
0%
US. The latest figures show that the DC region captured over 18 percent
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of all procurement expenditures in 2009. The largest amount of DC
DC % of total US procurement
region procurement is spent with Department of Defense contractors,
which accounts for approximately half of all DC procurement spending. Source: Consolidated Report on Federal Funds, Moody’s Economy.com
Federal Contractors
Recent passage of key legislation and an increased focus on federal deficit reduction could potentially affect procurement spending. These
changes in budgeting and funding for defense, healthcare and commerce will affect private sector employment in the DC region and,
subsequently, local office market demand.
Defense – the Department of Defense (DoD) accounts for a significant
Procurement Spending by Agency
portion of overall procurement spending. DC metro defense
National Totals
procurement increased to over $50 billion in 2009, a 15 percent
increase over the previous year. Defense
Others
$20 $400
Northern Virginia is the recipient of a majority of these funds. But $18 $350
changes mandated by the Base Realignment and Closure (BRAC) $16
$300
$14
process have the potential to impact private sector contractor business $250
$12
billion $
billion $
in Northern Virginia. BRAC was enacted by the Federal Government $10 $200
to reorganize and consolidate military bases to meet increased $8 $150
national security requirements. Many expected that private contractors $6
$100
would move as federal agencies relocated by the statutory deadline $4
$2 $50
of September 15, 2011. But not all federal government moves have
$0 $0
taken place as scheduled, and there are still 3.2 million square feet 2003 2004 2005 2006 2007 2008 2009
of federal leases set to expire beyond 2011 in Arlington County alone. Homeland Security Commerce Treasury Health & Human Services Defense
Thus, any private sector moves would occur over a longer period of
time than originally expected. Source: Consolidated Report on Federal Funds, Moody’s Economy.com
The top five private sector companies receiving DoD procurement dollars all have a significant presence in the DC region. These companies
accounted for $101 billion in procurement contracts – or 28 percent of all DoD procurement in 2009. Refer to the Appendix for a list of the
top national contractors, most of which have a presence in the DC region.
Federal debt has climbed to historical highs over the past few years. National defense spending has come under increased scrutiny. After
many years of significant expansion, growth in defense spending is expected to slow in 2011. Most industry experts predict defense spending
to grow at a slower rate in the DC metro area. Additionally, defense spending may shift from military-based projects to initiatives in IT, cyber
security and intelligence, which bode well for the DC region. Although there is always the potential for DC defense procurement to slow, it has
not declined in the DC metro area for the past 20 years.
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3. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Health - the Department of Health and Human Services (HHS) awarded just under $19 billion in procurement contracts during 2009.
With the enactment of national healthcare reform in 2010, HHS-related business is expected to expand. For example, HHS took 70,500
square feet of space in suburban Maryland in 2010 due to healthcare reform. Some private sector contractors have expressed an interest in
additional office space, although there remains uncertainty in some aspects of healthcare reform which have not been fully funded yet.
In 2009, the top contractor recipients of HHS procurement dollars were global pharmaceutical companies (Novartis, Merck, Sanofi-Aventis,
GlaxoSmithKline) that are headquartered outside of the DC metro area. Northern Virginia-based SAIC (a scientific, engineering and technology
company) received $825 million in 2009 HHS procurement contracts, equal to 4.1 percent of all HHS procurement.
Suburban Maryland is expected to experience future growth with developments in healthcare industries and services. The National Cancer
Institute (NCI) has broken ground on a new 575,000 square foot building expected to deliver in the first quarter of 2013. Opportunities
exist for healthcare research and medical offices with proximity to NCI and the National Institutes of Health. Depending on which areas of
healthcare reform are fully funded, future demand in the private sector will be for office space suitable for medical offices, research, IT,
accounting, and administrative services.
Finance and Commerce - the Departments of Commerce and Treasury have expanded due to new financial regulation, reform, and consumer
protection. These two agencies combined accounted for just under $8 billion in federal government procurement spending during 2009.
Approximately half of this amount was spent in the DC region.
In 2009, Harris Corporation and Lockheed Martin (both of which have a strong local presence in DC) accounted for $639 million, or 20
percent, of the Department of Commerce procurement spending in the US. Northern Virginia-based Computer Sciences Corporation (CSC)
and Northrop Grumman were two of the top five contractors for the Department of Treasury.
Legislation, such as the Wall Street Reform and Consumer Protection Act (referred to usually as “Dodd-Frank”), has spurred office leasing
activity in the public sector during 2010 and will continue to do so in 2011. The Securities and Exchange Commission (SEC) leased 900,000
square feet during the summer of 2010 at Constitution Center in DC. The Office of the Comptroller of the Currency (OCC) has since leased
640,000 square feet of the SEC’s space. Future opportunities may exist for private companies providing outsourcing services in finance,
accounting, and IT services.
IT - Information technology is required across all areas and levels of government. In an era of cost consciousness, federal agencies are
seeking to outsource IT services. Agencies such as the General Services Administration (GSA) expect to save $15 million over the next five
years by outsourcing IT1. Cloud computing2 has been one solution to the Federal Government’s need to shift IT services and infrastructure
to a third party. For instance, by Fiscal Year 2012, the Department of Homeland Security plans on shifting 100,000 e-mailboxes into “the
cloud.” Increased demand for IT services bodes well for Northern Virginia’s private sector technology companies.
1
Johnson, Nicole Blake. FederalTimes.com, 28 Feb 2011.
2
Cloud computing is where IT services and storage are provided over the Internet (or “cloud”)
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4. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Employment
Commercial real estate demand is closely linked with job growth. The past year showed an improvement in both the public and private sector
employment. According to the Bureau of Labor Statistics, the DC metro area added 8,700 non-farm jobs on a non-seasonally adjusted,
annualized basis in 2010. DC regional employment in the Healthcare and Professional and Business Services sectors grew in 2010, while the
Financial Services sector still continued to shed jobs.
Moving forward, Cassidy Turley Research forecasts job growth in 2011-2014 to be steady as economic and business conditions in the private
sector continue to improve. We expect the Financial Activities sector to show some improvement after four years of consecutive downsizing.
Initiatives in the Departments of Commerce and Treasury may contribute to this growth, although the sector still faces some risk due to the
uncertain fate of Fannie Mae and Freddie Mac.
With the exception of 2010, scientific and IT sectors have performed well in the DC region. We expect employment in Computer Systems
Design and Management, Scientific, and Consulting Services to pick up as more demand shifts back to IT-related services as result of
increased cyber security and government spending for IT services.
Employment in the Healthcare sector will continue to expand. Over the past 20 years, the sector has added jobs in the DC region every single
year. On average, healthcare employment grows 3.2 percent annually, or by 4,600 jobs.
Employment Changes Professional & Business Services Employment
DC Metro, Year over Year Change DC Metro, Year over Year Change
30
15 35
130
25
Sector Employment Change (000)
PBS Employment Change (000)
25
Total Private Employment Change (000)
110
10
Sector Employment Change (000)
20
90
15
15 70 5
5
10 50
0
30 (5)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
5
10
(5)
0 (15)
(10)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
(5) (10) (25)
(30)
(10) (50) Legal Accounting
Financial Activities Health Computer Systems Design Mgmt, Scientific & Consulting Services
Professional & Business Services Total Private Employment Employment Services Total Professional & Business Services (PBS)
Source: Bureau of Labor Statistics, Moody’s Economy.com Source: Bureau of Labor Statistics, Moody’s Economy.com
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5. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Appendix - Top Contractors, 2009 US Totals
Department of Defense
Rank Global Vendor Name Total Dollars % of Total Agency
Procurement
1 Lockheed Martin Corporation $31,348,453,591 8.7%
2 The Boeing Company $20,604,690,107 5.7%
3 Northrop Grumman Corporation $18,293,375,394 5.1%
4 General Dynamics Corporation $15,662,063,160 4.3%
5 Raytheon Company $15,332,423,922 4.2%
6 United Technologies Corporation $7,047,569,735 1.9%
7 L-3 Communications Holdings Inc. $6,841,410,117 1.9%
8 BAE Systems plc $6,704,063,087 1.9%
9 Oshkosh Truck Corporation $6,379,043,578 1.8%
10 KBR Inc. $4,635,422,289 1.3%
11 SAIC Inc. $4,338,700,255 1.2%
12 General Electric Company $3,442,880,553 1.0%
13 Humana Inc. $3,437,897,070 0.9%
14 Health Net Inc. $2,833,980,613 0.8%
15 Computer Sciences Corporation $2,752,215,384 0.8%
16 ITT Corporation $2,740,731,493 0.8%
17 Macandrews & Forbes Holdings Inc. $2,726,138,648 0.8%
18 Triwest Healthcare Alliance Corporation $2,672,212,524 0.7%
19 Bell Boeing Joint Project Office $2,620,340,066 0.7%
20 Bechtel Group Inc. $2,297,043,828 0.6%
21 Booz Allen Hamilton Inc. $2,272,314,245 0.6%
22 Agility $2,010,685,577 0.6%
23 Royal Dutch Shell plc $1,905,472,234 0.5%
24 DRS Technologies Inc. $1,884,448,151 0.5%
25 URS Corporation $1,838,845,209 0.5%
Source: Federal Procurement Data System
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6. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Department of Health and Human Services
Rank Global Vendor Name Total Dollars % of Total Agency
Procurement
1 Novartis AG $1,549,934,149 7.8%
2 Merck & Co. Inc. $1,367,338,968 6.9%
3 Sanofi-Aventis $1,346,629,103 6.8%
4 GlaxoSmithKline PLC $950,995,875 4.8%
5 SAIC Inc. $825,083,617 4.1%
6 Wyeth-Ayerst International Inc (Now Part Of Pfizer) $678,537,227 3.4%
7 Astrazeneca PLC $512,052,035 2.6%
8 Westat Inc. $341,385,546 1.7%
9 Blue Cross and Blue Shield Of South Carolina $318,217,501 1.6%
10 McKesson Corporation $295,630,849 1.5%
11 Veritas Capital Fund II L.P. $285,055,356 1.4%
12 Lockheed Martin Corporation $268,067,215 1.3%
13 Electronic Data Systems Corporation $227,888,458 1.1%
14 CSL Biotherapies Inc. $200,452,127 1.0%
15 Emergent Biosolutions Inc. $192,441,276 1.0%
16 Northrop Grumman Corporation $178,589,206 0.9%
17 Research Triangle Institute Inc. $169,826,366 0.9%
18 Human Genome Sciences Inc. $161,056,235 0.8%
19 Wellpoint Inc. $156,498,189 0.8%
20 Booz Allen Hamilton Inc. $146,339,413 0.7%
21 International Business Machines Corporation $141,121,505 0.7%
22 Roche Holding AG $134,750,493 0.7%
23 Bearingpoint Inc. $113,763,984 0.6%
24 SRA International Inc. $107,263,652 0.5%
25 STG International Inc. $96,747,677 0.5%
Source: Federal Procurement Data System
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7. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Department of Commerce
Rank Global Vendor Name Total Dollars % of Total Agency
Procurement
1 Harris Corporation $379,382,622 12.0%
2 Lockheed Martin Corporation $259,362,586 8.2%
3 True North Communications Inc. $203,207,944 6.4%
4 International Business Machines Corporation $126,408,589 4.0%
5 Raytheon Company $70,597,211 2.2%
6 Reed Elsevier Group PLC $70,497,934 2.2%
7 ICS Nett Inc. $52,591,577 1.7%
8 SAIC Inc. $45,740,353 1.4%
9 Earth Resources Technology Inc. $44,559,690 1.4%
10 Nana Regional Corporation Inc. $34,517,201 1.1%
11 Industries For The Blind Inc. $31,741,025 1.0%
12 Riverside Technology Inc. $28,536,730 0.9%
13 Veritas Capital Fund II L.P. $28,150,782 0.9%
14 I.M. Systems Group Inc. $27,351,450 0.9%
15 The Aerospace Corporation $26,583,095 0.8%
16 Computer Sciences Corporation $24,525,520 0.8%
17 RS Information Systems Inc. $22,537,308 0.7%
18 Integrated Solutions LLC $22,442,369 0.7%
19 Dell Inc. $21,995,971 0.7%
20 Diversified Global Partners JV LLC $21,566,260 0.7%
21 Arctic Slope Regional Corporation $17,958,358 0.6%
22 The Mitre Corporation $17,729,383 0.6%
23 Fugro N.V. $17,170,623 0.5%
24 Sabre Systems Inc. $17,111,843 0.5%
25 SI International Inc. $16,450,766 0.5%
Source: Federal Procurement Data System
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8. Procurement Spending in the DC Region
Effects on the Economy, Employment, & Commercial Real Estate
Department of the Treasury
Rank Global Vendor Name Total Dollars % of Total Agency
Procurement
1 Afinsa Bienes Tangibles SA $925,324,294 19.8%
2 Sunshine Minting Inc. $348,011,140 7.4%
3 Mitsui & Co. Ltd. $198,787,092 4.3%
4 Computer Sciences Corporation $140,506,913 3.0%
5 Northrop Grumman Corporation $136,326,452 2.9%
6 Crane & Co. Inc. $129,214,160 2.8%
7 Accenture Ltd. $99,721,668 2.1%
8 Booz Allen Hamilton Inc. $94,005,930 2.0%
9 Lockheed Martin Corporation $90,354,242 1.9%
10 Apptis Inc. $72,830,328 1.6%
11 Cookson Group plc $70,454,392 1.5%
12 Integrated Solutions LLC $65,255,807 1.4%
13 The Mitre Corporation $62,686,289 1.3%
14 Global Metals LLC $62,676,075 1.3%
15 True North Communications Inc. $61,326,809 1.3%
16 International Business Machines Corporation $60,960,829 1.3%
17 Poongsan Corporation $54,050,777 1.2%
18 Government Acquisitions Inc. $43,386,423 0.9%
19 URS Corporation $40,000,017 0.9%
20 Unisys Corporation $38,934,436 0.8%
21 L-3 Communications Holdings Inc. $37,578,340 0.8%
22 BAE Systems plc $36,042,244 0.8%
23 Deloitte & Touche Usa LLP $35,479,332 0.8%
24 GTSI Corporation $34,338,396 0.7%
25 AT&T Inc. $32,021,279 0.7%
Source: Federal Procurement Data System
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