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Gaithersburg Q1 economic update: office vacancy improves, retail softens; federal downsizing watched
Summary
City economic development staff reported first-quarter 2025 commercial real estate trends: office vacancy in Gaithersburg fell to 11.4% from 13.1% year-over-year, flex vacancy dropped substantially, retail vacancy ticked up to 3%; staff cautioned that federal government downsizing could affect future demand.
Economic development staff presented a first-quarter 2025 snapshot on May 5 showing mixed trends across Gaithersburg's commercial real estate markets and a continued need to monitor federal workforce changes.
Tom Lonerganseager said the city tracks roughly 9.5 million square feet of office and flex inventory and about 5 million square feet of retail via a CoStar subscription. He reported the city's office vacancy rate improved from 13.1% in Q1 2024 to 11.4% in Q1 2025; about 1.3 million square feet of office space is currently available in the city. Countywide office availability was higher, exceeding 16 million square feet with a vacancy rate above 20%.
Tom said flex-space vacancy (one- and two-story buildings used by biotech and light industrial tenants) decreased to 31% from about 57% the prior year, driven in part by leasing at facilities on Progress Way. On retail, the vacancy rate rose from about 1.9% to 3%, attributed largely to the closing of a Best Buy on Shady Grove Road, accounting for roughly 46,000 square feet; about 97,000 square feet of retail space was available in the city at the time of the report.
Unemployment in March stood at 2.9% in the city, which Tom equated to about 1,177 unemployed residents. He noted roughly 3,800 city residents were federal civilian employees last year and said it could take time to see the labor- and demand-side effects of recent federal downsizing notices. Staff will continue to monitor market indicators as federal changes and tariffs affect construction costs, financing, and demand for existing buildings.
