The federal government, after shedding more than 30 million square feet from its national office portfolio, is preparing to make deeper cuts with plans to let several leases lapse and consolidate its workforce in greater Washington, D.C.
The General Services Administration, the government's overseer and manager of real estate, expects to reduce its real estate across multiple agencies as part of a decade-long effort to offload extraneous space and save hundreds of millions in property expenses.
The latest plans include shrinking office space occupied by the Department of State, the Department of Housing and Urban Development, and some Treasury Department agencies, according to an update issued this month from the White House.
The government has opted to let the leases for three Department of State offices in Washington and Northern Virginia lapse and consolidate employees into locations the agency already leases or are federally owned. Those plans — the locations for which were not publicly disclosed — would result in cuts of more than 771,550 square feet to the department's regional presence as well as savings of nearly $11 million, according to the report.
Between the federal government and corporate America, many office tenants are increasingly scrutinizing their real estate needs and existing commitments, a focus that has resulted in shrinking demand for space in some of the country's older buildings.
Tenants have collectively handed back more than 180 million square feet of office space since 2020, according to CoStar data, far exceeding the reductions reported throughout both the Great Recession and the dot-com bust in the late 1990s.
As the region's largest office occupant, the federal government's cuts have made it especially challenging for the Washington area to build meaningful momentum to aid in its post-pandemic recovery.
The city's record-high vacancy and availability rates have largely been attributed to many federal government agency staff still working remotely. Availability in D.C.'s East End — the sixth-largest office market in the country by total inventory and home to many GSA-leased and -owned properties — surpassed 25% by the end of last year, according to CoStar data, and it has struggled in the face of plummeting rents and valuations.
Federal government agencies account for about 20% of the jobs in the Washington area, according to CoStar analysis.
Impact of Telework
The anticipated cuts could be more dramatic for the Department of Housing and Urban Development, the real estate footprint for which is expected to shrink by as much as 60% before 2038. The GSA's plan involves compounding four of the agency’s regional satellite offices into its headquarters at the Weaver Building at 451 Seventh St. SW.
“The reductions will achieve a more efficient utilization rate and reduce real estate spending, allowing us to redeploy funds to other higher impact needs,” the Office of Management and Budget said in a statement.
The latest consolidation efforts landed a little more than a week after the GSA approved a lease agreement that will result in moving two Treasury Department offices into a single, and much smaller, space. The 15-year, $35.6 million deal means the agency will relocate to about 65,000 square feet at 1575 I St. NW, vacating a total of 196,000 square feet the Treasury has occupied across two other buildings at 1750 Pennsylvania Ave. NW and 1722 I St. NW.
The decision to reduce the Treasury's real estate is in response to the department's ongoing telework policy, GSA said in the lease award prospectus.
“Approximately half of the currently housed personnel are moving to increased telework and will not be accommodated under the replacement transaction,” according to the filing. “A small percentage will go into other existing Treasury spaces.”
Across the country, the federal government has pointed to more than 23 million square feet of office space that is "underutilized" but costs upward of $67 million each year to maintain, according to the OMB report.
The GSA leases about 173 million square feet of office space across the country, and the federal government owns roughly 500 million square feet.