One of the biggest office users in California, the state government, wants to further shrink its leased real estate portfolio in a move that could deal a further blow to the workspace property market.
The state's Department of General Services is working with 40 state departments to consolidate space across 132 leases, cutting 1.16 million square feet, according to the 2023-2024 governor's budget summary.
The state's reduction in office space comes as some companies and governments across the U.S. have looked at cutting their physical footprints while some employees have kept working from home since the start of the pandemic. The actions taken by California carry additional weight because, as the most-populous U.S. state, it's watched by lawmakers around the country and could influence policies in other regions.
The state instituted mandatory reviews for all new space requests to determine whether employees could instead telework, and it set standards and guidance for leasing, according to a 2022 DGS memo. The state has roughly 258,000 employees, making it one of the largest employers and users of office space.
In 2022, the state of California said it was or attempting to relinquish 767,000 square feet of office space, according to the state's five-year plan for its infrastructure. At the time, the state said it had leased about 23.2 million square feet with roughly 14.4 million square feet of that being office space.
However, the state isn't looking to leave all its leased space.
"While statewide consolidation efforts will continue, the Administration recognizes the need for modern office space to conduct the state’s core business functions, and remains committed to investing in the construction and renovation of these assets," according to the plan.
Some office markets across the U.S. are struggling with lower demand than before the pandemic, with owners of less desirable buildings feeling the pain acutely.
By 2030, it's expected that office vacancy will be 55% higher than it was before the pandemic, according to the Cushman & Wakefield report "Obsolescence Equals Opportunity." The report estimates that a quarter of all office space in the U.S. will need to be reimagined.
"Only about a third of office leases scheduled to expire in the 2020-2029 decade have done so," according to the report.