Federal government continues cutting back on space requirements

June 16, 2013

For federal government agencies in the region, “Doing More in Less Space” continues to be the guiding principle governing their real estate strategies.

Since 2010 when the White House issued a directive calling for agencies in the region to reduce real estate costs by $8 billion, followed last year by the General Services Administration’s “Freeze the Footprint” initiative, the Office of Management and Budget said the government is on track to exceed its goal and realize $8.6 billion in real estate-related savings by the end of fiscal 2012, including $3.5 billion in non-BRAC real estate savings. Now the Civilian BRAC — officially titled the Civilian Property Realignment Act — is awaiting congressional approval after passing the House back in February.

More recently, the Office of Management and Budget sent guidance to federal agencies informing them they should prepare for a 10 percent reduction in their budgets, double that of the previous year. The environment of constraint continued last month with May marking the third straight month the federal workforce has shed jobs, reducing headcount by 45,000 over the three-month period to reach its lowest level since February 2008.

Currently, the GSA leases more than 50 million square feet of office space throughout the region through more than 600 leases. Approximately 8 million square feet of that space is set to roll over this year, with an additional 6 million square feet expiring in 2014.

Although historical renewal rates for GSA office tenants are quite high at about 96 percent, given the cost-reduction directives, it is not expected to remain at that level. In 2013, the GSA leased 2.4 percent less space than it did in 2012, a reduction of close to 1.5 million square feet.

GSA leases that expire by 2015 account for 3.7 percent of the occupied office lease space in the regional market, although within the top five local markets where GSA leases the most space (D.C., Arlington, Rockville, Alexandria and Falls Church), those levels approach 8 percent in some areas. Even if the GSA trims just 10 percent of its space in the upcoming renewals, that would return more than 1.5 million square feet.

Although the region has shown surprising resilience despite the so-called sequester and ongoing efforts to trim the deficit, the government’s plans to continue to cut back and use space more efficiently do present some clouds on the horizon for building owners. Still, many have factored in a leaner, more efficient federal presence in the local office market, and instead are banking on an economy they believe is steadily broadening beyond its historic dependence on the government.

D.J. O’Brien is a research manager with Costar Group in Washington.

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