Proposal targets D.C. region’s excess federal office space

March 4, 2012

The federal government is the nation’s largest employer and user of 1.9 percent of U.S. leased office space. All together, federal tenants lease approximately 168 million square feet of office space nationally, about the size of the San Francisco office market.

In markets dominated by the federal government, the emerging push by Uncle Sam to shed excess office space under a proposed civilian version of BRAC (Base Realignment and Closure) is likely to have a dampening effect on overall demand for office space, although how much of an impact remains to be seen.

In early February, the House of Representatives passed a bill called The Civilian Property Realignment Act that some are referring to as the “Civilian BRAC.” Senate Democrats are working on a similar bill. Both are aimed at reducing the amount of under-used space leased by the federal government and identifying unused property for possible sale. While the exact change in space expected from these moves is unknown, it is likely that the government will consolidate some of its space by seeking to increase the use of alternative workplace strategies and shifting more office-based federal employees out of leased space and into government-owned buildings.

The roughly 45 million square feet of office space leased to federal tenants in the metro Washington market accounts for more than a quarter of all leased federal office space, and a comparatively high 11 percent of the Washington office market. Other metro areas with an elevated share of federal space are mainly smaller ones with a high percentage of federal government workers, in states such as West Virginia, Alaska, New Mexico and others. No office market in the country comes close to the Washington metro area in the concentration of leased federal office space.

While there is consensus between both political parties on the need for more efficient use of government space, likely outcomes are difficult to predict. The General Services Administration has reported that it wants to increase real estate efficiency by expanding alternative workplace strategies, such as “hoteling,” telecommuting and job sharing. An analysis by GSA representatives of key card data for Washington area federal employees found that many federal-occupied buildings have effective occupancy rates of under 50 percent.

Other goals of this effort are likely to include a focus on added security and access to public transit. Also of major importance, GSA is interested in improving the basic functionality of office space, which essentially means upgrading office space for federal tenants to levels similar to that for private sector tenants. In general, these goals suggest that over time the federal government’s use of older, obsolete Class C office space is likely to diminish, causing an increasing spread in rents between the top and bottom of the office market.

While these changes won’t occur overnight, the government is likely to change the way it uses office space, especially in the highly visible Washington area. The speed of these changes is still to be decided, but because of the increased focus on deficit reduction, office space leased to the federal government will likely be the first to feel the impact.

Walter Page is director of office research for CoStar Group. He is based in Boston.

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