As the Trump administration looks to shed significant amounts of federal real estate, one question is whether the overall portfolio will eventually become more heavily tilted toward leased real estate instead of owned.
Steve Teitelbaum, adjunct professorial lecturer of finance and real estate at American University’s Kogod School of Business in Washington, D.C., said the philosophy for decades has seemingly been for the federal government to own its real estate, since agencies would ideally be housed in those offices long term.
“In the long run, if you’re going to be in a building for 100 years, it’s more cost-effective to own than rent it,” Teitelbaum said. “That was particularly true of a time when [office] rents were seemingly going up, and Washington has historically been a low-vacancy market.”
That philosophy may now be flipped on its head, especially as federally-owned properties age and the broader office market has undergone significant change in the past five years.
The average age of General Services Administration-owned buildings is about 50 years. Many of the properties have some amount of deferred maintenance, perhaps partly because it’s not politically palatable to commit funds to facility maintenance.
“There’s been an increasing concern now over many, many years over the cost of retaining the federally-owned portfolio — to keep it up and maintain the size of it,” said Marcy Owens Test, senior vice president and head of CBRE Group Inc.’s Federal Lessor Advisory Group. “As we like to say, the bricks and mortar don’t vote. It’s hard to get constituent interest to spend money on maintaining [federal buildings].”
Similarly, the cost of buying versus leasing a building registers differently in Congressional budget scoring, Teitelbaum said. If, for example, the federal government purchased a building for $50 million, that’s recorded as one single hit to the budget and scored differently than $50 million distributed over the course of a 10-year lease term and multiple budget cycles.
If the GSA does look to lease rather than own more of its real estate, it’s unclear what kind of space it might target — and space needs of the various federal agencies vary dramatically, Test said.
The agency has stated interest in reducing its portfolio by about 50%, but it’s not clear whether the cuts would be more heavily apply to owned or leased space, she said.
Ed Gregorowicz, principal of consulting and advisory at Avison Young in Tysons, Virginia, said the position of the federal government leasing versus owning real estate has flipped back and forth over decades, based on administration. He said if the intent now is to move more heavily toward renting space, the leasing process is not an overnight one.
“If they started [the process] today, it might take a couple of years to actually consummate a lease,” said Gregorowicz, who previously worked at the GSA. He added that leases above a certain dollar threshold require Congressional approval before the federal government can enter into them.
A March 4 statement by the GSA says the agency “seeks to improve the quality of space provided through consolidation into a smaller footprint,” echoing a common refrain in the private sector. The flight-to-quality trend — that is, a preference for higher-quality or even top-tier office space, frequently in a smaller or consolidated footprint — remains pervasive among companies. That space, arguably the only competitive part of the office market today, also tends to command the highest rents in a given market.
But, Test said, the definition of “high quality” for the federal government has historically differed from that of the private sector.
“[It’s] not so much a widespread flight-to-quality as it is making sure the spaces the federal government is leasing are good quality, and have durability and longevity,” she said. “The government is always looking for the best-quality deal, and a very good value. Ultimately, price does matter.”
Despite big promises to cut significant amounts of space in a broader effort to reduce federal spending under President Trump, experts agree the slimming down of the U.S. government’s real estate portfolio will be a complex, and lengthy, process.
The federal government occupies so much space nationally largely because of the diverse nature of the agencies it encompasses, Test said. Different missions have different functionality and, subsequently, different real estate needs.
Although the Elon Musk-led Department of Government Efficiency and Trump administration more broadly have cut jobs and spending at a breakneck pace since January, the process of eliminating federal real estate will take time to play out. The role of long-standing processes and procedures in any such elimination remains a topic of discussion, too.
“DOGE and the current administration are following the mantra of ‘move fast and break things,'” Teitelbaum said. “They may be willing to expedite or disregard the [GSA’s] process, or maybe they’ll change the process. It’s a ‘ready, fire, aim’ situation instead of ‘ready, aim, fire.’
“Process is always part of what the government does,” Teitelbaum added. “If you do it well, you still get to the outcome, but it’s different from the private sector.”
Source: “Federal Government Real Estate Shake-up Could Shift Balance From Owned to Leased Space”
