The National Observer: Real Estate: Federal government’s potential portfolio sell-off raises eyebrows

The Department of Government Efficiency says it’s terminated more than 9 million square feet in leases nationally.

While most experts have said the leases canceled so far are considered low-hanging fruit, that doesn’t mean the cancellations aren’t having an impact. Effects are being felt in markets as wide-ranging as Greensboro, North Carolina; North Texas; Kansas City; Colorado; Greater Philadelphia; Oregon; Columbus, Ohio; Massachusetts; and South Florida.

There’s much more about the federal real estate shakeup in today’s lead story. We’re also monitoring the impact of tariffs on the commercial and residential real estate markets.

More questions than answers on GSA sell-off

A list of hundreds of properties owned by the federal government deemed non-core and targeted for disposal was released by the General Services Administration last week, only to be removed the next day.

While the future of all 443 properties on the list — with 123 in the Washington, D.C., metro area — remains unclear, the potential of unloading so much property has long-reaching implications for commercial real estate markets far outside of the District.

The GSA has been cutting its real estate, both leased and owned space, for more than a decade now. That effort began during President Barack Obama’s second term, said Ed Gregorowicz, principal of consulting and advisory at Avison Young in Tysons, Virginia, who previously worked at the GSA.

In fact, the federal government’s real estate portfolio has been reduced by about 28% in the past decade, Scott Homa, Americas head of property sectors research at JLL, who is based in Washington, D.C., told me.

So while real estate reductions by the federal government aren’t unprecedented, the approach, magnitude and speed with which the current administration is looking to cut space are.

Coworking responds to office-market shifts

Like much of the broader office sector, the industry of coworking — or “flexible office,” as it’s increasingly referred to today — has undergone an evolution since the Covid-19 pandemic.

But unlike traditional office, the flex-office sector has more easily adapted to new workplace opportunities, preferences and trends that’ve emerged since 2020. That doesn’t mean major players haven’t faced significant challenges, and the need to question and overhaul longstanding business practices, but the business overall seems largely in growth mode.

Most of the industry’s major players report being in expansion mode, although what that looks like varies widely. Especially as economic uncertainty persists — which will likely continue to cast a shadow over real estate decisions — most operators are eager about expansion but are doing so in what they say is a measured manner.

By the numbers: At the end of 2024, the national coworking inventory stood at 7,695 spaces, according to Coworking Cafe, which is part of Yardi Systems Inc. Coworking inventory as tracked by Yardi grew 23.1% on an annual basis between Q4 2023 and the end of 2024. (Yardi became a majority owner of coworking giant WeWork Inc. after it went through Chapter 11 bankruptcy, a process that concluded almost a year ago.)

I spoke with some of coworking’s major players about how this subset of the office market has evolved in the past five years and what’s next.

Real estate braces for impact from tariffs

It’s still not clear where we end up on the tariffs policy front, but no matter what the details look like, new and aggressive tariffs on goods imported from foreign countries are already in place, or will be soon.

Already, construction firms and subcontractors across the U.S. are bracing for how tariffs could impact their businesses and pipelines. Nearly half of a project’s total cost comes from materials, according to data shared in a webinar by construction firm Skanska USA I attended this week.

Tariffs have the potential to delay, change or even decimate big-ticket projects. Markets like Austin, Texas, have mammoth construction projects underway or on the drawing board that will require items commonly sourced from abroad, reports Sean Hemmersmeier at the Austin Business Journal.

“AUS [the airport code for Austin-Bergstrom International Airport] is closely monitoring the new executive orders and their potential impact on the costs and delivery timelines for our Journey With AUS Expansion Program,” said an ABIA spokesperson. “We are actively working with our contractors to explore alternative materials and sourcing options. As the situation evolves, we will continue to assess the impact. Once more details regarding the tariffs are finalized, we will implement necessary mitigation strategies.”

In South Texas, Jorge Rodriguez at NAI Excel told James McCandless at the San Antonio Business Journal one of his Mexican clients in the food business that needs more than 300,000 square feet of warehouse space is rethinking everything now that they have an extra expense line — tariffs — to consider. One potential alternative is for that company to take less space.

Phoenix-area executives tell Jorge Ramos and Angela Gonzales at the Phoenix Business Journal they feel equipped to handle the shifting landscape of tariffs after their experiences with previous supply-chain disruptions. That’s not to say they’re without concern.

“I’m a little apprehensive about it pulling through to other categories such as plumbing, light fixtures, flooring, cabinets — a lot of the finish stuff comes out of China,” said Don Barrineau, Phoenix division president for Florida-based Mattamy Homes. “That’s a bit of a worry.”

Impact on industrial real estate: In South Florida, the activity on tariffs is prompting inquiries by companies for new warehouse and manufacturing facilities, reports Brian Bandell at the South Florida Business Journal.