WASHINGTON, DC—Two charts from two brokerages tells two stories about the federal government and its relationship to the local commercial real estate market. One shows that the GSA’s inclination of the last two years to stick to short-term lease extensions is finally lessening. The second is a reminder of just how welcome this shift is-while the market worked hard to mitigate the government’s pullback in space over the past 24 months, at bottom Washington is and probably always will be, a company town, real estate-wise.
CBRE, in a recent report, points to the impact the pullback in federal space has had on the DC markets. Between 2011 and 2012, the aggregate value of signed federal leases fell from $19.9 billion to $5.5 billion. In 2013, the value of signed leases fell to just $1.9 billion.
Shortened lease terms were the main culprit, driven by changing budget priorities, politics and scandal.
Now, in 2014, CBRE says this part of the cycle is ending and the federal leasing market is on the rise again. Reasons for this include new GSA leadership, improved relations between GSA and Congress, the first federal budget in five years, an identified set of federal space utilization guidelines, and a GSA fund to help agencies pay relocation costs-all of which should mean fewer short-term lease extensions and more long-term lease procurements.
Just as significantly, there are a number of lease expirations on the horizon, in large part because agencies have been inking short-term leases.
Agencies that have active tenants in the market include the National Institute of Child Health & Human Development, the Transportation Security Administration, Executive Office for Immigration Review, Custom & Border Protection, Financial Crimes Enforcement Network, the Federal Bureau of Investigation and the Corporation for National & Community Service.
To say that this is a significant development for the DC area’s commercial real estate is an understatement. A separate chart just released from JLL drives this point home. GSA, as the chart shows, leases some 51.5 million square feet of office space here, with 44.7% of that in the District-for a total of 20% of the city’s overall office supply.
In Prince George’s County its influence is equally as pronounced: there, GSA leases some 15.4% of the submarket’s office supply.