WASHINGTON, DC-By Jones Lang LaSalle's reckoning, lease awards by the General Services Administration in fiscal year 2012 fell 96% year-over-year. GSA scrutiny, gridlock in Congress and bipartisan support for reining in federal real estate expenditures were, of course, the reasons a slowdown in local fundamentals.
Specifically, according to JLL's Federal Perspective 2013, new GSA lease awards fell from $1.2 billion in fiscal year 2011 to just over $45.9 million in the comparable period of 2012. The good news is that eventually demand will become so pent up that some action will have to be taken. Sooner or later, more likely sooner, federal officials will have to make space decisions on 44.6 million square feet of leases that are set to expire through the end of 2013. In 2014, there will be more than 20 million square feet scheduled to expire.
Still, for local commercial real estate owners struggling with the slowdown in government activity, that expected wave of activity is of scant comfort right now. "I would say anyone holding a federal lease today and has a significant event or expiration is worried about this," Joseph Brennan, JLL's managing director, tells GlobeSt.com. Landlords are having to agree to one- or two-year extensions in some cases. In other situations, the future of huge blocks of space are in abeyance as the GSA dithers on whether or not to pull the trigger.
Even real estate owners of assets other than office are feeling the impact. Host Hotels, based in Bethesda, MD, is one example. The REIT reported in its latest earnings call that its Washington, DC hotels experienced a RevPAR decline of 80 basis points with both group and transient demand weak "as there was little activity on Capitol Hill, and election year activities were outside of DC."
Another example is offered by George "Skip" Mackenzie, president and CEO of Washington Real Estate Investment Trust, in a video interview posted on NAREIT's website. "Clearly there has been negative absorption," he told NAREIT. "Most of that negative absorption has been people waiting to see what the effects of the fiscal cliff are, where the government is going and how that's going to affect leasing in the DC area. It's had a negative impact on a macro level in our region."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
