The struggle of the office — trying to bring workers back in, save the many B and C Class buildings that are losing value and popularity, and keep things from crumbling — has been widely seen in private markets.
Now, it’s landing hard in Washington, D.C. The Wall Street Journal reports that the Trump administration wants to sell two-thirds of the government’s office stock to the private sector. Furthermore, the paper reported a claim by Washington, D.C.-based developer Don Peebles, chairman and chief executive officer of Peebles Corporation, that the General Services Agency will cancel leases on 70 million square feet of D.C. office space that is privately owned.
The actions could have a significant impact on the D.C. property market. Many landlords depend on the government as an anchor tenant. If the space is suddenly cut loose, it could fall in value and leave owners without many options.
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The GSA manages 370 million square feet of federal buildings nationwide, much of which has been in poor shape. A large portion is either underused or empty.
In her 2023 Senate testimony, former Commissioner of the Public Buildings Service Nina Albert said, “Since 2011, the Congressional practice of annually diverting roughly $980 million away from GSA investments in federal buildings to fund activities at other agencies has cost more money than it has saved for GSA. The resulting delays in funding necessary repairs in GSA facilities exacerbate the deterioration of building conditions, and we have seen minor issues grow into more costly repairs or replacements.”
Last spring, Peebles called office investment a “once-in-a-generation opportunity to buy” and added, "We're an opportunistic company, so we look to develop when markets are supply-constrained, and then we like to buy when we think there's tremendous value.”
A GSA spokesperson told the Journal, “GSA continues to work to right-size the federal portfolio and is committed to optimizing space in federal buildings.” More funding could help fuel the efforts.
But talk of paring back government space isn’t new. In 2022, GSA said that most agencies are planning significant cutbacks in the space they use. "There are more than 19,500 federally owned buildings, including approximately 511 million square feet that are considered office space,” the federal property manager said in a report. After surveying 24 federal agencies, 16 at the time said they would reduce the number of leases they had and 19 would trim square footage by 2025.
The impact, particularly on the D.C. office market, could be extreme. Selling a significant amount of property over a relatively short period and involving properties in less-than-stellar condition could depress property values. Cutting back on federal leases could further turn the post-pandemic office market in the city into a mire.
All this, though, could get even more complicated. One of Trump’s executive orders requires all departments and agencies in the executive branch to “as soon as practicable, take all necessary steps to terminate remote work arrangements and require employees to return to work in-person at their respective duty stations on a full-time basis, provided that the department and agency heads shall make exemptions they deem necessary.” And that means having the office space necessary for them to work.
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