The Department of Government Efficiency has significantly slowed its federal office lease reductions, according to Trepp.
General Services Administration-leased space decreased from 148.97 million square feet to 148.84 million in April, a decline of 123,819 square feet, or a 0.08% decrease. At the same time, annual rent tied to termination rights increased from $5.23 billion in March to $5.24 billion in April.
The big cuts that DOGE had promised, or at least alluded to, have yet to happen. The days are early, and there have been legal challenges, particularly regarding employee cuts. However, if the cuts in federal employment do occur, that might prompt the GSA to reassess the amount of leased space the government requires.
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Given terminated or expired leases, new leases, and some renegotiated leases, the federal government has six fewer leases, totaling 123,000 fewer square feet and $2.7 million in additional annual rent. The GSA appears to have focused on ending or modifying leases that are nearing the end of their term by 2028.
Washington, D.C., remains the largest market for GSA-leased space. That includes 40.2 million square feet and $1.67 billion in annual rent, up from 35.3 million square feet and $1.45 billion in rent, as of March. The increase is due to a revised MSA matching formula and improved capture of leases in the D.C. area, particularly in Maryland.
The New York City MSA continued to have approximately five million square feet of space with rent totaling nearly $252.6 million. Kansas City jumped to 4.8 million square feet and $117.5 million in rent. Some of the most expensive office rental markets were Los Angeles ($45.18 per square foot) and Miami ($46.14 per square foot).
CMBS exposure to GSA-leased properties “contracted meaningfully,” Trepp said. The current exposure dropped from $10.3 billion in March to $7.7 billion in April. The number of deals fell from 128 to 126. The number of loans slipped slightly from 149 to 147. Properties increased from 1,202 to 1,271.
The delinquency rate was 17.52%, and the special servicing rate was 18.96%. The watch list rate was 44.87%, and the overall DSCR rate was 1.64x.
The monthly growth trend shows a “nuanced, multi-tiered strategy aimed at stabilizing immediate lease rollover risks while strategically shaping long-term commitments.” The operational strategies seem to be focused on near-term portfolio management. Also, some lease extensions suggest “deliberate and successful negotiation processes to gain and maintain long-term tenancy stability."
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