Washington's New Approach to Real Estate

WASHINGTON, DC-With much relief from all quarters of the country, the Bipartisan Budget Act of 2013 was signed by President Obama at the end of 2013. Kurt Stout at Colliers International dissects the agreement from the vantage point of the commercial real estate industry in this blog post. His take? The deal could lead to agencies taking out longer-term leases.

"With optimism and a little bit of budgeting runway, agencies are more likely to plan strategically for their space needs and possibly enter into longer-term lease commitments," Stout writes. "Yet the basic structural defects in the federal budget persist, and they will only be resolved by a Grand Bargain of some type."

Still, landlords will take whatever progress they can get from the government, if it means agencies are able to move away from their tendency to only commit to short-term leases. Stout noted that his company's analysis of leases expiring in the last year shows that more than 40% were extended three years or less. Also, "now there is such an astonishing pile-up of lease expirations that one-fourth of all GSA leases are scheduled to expire in the next two years."

Separately, findings from a recent report from the US Government Accountability Office [PDF] suggest the federal government may take a harder look at savings goal associated with the National Broker Contract Program in 2014 in the run-up to the new contracts expected in 2015.

The report found that it is unclear whether the program has resulted in the rental rate cost savings that the General Services Administration had anticipated when the program launched.

As GAO outlined in the report, in 2012 GSA compared rental rates negotiated by brokers with those negotiated by in-house staff, and not only found little difference between the two, but also concluded the data were insufficient to conduct a meaningful comparison.

In April 2013, GSA began requiring a market rent data report that includes market information, analysis, and insight regarding the local submarket, which would improve the government's ability to compare rental rates negotiated by brokers to market rental rates. However, these new reports were not expected to give government officials insight into whether brokers are negotiating better deals than in-house staff.

GAO concluded its report by noting that GSA's goals and metrics for evaluating the NBC program have not been linked to the anticipated cost savings in rental rates. It is possible GSA could focus on this particular goal as it continues to streamline its real estate programs. As GAO noted, "clear, linked goals are especially important given that GSA is planning to seek a third generation of broker contracts in 2015."