In recent years lessors have become troubled by GSA’s increasing insistence on short-term leases, which we define generally as new leases, extensions or holdovers with less than than three years of term. The graph above demonstrates that these short-term leases comprised only about 6% of GSA’s leasing activity from 2000 to 2005. But then the rate increased rapidly, more than doubling in just three years. Though the rate of short-term leasing has settled down slightly it is still twice as high as a decade ago.
We haven’t fully analyzed the causes of this but we can make some anecdotal observations. The first is that GSA in the mid- to late-2000s was delivering a huge number of new lease-construct projects, many in response to government growth and new security concerns post-9/11. These new projects would frequently require short-term extensions of existing leases to sync up with the delivery dates. Yet, more often, GSA was simply finding itself unable to effectively execute the volume of leases it was faced with each year and the incidence of holdover increased dramatically.
This trend peaked in 2008 and we would have expected it to begin to quickly recede except that the United States was plummeting into a deep recession and the resulting fiscal crises and political discord created such trepidation among tenant agencies that they were reluctant to enter into long-term lease contracts (especially ones that might require costly relocation).
More recently we are beginning to see the number of short-term extensions throttle down a bit. Frankly, this is the most surprising part of the trend because it doesn’t square with what we are seeing in the field, where the problem of short-term extensions seems as present as ever. In any case, a new factor threatens to disrupt the trend towards improvement: the federal government’s push to improve space utilization through downsizing and consolidation. These are real estate endeavors that require considerable advance planning and the government doesn’t have enough lead-time to execute those plans. So we are already beginning to see requests for extensions to allow the government to indulge in methodical planning, then followed by full and open procurements to execute those plans.
Short-term leasing will continue to prevail for some time, yet we can hope to eventually return to a time where short term leases were just 6% of all leasing activity.
Note: In this analysis we only count leases that are at least 3,000 RSF in order to improve the focus on traditional leases, eliminating many TSA on-airport leases, storage leases, short-term census-related leases and other esoteric leases.