This morning the District of Columbia Building Industry Association (DCBIA) hosted its seminar entitled “GSA Downsizing – A Perfect Storm Looming”, consisting of a panel of government officials and private sector professionals. We were there and here is some of what we learned:
Rep. Eleanor Holmes Norton reported that Congress is expected to (finally) hold mark-up hearings next week to address the remaining 2011 prospectuses and some of the 2012 prospectuses. There are 22 total prospectuses awaiting Congressional approval, 13 of these in Region 11. GSA has reworked the 22 prospectuses to shave off 630,000 SF or 13% of the combined square footage. This reduction in requested square footage is in response to Congress’ push for improved space utilization, and it is also in reaction to budget constraints. Yet, efforts to downsize and ultimately reconfigure space will be very difficult to achieve logistically and economically. Despite this, she said telecommuting and hoteling are the future.
Rep. Norton also asserted that, while the timeline to construct DHS’ St. Elizabeths campus will ultimately be extended due to recent budget cuts, the project will get done. To date GSA has invested $1 billion to develop the site, plus an additional $500 million for construction of the new Coast Guard headquarters. She is concerned that the resulting funding pullback will result in inefficient development with buildings going up one by one as funding is metered out over time, even though the infrastructure for the entire site is in place.
Bob Peck, Commissioner of GSA’s Public Buildings Service confirmed that downsizing is the government’s long term goal, but its cost is something that most agencies cannot afford at this time. He noted that there are 375 MSF of GSA leases or owned properties nationwide consisting of 1.1 – 1.3 million employees, or 275 SF per person. On any given day, only 35% of seats are being occupied but agencies may find themselves stuck keeping space they do not need because its more expensive – in the short term – to reconfigure. GSA may consider requesting landlords help foot the bill for reconfiguration and amortize the costs over the lease term.
Mr. Peck also said that one of GSA’s top priorities is avoiding holdovers (coincidentally, we touched on this issue in a blog article earlier today). Unfortunately, just as GSA has taken control of this problem Congress continues to delay approval of prospectuses.
Mitchell Schear, President of Vornado’s Washington, DC operations, noted that this politicizing of the leasing process is causing agencies to go into holdover. Putting leases in limbo is unfair to landlords and it makes refinancing quite difficult. This is turn has a very negative effect on the already unstable capital markets. He also predicted that the current budget environment and related uncertainty will increase the number of short term extensions requested by GSA.