Pandemic-related occupancy concerns continue to rattle some federal-leased property owners. These jitters have been exacerbated in recent months as reports confirm that the size of GSA’s leased space inventory has declined sharply, accelerating the previous rate of reduction. The April 2021 GSA lease inventory now stands at 182.5 MSF, which is a 5 MSF reduction since the agency’s lease inventory reduction began to intensify in the fall of 2020. While GSA’s leased footprint may not continue shrinking at quite this pace, lease procurements in progress indicate that it is clearly vectoring downward.
For those of you tempted to relate the recent troubling slide to some contemporaneous event, don’t bother. The lag times between decisions and results in federal leasing are remarkable for both length and inconsistency. For the most part, the recent rapid inventory downturn can be traced to decisions made years ago, sometimes many years ago. For example, more than 1 MSF of the recent leased space reduction was due to a warehouse lease that the Federal Acquisition Service vacated six years ago but could only clear from its books upon lease expiration in January, 2021. Other recent leased space reductions occurred as federal agencies relocated or consolidated into newly constructed or renovated facilities. In one instance GSA purchased a building it had been leasing for 30 years. In another, an agency began leasing space directly, using its statutory authority, removing that block from GSA’s inventory.
Also, the timing and slope of the recent decline were obscured by a burst of short-term U.S. Census Bureau leases. More than two hundred leases, to help manage the decennial census, began to expire earlier this year, contributing to the sharp space reduction. Since these leases commenced at the end of the last decade, they help explain the “leveling off” of GSA’s leased inventory reduction at that time. For that matter, another countervailing factor is that many agencies that had previously leased space using delegated or statutory authority are ceding that responsibility to GSA. One notable example is the new 622,000 RSF Transportation Security Administration (TSA) lease in Springfield, Virginia, which entered GSA’s inventory in December. TSA previously leased space under statutory authority so the Springfield lease registers as a net increase in GSA’s leased inventory, Despite such examples, the overall GSA inventory has declined sharply.
There is no “one” reason that leased space has been plummeting recently, but the root causes can be traced to OMB mandates initiated in 2012 to reduce the government’s real estate footprint, or even further back to 2011 when newly-arrived House fiscal conservatives began asserting tighter oversight of prospectus approvals. The fact is that for the past decade federal agencies have been under pressure to reduce costs by shedding space. Another notable observation is that the space reductions recorded thus far cannot be attributed to the COVID-19 pandemic. There has certainly been much chatter indicating that the federal workforce may further embrace telework, which could enable greater space reductions, yet the net effects are still uncertain. Some agencies have already declared that they will relinquish space while others anticipate that Biden-era spending increases and mission expansion could create new space needs. With so much in flux, and with the federal government still largely in full-time telework status, the GSA has become concerned that cautious agencies will commit to a surge of short-term extensions that raise costs for taxpayers and overwhelm GSA lease administrators. In May, GSA released a Leasing Alert to give agencies additional guidance on when to consider long-term leases, and when to favor shorter terms of 4–6 years.
The only certainty is that it will take time for longer-term decisions to manifest themselves in the leased inventory (and President Biden’s infrastructure ambitions will play a role too). In the near term, indications are that we will see more downsizing simply based upon the procurements underway.