52% Of Federal Office Leases Can Be Terminated By End Of Trump's Term

If President-elect Donald Trump wants to accelerate the government's downsizing of its office footprint to cut costs, he'll have plenty of opportunities. 

Roughly 52% of the federal government's leased office portfolio either has lease expirations or termination options between now and the end of 2028, according to an analysis of General Services Administration data from S&P Global Ratings. 

The majority of that space is from expiring leases, totaling about 59.2M SF, while another 18.5M SF has termination options.

"The GSA is going to be very busy from now through the end of 2028, not just in the national capital region but on a national basis, because the sheer number of leases expiring is massive," Cushman & Wakefield Executive Vice Chairman Darian LeBlanc, a top government office leasing broker, told Bisnow.

The GSA, which manages the real estate portfolio of the federal government, leased 149.4M SF of privately owned office space on behalf of federal agencies as of October, according to S&P. That number has come down from 167.4M SF in 2015, as recent presidents from both parties have sought to shrink the federal government's leased office footprint. 

These cuts have been especially impactful for the D.C.-area. The GSA's leased footprint in Virginia has fallen from 22.2M SF in 2015 to 18.5M SF this year, S&P found, while its D.C. footprint is down from 22.2M SF to 16.5M SF. 

One of the largest cuts came in Alexandria, Virginia, where the Patent and Trademark Office renewed its lease in 2022 but handed back two of the five buildings it leased from LCOR, cutting its footprint from 2.4M SF to 1.6M SF. 

The overall leased footprint was at 161.7M SF in 2020, meaning it has been reduced more during the Biden administration than during Trump's first term. The pandemic accelerated that push by increasing the level of remote work for federal employees, and the GSA has pursued a strategy of consolidating offices from leased properties into federally owned buildings to save money. 

The Trump administration is likely to continue that trend of cutting office space, especially given his calls to dramatically reduce federal spending through the creation of the Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy.

But he has also called for ending remote work for federal employees, potentially leading to a greater demand for offices. 

"They're going to need to set their agenda in terms of exactly what it is they're going to do as it relates to these leases," LeBlanc said. "If there's going to be continued consolidation and continued downsizing, then it's going to have to be spurred by some sort of embrace of remote work practices. So right now, what we're waiting to see is what is the Trump administration's program as it relates to return-to-office."

The Biden administration has pushed to bring employees back to offices, but its efforts have been largely stymied by unions that represent the federal workforce and the preference of employees to work remotely.

One of those unions last week reached an agreement with the Social Security Administration, which maintains its existing telework policies for 42,000 workers until 2029. 

"I do expect the Trump administration will be far more aggressive in terms of operating where it can legally in terms of drawing these employees back into the office on a more intense basis than what we saw under the Biden administration," LeBlanc said. 

The Trump administration's handling of its expiring office leases will have major implications for the owners of commercial properties it occupies, as well as their investors and lenders. The S&P report also analyzed CMBS exposure to federal office leases, and it found 169 loans with federal agencies as a top-five tenant in the collateral properties. 

It identified several properties in Northern Virginia, New York City, Southern California and elsewhere that have large government leases and serve as collateral to CMBS loans. 

"With many office markets grappling with higher vacancies, we believe this corner of the market is worth keeping an eye on, as potential spending cuts on leases could work to reduce demand and increase availability, exacerbating the challenges already facing the sector," S&P analysts wrote in the report.