Most Federal Workers Coming Back To Their Desks This Month, A Turning Point For RTO Movement
The long-awaited return of federal government employees to their offices is now underway, a rollout that is expected to have major implications for Washington, D.C.’s economy, boosting downtown businesses and potentially spurring more private sector office use along with it.
After President Joe Biden said during his March 1 State of the Union address that the “vast majority” of federal workers would be returning to offices “soon,” the government is now giving more clarity on just how soon that will occur. In fact, the vast majority of federal workers are expected to return to their offices at least part time by the end of this month, a spokesperson for the Office of Management and Budget told Bisnow.
The administration has tasked agencies with implementing their own return-to-work timelines, and many of their plans have begun to come to light. According to various media reports compiled by JLL, 15 federal agencies have released return-to-office plans with return dates ranging from Feb. 28 to June.
These federal agencies bringing their workers back to offices will lead more private sector companies to do the same, office experts say, and the cumulative return of office workers should bring sorely needed customers and businesses back to D.C.’s downtown business districts, where JLL reports foot traffic is running at half of what it was pre-pandemic.
"The federal government, as they return back to work, will really have a trickle-down effect on other sectors that support the government indirectly,” JLL Senior Research Director Michael Hartnett said. “I do think in general it will accelerate return to work."
The federal government manages 181M SF across the country through thousands of leases, including some totaling more than 400K SF in cities like D.C., Atlanta and Chicago. Bringing workers back is expected to be a massive undertaking, but one that is likely to bring a shift in working habits not just in D.C. but throughout the country.
Of those returning agencies, the Internal Revenue Service has announced plans to bring back employees to its more than 600 facilities nationwide starting in May, the Drug Enforcement Agency has reportedly begun requiring workers to return to offices at least three days a week, and the Departments of Commerce and Housing and Urban Development are planning to bring back tens of thousands of their own workers starting April 25.
The Downtown D.C. office market has been struggling since the pandemic sent many workers deemed nonessential home. The city as a whole reached its highest ever vacancy rate at the end of last quarter, 17.3%, according to data from Colliers.
Within that, the Central Business District’s vacancy rate was 17.5%, the East End’s vacancy rate was 19.5% and Capitol Hill’s vacancy rate was 19.8% in the first quarter of the year. Meanwhile, rents in D.C. reached their lowest point since Q3 2019, per Colliers.
The daily occupancy of office buildings has fluctuated with the surges of the pandemic. Data from office security firm Kastle Systems shows D.C. office occupancy has been climbing since the dead of winter but was still below 40% as of last week. That is below the national average and a far cry from the number D.C. Deputy Mayor of Planning and Economic Development John Falcicchio is targeting as the city’s breakeven occupancy: 75%.
Speaking at Bisnow’s Downtown D.C. event on Thursday, Falcicchio said he personally visited the White House to urge the Biden administration to call federal workers back to the office, a move he said would boost retail, signal to other office tenants that it is safe to return and increase Metro ridership.
“We've got to really change the framework of what we think success is,” Falcicchio said. “Getting people to come back 100% of the time, that probably isn't going to happen.”
The federal government is widely considered a bellwether industry for D.C., employing nearly a quarter of the 800,000 workers that worked in the city pre-pandemic, according to Falcicchio.
Errol Williams, WeWork’s Atlantic territory vice president, said his 14 office locations in and around D.C. stand to benefit from federal workers’ return-to-office, especially since WeWork is one of five flex office providers that is eligible to lease space to the General Services Administration.
Williams said the shift toward in-person work is particularly important for large corporations that need to make top-down decisions, as opposed to the smaller firms that are able to discuss plans in a more collaborative and informal process.
“In the D.C. market that has been one of the things that I’ve been most keen to see, is when the federal government would officially return to the office, return to work, return to the buildings,” Williams told Bisnow. “I think a lot of companies of various sizes, honestly, see that return to office as a big indicator and a big reason for them to be back in the city and back in the office in a bigger way.”
WeWork has benefited from the gradual return of office workers that has occurred so far. The flex office provider has seen daily bookings for space through its All Access and On Demand programs increase by an average of 25% and 57%, respectively, over the first three months of the year, according to data provided to Bisnow.
Williams said downtown locations, which previously were performing worse than suburban locations, have improved in recent months, a trend he attributes to the desire of smaller firms working with the government to lease space near their clients.
“There’s definitely that focus and intent coming back to the office,” Williams said.
Those workers in turn have brought cash to the restaurants and other services that rely on downtown office workers and stitch together the fabric of the urban environment.
Retail vacancy has soared in their absence. The Central Business District’s rate was at 21.1% in late March, according to data from Dochter & Alexander. In August 2019, Dochter & Alexander reported that the CBD’s vacancy rate was 5.4%.
There are some early signs that life is returning to downtown markets, said Elsa Wilson, a research analyst at JLL. Wilson said within the East End, JLL was tracking 20 retailers that are currently under construction to open, plus an additional six slated to be constructed.
“The East End, for example, is finally starting to see some life return to it, both in office occupancy and retail,” Wilson said. “We’re seeing the retail market turn the corner.”
Darian LeBlanc, an executive vice chairman handling GSA leases at Cushman & Wakefield, cautions that the hybrid work schedules many federal agencies have implemented aren’t final — rather, they’re a test to find out whether employees can remain productive under a hybrid system.
The outcomes of this trial period could have ripple effects within the broader office market. Before the pandemic, the GSA was in consolidation mode, looking to bring workers in a particular federal agency under one roof, like with the planned Department of Homeland Security headquarters in St. Elizabeths East. LeBlanc said indicators point to the federal government further reducing its footprint for some agencies.
For those landlords left holding cheap, large blocks of office space, the window may have shut on attracting a GSA lease that could bring workers back into their building.
“For some owners that have the runway and the bandwidth to wait, maybe some will, but those that have alternatives today within reach, I think the smart move is to pursue those alternatives," LeBlanc said.
With the government still in the early stages of understanding its new hybrid reality, the Downtown D.C. office market is preparing to enter a new era.
“It’s a brave new world,” LeBlanc said, “But for the first time in many, many months, I think we’re feeling better about the market in general [and] we’re feeling better about the timeline in which GSA is going to engage.”