During the first half of this year, Congress has hosted a number of hearings, both on Capitol Hill and in various cities across the United States, that provide a clear view of its objectives regarding federal real estate. All of these hearings have one goal in common: reduce costs.
This goal is not new, of course, but faced with the prospect of ever-increasing federal debt, leaders in both parties have begun to press the issue harder. When you listen to the hearings, it is often difficult to distinguish the Republicans from the Democrats. Committee members from both parties recognize that there is room to reduce real estate costs, making the issue one of rare bipartisan agreement and improving the likelihood that progress will be made.
The means by which Congress expects this cost reduction to occur can be grouped generally into three initiatives: First, dispose of vacant and underutilized properties; second, reduce reliance on “costly leased space;” and third, find ways to lower the cost of the space that the government continues to lease.
In all cases, bipartisan efforts to reduce federal real estate costs are likely to intensify. Already this effort has resulted in declining demand for leased space. I expect that trend to continue, especially as it is politically expedient.
Congress also is working to accelerate the most obvious form of cost reduction — removing legislative hurdles to allow for the federal government to rid itself of vacant and underutilized properties. Private-sector property owners would welcome that because federal property dispositions will help agencies achieve their footprint reduction goals before having to reduce leased inventory.
Further, the government will seek to improve its investment in its remaining assets, though budget constraints and GSA’s limited capacity to plan and execute consolidations will slow the transition away from leased space.
Therefore, one of GSA’s best opportunities for near-term cost reduction is in the leased inventory. But as long as GSA aspires to consolidate its leased space, long firm-term leases will be difficult to achieve. Most tenant agencies don’t seem to have the confidence — whether due to budgetary concerns or mission-planning uncertainty — to enter into long-term agreements without generous termination rights.
In the meantime, there still exists a pretty wide gap between the government’s goals and the reality of what GSA has been able to achieve. Yet, the rhetoric issued from congressional and executive leadership indicates which way the political wind blows and where the market is headed.
Kurt Stout is the national leader of Colliers International’s Government Solutions practice group, which provides government real estate services to private investors and federal agencies. He also writes about federal real estate on his Capitol Markets team blog. You can contact Kurt by email or on Twitter.